Deunionization and pay inequality in OECD Countries: A panel Granger causality approach

The impact of unionization on wage inequality has been examined by a vast literature. Focusing mostly on the US and the UK in time series analyses or on OECD countries in panel data analyses, a bulk of these studies have found a negative impact of deunionization (i.e. decline in the union density rate) on distribution of wages. By utilizing two inequality data sets both provided by the University of Texas Inequality Project and the union density data set provided by OECD this paper contributes to the literature, analyzing the causality relationship between deunionization and pay inequality for 24 OECD countries for the 1963–2000 period within a panel Granger structure. Our findings show not only that there is causality from union density to income inequality but also, perhaps more importantly, point out that there is causality running from income inequality to union density for various set of countries and time periods.     

Does income inequality increase marginal propensity to consume?

This article empirically investigates the effects of income inequality on the marginal propensity to consume (MPC), using panel data of 22 OECD countries over the period 1994–2015. We find that MPC increases dramatically as income inequality increases. In subsample analyses, the MPC of a high inequality group is more than twice that of a low inequality group.     

Four Levers of Redistribution: The Impact of Tax and Transfer Systems on Inequality Reduction

We use harmonized survey data from the Luxembourg Income Study to assess the redistributive impact of taxes and transfers across 22 OECD countries over the 1999–2016 period. After imputing missing tax data (employer social-security contributions), we measure the reduction in income inequality from four key levers of tax and transfer systems: the average tax rate, tax progressivity, the average transfer rate, and transfer targeting. Our methodological improvements produce the following results. First, tax redistribution dominates transfer redistribution (excluding pensions) in most countries. Second, targeting explains very little of the cross-country variation in inequality reduction. In contrast, both tax progressivity and the average tax rate have large impacts on redistribution. Last, there seem to be political tradeoffs: high average tax rates are not found together with highly progressive tax systems.     

Income Inequality and Workers’ Powerlessness in Selected OECD Countries

Our goal is to show the effects of “elitization” on income inequality in affluent countries over the last two decades. By applying a robust regression model on a sample of twenty-one OECD countries, we observe that a high concentration of wealth by the richest “1%” of the population results in reducing the impact of trade unions on income redistribution through political institutions. Insufficient redistribution can be interpreted not only as the elites’ control over the resources that influence public policy and opinion, but also as affecting the evolutionary path of the economy. Moreover, this influence emphasizes the importance of traditional institutions and serves as an inspiration to reconsider the established social consensus regarding the welfare state.     

The Effect of EMU on Tourism*

This paper estimates the effect of the euro on intra‐EMU tourist flows by using a panel dataset of 20 OECD countries over the period 1995–2002. The results reveal that the euro has increased tourism, with an effect of around 6.5%. This is a noticeable impact given the early stage of the EMU analyzed. The robustness checks show that the evidence of a positive impact is quite widespread across EMU destination countries.     

The generosity of the welfare state towards the elderly

This paper distinguishes among three types of generosity of social security systems: average generosity, generosity towards early retirement and generosity towards the poor. On the basis of theoretical predictions, it examines the statistical correlations among those types of generosity for 14 OECD countries over the period 1985–2000. It also shows how they have evolved over time and tries to relate this evolution to the process of economic integration. There are three main findings, the first one being a positive relation between average social security spending and poverty alleviation. There is the negative relation between average spending and inequality reduction. Finally, over the period 1985–1995 one sees that poverty alleviation increases on average, but to a degree that decreases with economic openness.     

The impact of redistributive policies on inequality in OECD countries

Due to behavioural effects triggered by redistributional interventions, it is still an open question whether government policies are able to effectively reduce income inequality. We contribute to this research question by using different country-level data sources to study inequality trends in OECD countries since 1980. We first investigate the development of inequality over time before analysing the question of whether governments can effectively reduce inequality. Different identification strategies, using fixed effects and instrumental variables models, provide some evidence that governments are capable of reducing income inequality despite countervailing behavioural responses. The effect is stronger for social expenditure policies than for progressive taxation.     

Wage Determination Regimes and Pay Inequality: A comparative study of Latin American countries

The relationship between the degree of centralization of wage setting and labour market outcomes, generally discussed with reference to advanced OECD countries, is explored in this paper through the comparative analysis of eight Latin American countries, focusing on the effects of centralization on wage inequality. It is argued that the greater the decentralization of wage setting, the larger will be wage dispersion. The article starts with the presentation of the analytical model, and continues with the empirical study. This is divided into two parts. In the first, a number of institutional factors that contribute to define 'wage determination regimes' (collective bargaining structures; state intervention in wage setting; and union rights that determine union strength) are discussed, stressing the specific traits of centralization within Latin America, and the selected countries are scored in terms of those factors. In the second, the magnitude of wage dispersion across manufacturing industries is examined, and the resulting ranking of countries is contrasted with their ranking in terms of the institutional factors. It is concluded that, with some caveats, the degrees of centralization of bargaining structures and of wage inequality appear to be inversely associated, reproducing in the Latin American region the pattern found in OECD countries.     

