After more than five decades of decline, income inequality began to increase in post-industrial economies in the mid-1980s. Most of these countries experienced an increase in inequality, variously measured, but the degree of increase varied greatly across countries. Moreover, the points in the income distributions where inequality increased varied across them. In his introductory essay, the editor of this ILO sponsored volume states that the “purpose of this volume is to address the question of income inequalities from its root causes, by highlighting that inequalities may be generated from different labour market and industrial relations systems …. This volume presents research to further explore the link between social dialogue indicators (collective bargaining coverage, trade union density, collective agreements, tripartite consultations and so on), social dialogue mechanisms (extension mechanisms, renewal of collective agreements and so on) and indicators of inequalities in the world of work.” (pp. 1-2). The volume contains twelve essays, eleven country studies (Belgium, France, Germany, Greece, Ireland, Italy, Netherlands, Slovenia, Spain, Sweden, and the United Kingdom) and a comparative study of the three Baltic States along with the introduction which summarizes some of the most important findings of the twelve essays. Most of the authors are senior labour market economists, but some are sociologists, statisticians, and political scientists.
As the title indicates, the essays are partly prescriptive; the authors were asked to identify what institutions and mechanisms served to limit the increase in inequality in their case studies and to speculate on the feasibility of transfer of these institutions and mechanisms elsewhere. The main focus of the chapters is pay inequality, but inequality in working time and among types of contracts are also explored. The broad strokes of the developments come across clear enough in the chapters, even if they will be not be very surprising for industrial relations scholars. De-unionization (itself partly a product of de-industrialization), bargaining decentralization, labor market deregulation (e.g. the Hartz IV laws in Germany), the increase in temporary work and non-standard contracts (e.g. the increase in zero hours contracts in the UK) and changes in welfare state redistribution have contributed to increasing inequality. Conversely, where these trends are more muted and/or where they have been counteracted by more consensual industrial relations, the trends toward greater inequality have also been more muted. Thus, in Belgium and Sweden, where union density has declined somewhat but is still much higher than the rest of the countries, inequality has not increased that much.
Unfortunately, the evidence presented in the chapters does not allow one to present a more parsimonious summary. Most chapters present a lot of data, both indicators of various dimensions of industrial relations systems and inequality measures, in most cases through time. (The exception is the chapter on Ireland which in sharp contrast to the other chapters does not have a single table in it). But the chapters do not present the same data and there is little attempt to harmonize the analysis across the chapters. In the case of inequality, especially with regard to household income, this is partly due to a dearth of comparable data. To fill this lacuna, my co-researchers, Evelyne Huber and Kaitlin Alper, and I have assembled a pooled time series data set, which combines the results of harmonized micro-data from the Luxembourg Income Study (LIS) and the Eurostat Statistics on Income and Living Standards (SILC) which are in turn harmonized to be comparable to the OECD data on inequality among working age households. This results in almost four hundred country-year observations, far greater than the 125-150 observations available from just LIS, SILC, or OECD. I present the data for market household income inequality (measured by the Gini), disposable household income inequality, and redistribution effected by taxes and transfers in Table 1 below, for the countries in the reviewed volume. Our data do not cover eastern Europe. Before commenting on the patterns that emerge from the table, it is useful to observe the biases in the sample of countries included in the ILO volume. It was intentionally limited to Europe, so it included only two Liberal Market Economies, the UK and Ireland. In terms of welfare state regimes, it included only one Nordic country, Sweden. This is unfortunate because one cannot make comparisons to similar cases within this welfare state regime which would have been very useful
Household income inequality and redistribution by welfare state regime and period
What one can do based on the chapters in the volume, with the help of Table 1, is to explore interesting pair comparisons. I cannot provide a comprehensive review of that here, given space constraints. I will limit myself to two interesting pairs, the UK and Ireland, and Germany and the Netherlands. The UK case study argues that there has been a long term decline in the strength of labor in UK wage bargaining institutions, most of it occurring under the Thatcher government, and that this has led to large increases in inequality and indeed inequality measured variously (Gini, top 1% share, etc.) has increased more in the UK than any other post industrial economy except the United States. By contrast, disposable household income distribution has been very stable in Ireland, despite the depth of the Great Recession/Eurocrisis in the country and the huge rise in market income inequality. Nolan, the author of the Ireland chapter, argued, that while both countries experienced large declines in union density, in Ireland, the social dialogue between unions, employers, and the government was sustained from 1987 to the economic crisis and that the stable income inequality figures are a product of the social dialogue.
In Germany, one observes large increases in income inequality, in both market income and disposable income. This increase is largely at the lower end of the income distribution, large increases in the percentage of wage earners in low paid (less than 2/3 of the median wage) jobs and large increases in the 50-10 wage ratio. By contrast, in the Netherlands, there is very little increase in inequality of market income or disposable income. On the surface of it, labor market institutions are very similar: both are Coordinated Market Economies with the sectoral level wage bargaining. In both countries, there is a significant fall in union density between 1990 and 2015, from 31% to 18% in Germany and from 25% to 17% in the Netherlands. The difference is change in contract coverage: a substantial decline from 85% to 57% in Germany compared to stability in the Netherlands (fall from 81% to 79%). Underlying this difference is an institutional difference in how contract coverage is extended. In Germany, historically, employers’ associations extended coverage to non-union members. Since 1995, they have failed to organize employers in private services and increasingly do not require their members to extend the terms of the negotiated contract. In the Netherlands, the Minister of Social Affairs and Employment has been legally empowered to extend contracts negotiated by employers and unions since 1937 and has continued to do so (pp. 372, 379).
While I have criticized some features of the volume, overall, I found it extremely valuable in my on-going research on the causes of the increase in inequality in post-industrial economies. I strongly recommend it to any scholar interested in this important topic.
