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

Table 5 — Determinants of personal income inequality — full sample — OLS and IV estimates
robust standard errors — t-statistics in parentheses - * significant at 10%; ** significant at 5%; ***
significant at 1%

Endogenous variables: labour share, unemployment rate, p90/p10.

Instruments: (log)capital×worker, tax wedge, years of education, minimum wage, bargaining coordination.

Our preferred specification, in terms of sign, significance and size of the effects, is the 5^th column
of table 5. Evaluated at sample means, the estimated elasticity of personal income inequality with respect
to the labour share is equal to —0.61, which implies that reducing the labour share by one standard
deviation would raise the Gini coefficient by 2.47 points. The estimated elasticity with respect to the wage
differential is greater, reaching the value 1.63: increasing the decile ratio by one standard deviation would
raise the Gini coefficient by 1.27 Gini points. The elasticities with respect to the unemployment benefit
and the unemployment rate are much lower, respectively 0.12 and 0.14.

The results are basically unchanged when we computed quinquennial averages of the data, when
we restrict the data to the subsample of countries for which we have longer time series, and when we use
the labour share measure adjusted for self-employment (details available from the authors). On the
contrary, when we use the alternative series for income inequality, the labour share is less significant, with
a coefficient that is half in size. The wage differential and the unemployment subsidy are still highly
significant, with coefficients of similar sizes, while the unemployment rate is totally insignificant.

Table 6. — Determinants of personal income inequality — 3SLS regressions

Absolute value of z statistics in brackets - * significant at 10%; ** significant at 5%; *** significant at 1%

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