The relationship between income inequality and aggregate saving: an empirical analysis using cross-country panel data

If the rich save more than the poor, an increase in income inequality raises aggregate saving. We investigate whether income inequality is positively related to aggregate saving ratio by estimating a fixed-effect model based on a panel data of 48 countries for the period 1991–2010. We find evidence that aggregate saving ratio increases with income inequality using various inequality measures. In particular, the effect of income distribution on saving is greater and statistically more significant with in financially developed, rich and OECD countries. It suggests that the rich save much more than the poor under advanced financial system and in a rich country. We also find that the relationship between income inequality and saving ratio is closer in the 2000s than the 1990s. This finding may result from financial development and the high income level in the 2000s.     

The composition effects of tax-based consolidation on income inequality

Many advanced economies have recently embarked on fiscal austerity. As this has come at a time of high and rising income disparities, policy-makers have fretted about the inequality effects of fiscal consolidations. We shed new light on this issue by empirically investigating the (composition) effects of tax-based consolidations on income inequality, output and labour market conditions for a sample of 16 OECD countries over the period 1978–2012. We find that tax-based consolidations reduce income inequality, but at the cost of weaker economic activity. However, tax composition does matter. Indirect taxes reduce income inequality by more than direct taxes, possibly due to the operation of a positive labour supply channel. Higher indirect taxes increase the price of the consumption basket and create incentives for agents to increase their labour supply. We find this effect to be stronger for middle-aged women. Looking at specific instruments, general consumption taxes and personal taxes are the most suited to reduce inequality while at the same time minimizing the equity-efficiency trade-off.     

The impact of the informal economy on R&D,wage inequality and economic growth

We extend the existing research and development (R&D) growth literature by focusing on the short–medium–long run effects of the informal sector on R&D intensity, wage inequality and economic growth, and by considering 18 OECD countries between 1990 and 2008. We show that: the steady state is unique and stable; the share of informal economy (IE) in production affects negatively R&D intensity and wage equality; Nordic countries have the lowest share of IE in production, while Mediterranean countries have the highest share of IE, wage inequality and R&D intensity but R&D spillovers are lower.     

What drives investment in the telecommunications sector? Some lessons from the OECD countries

Regulation of telecommunications sector plays a crucial role in the political and economic agenda for both industrial and developing countries. The regulatory efforts of more developing countries in order to attract investments and enhance the level of effective competition in the industry are hindered by the absence of a sound legal framework, the weak level of regulation and the extended state interventionism. The main aim of this study is to examine the regulatory process in the telecommunications industry within the OECD countries and determine the extent to which it has affected the level of investment and economic growth. For this purpose, we use an updated data set for thirty OECD countries covering the period 1988–2010 and panel data econometric techniques. Our analysis reveals that there is a strong and positive relationship between effective regulation and investment.     

Institutional determinants of the unemployment-earnings inequality trade-off

Most of the research efforts in recent years to explain international differences in unemployment and earnings inequality have placed the emphasis on the institutional components of the labour markets. The purpose of this paper is to evaluate which are the real effects of these characteristics on both phenomena using an ample set of data for different OECD countries. A Cluster analysis permits consideration about relatively heterogeneous models. The results of the econometric exercise show also that institutional factors have a greater impact on earnings inequality than on unemployment.     

RIGHT ON TARGET: EXPLORING THE FACTORS LEADING TO INFLATION TARGETING ADOPTION

This paper examines which economic, fiscal, external, financial, and institutional characteristics of countries affect the likelihood that they adopt inflation targeting (IT) as their monetary policy strategy. We estimate a panel binary response model for 60 countries and two subsamples consisting of Organization for Economic Cooperation and Development (OECD) and non‐OECD countries over the period 1985–2008. The findings suggest that past macroeconomic performance of a country, its fiscal discipline, exchange rate arrangements, as well as the structure and development of its financial system have a significant impact on the likelihood to adopt IT. However, the factors leading to IT adoption differ significantly between OECD and non‐OECD countries. (JEL E42, E52)     

Income Inequality in OECD Countries: Data and Explanations

There is much disagreement about both the facts and the explanationsof income inequality. Even if we confine attention to OECD countries,we find people arguing that there has been a great U-turn, withinequality rising sharply after its post war fall, and otherswho believe that the speed of change is glacial. In order toevaluate the historical record, we need data for a long runof years. The present paper reviews evidence about coveringthe period 1945–2001 for nine OECD countries. It is widelybelieved that rising inequality is attributable to technologicalchange and to globalisation. The second part of the paper arguesthat these are only part of a complex story. Household incomesdepend on public policy and on sources of income apart fromwork. What is happening at the top of the distribution may needto be explained quite differently. (JEL H0, E6)     

