Comparable Indicators of Inequality Across Countries
5. Wage Inequality
We now turn to the measurement of inequality - or, more neutrally termed, dispersion - in earnings among
employees, which is both of major substantive interest in itself and a key element in overall income inequality.
Once again, as for income inequality, significant issues arise in this context in relation to the earnings concept
involved, the unit of analysis, the time period covered, and summary measures to be employed. We discuss these
in turn before dealing with sources of data.
Definition of Earnings
The underlying concept of employee earnings is less complex than total household income, but significant
measurement issues none the less arise. In principle, all reimbursement in cash or kind should be included in the
measure of earnings, and these should be related to the period during which the work being rewarded was done.
In practice, some types of reimbursement may not be covered - or may be covered in some sources of data but
not others - and some difficult issues can arise in aligning the timing of rewards and work done. Generally, (gross)
earnings will refer to those formally received by the employee and exclude contributions made by the employer on
top of that to, e.g., social security or retirement pension savings.
Particular problems arise with respect to the coverage and valuation of non-cash reimbursement in the form
of a company car, subsidized or rent-free accommodation, and other benefits such as health insurance. As already
noted, the EU-SILC framework for example has sought to expand the coverage of such types of reimbursement,
with the provision of information in relation to company cars now being mandatory for the national statistical of-
fices producing the data.
Even when reimbursement is in cash form, timing issues arise with respect to bonus payments or “13th.
month” payments, which are received in a particular pay period but may relate to a longer or different one. Over-
time payments should be less problematic, but some data sources may obtain information only on basic pay. Tips
or gratuities should clearly be included in earnings but may not always be, in principle or in practice. Some surveys
seek information on “usual” pay, in which case it is not always clear whether any overtime or bonus payments are
included. Accurate measurement of hours of paid work (rather than simply all hours worked) is also sometimes
problematic.
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