Labour Market Institutions and the Personal Distribution of Income in the OECD

negative impact can also be found for union density, although this may capture some cyclical component
as the effect disappear once year fixed effects are included. The time trend exhibits a positive and
significant coefficient, capturing the upwards trend in earnings inequality, potentially associated to skill-
biased technical change.

Table 3 — Determinants of p90∕p10 decile ratio — OLS regressions

robust standard errors - t-statistics in parentheses - * significant at 10%; ** significant at 5%; ***
significant at 1%

Koeninger et alt. (2005) study wage inequality in a framework similar to ours, estimating the
determinants of the p90/p10 ratio for 11 countries over a similar time interval. Our results are consistent
with their analysis, since both papers find that stronger labour market institutions compress wage
differentials.¹⁴ In contrast to us, Koeninger at al. (2005) include as regressors import penetration and
R&D intensity to account for skill-biased technological change without finding robust effects.¹⁵ We limit
ourselves to a linear time trend, which is identical across countries and bears a positive coefficient.

Lastly, table 4 replicates well-known results on the institutional determinants of unemployment,
which is positively correlated with union density and the minimum wage. Unemployment declines with
capital accumulation, as it increases workers’ productivity and hence expands labour demand. Contrary to
our theoretical expectation, the coefficient on the unemployment benefit is not significant in this equation,

¹⁴ This is also consistent with micro-data analysis; see DiNardo et al. (1996) and more recently Card et al. (2003).

¹⁵ A further difference with their analysis is that they consider employment protection. While in their theoretical
model they assume that skilled and unskilled workers should face different firing cost, due to the lack of data in the
empirical analysis they resort to the unique series available, produced by OECD. However this series exhibit little
variation across years, as witnessed by its statistical insignificance when first differences are considered. For this
reason we have decided not to include EPL into our regressions.

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