The household demand for energy and fuels in OECD countries

This paper estimates the household demand for energy and fuels. The linear expenditure model is estimated using data from eight OECD countries over a period of sixteen years. The basic similarities in household demand for fuels and the differences among OECD countries are discussed. The results indicate that household demand for energy is highly income dependent. With regard to four basic fuels, the income and price elasticities for gasoline and gas are higher than for either coal or oil. The demand patterns are shown to differ significantly among groups of OECD countries. Coal has been gradually replaced by oil as the major household fuel in OECD countries, whereas the demand pattern for gas has changed only a little during the fifties and sixties.     

The Meritocratic Elite vs. the Common Man: Income Inequality in the Affluent OECD Countries

Our goal is to highlight the relationship between vested interests of the meritocratic elite and the deteriorating situation of the common man. We provide an example of rising income inequality in selected OECD countries over the past thirty years. Income inequality is growing, despite the increase in labor productivity based on technological progress, which we prove by using robust panel regression models. Our findings could be explained by the effect of “extreme meritocracy” that describes a situation in which wages for “the working rich” are growing faster than their productivity, and creating wage stagnation for the middle-class workers.     

The changing international transmission of U.S. monetary policy shocks: Is there evidence of contagion effect on OECD countries

We study the changing international transmission of U.S. monetary policy shocks to 14 OECD countries over the period 1981Q1–2010Q4. The U.S. monetary policy shock is defined as unexpected change in Effective Federal Funds Rate (FFR). We use a time varying parameter factor augmented VAR approach (TVP-FAVAR) to study the EFFR shocks together with a large data set of 265, major financial, macroeconomic and trade variables for U.S., Canada, France, Germany, Italy, UK, Japan, Australia, Spain, Norway, Sweden, Switzerland, Finland and New Zealand. Our main findings are as follows. First, negative U.S. monetary policy shocks have considerable negative impact on GDP growth in the U.S., Canada, Japan and Sweden while most of the other member countries benefits. Second, the transmission to GDP growth has increased in OECD countries since the early 1980s. We also detect a more depressed GDP over medium term in the U.S., Canada, Japan, Australia, Norway and Sweden over the recent global financial crisis. Third, the size of U.S. monetary policy shocks during financial turmoil periods were unusual than normal periods and varies overtime. The financial crisis (2008–2009) is evidenced by decline in residential investment in the U.S. and propagation of this shock to Canada, Germany, Japan, Switzerland and New Zealand over the recent period. U.S. monetary policy shocks reduce share prices in most of the OECD countries; this impact is more pronounced over the turmoil period. Asset prices, interest rates and trade channel seem to play major role in propagation of monetary policy shocks.     

The Globalization–Welfare State Nexus Reconsidered

Two hypotheses relate to the globalization–welfare state nexus: the efficiency hypothesis predicts that globalization reduces government sector size and governments' capacity to finance the welfare state. The compensation hypothesis, in contrast, predicts that globalization induces a higher demand for social insurance which results in an extended welfare state. Empirical evidence on the globalization–welfare state nexus is mixed. The evidence is re‐examined by investigating a yearly panel dataset of 186 countries for the 1970–2004 period. This paper uses data compiled by the Penn World Tables on government sector size and employs the Konjunkturforschungsstelle (KOF—Swiss Economic Institute) index of globalization. The results show that globalization increased government sectors around the world. Social globalization especially had a positive influence. Globalization‐induced effects were stronger in Organisation for Economic Co‐operation and Development (OECD) countries. Overall globalization and economic globalization reduced the relative price of government expenditures. These findings suggest that globalization does not jeopardize the welfare state at all.     

Determinants of the sacrifice ratio: Evidence from OECD and non-OECD countries

This paper measures sacrifice ratios for all countries in the world over an approximately forty year time period, in addition to exploring the determinants of worldwide sacrifice ratios. We test the most commonly-cited determinants: the speed of disinflation, openness, inflation targeting, central bank independence, and political factors for both OECD and non-OECD countries. We find that the speed of disinflation is the most important determinant of OECD sacrifice ratios, but puzzlingly has no effect on non-OECD nations' disinflation costs. Instead we find evidence that greater central bank independence and more openness are associated with lower non-OECD sacrifice ratios. We also find that the ratio of government debt to GDP – a variable that is not important when it comes to OECD countries – is highly significant for non-OECD economies. Specifically, we find that higher indebtedness is associated with lower sacrifice ratios in non-OECD nations, suggesting that greater levels of debt do not lead to higher expectations of inflation. Furthermore we find evidence that the negative impact of debt on non-OECD sacrifice ratios is being driven by middle income economies.