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



dependent variable:

income
inequality
(Gmi)

labour share

p90/p10
decile
ratio

unemployment
rate

labour share at market price

-0.723

[4.25]***

p90/p10 decile ratio

7.389

[3.50]***

unemployment rate

0.294

[2.05]**

unemployment benefit

-5.593

7.864

-0.426

5.771

[1.35]

[2.20]**

[1.47]

[1.34]

union density rates

1.862

-2.005

23.406

[0.45]

[6.05]***

[4.59]***

ratio minimum/median wage

3.437

-3.505

41.527

[0.58]

[7.38]***

[6.50]***

log capital per worker

22.136

0.289

13.821

[5.71]***

[0.90]

[3.12]***

average years of education

-7.783

-0.104

[5.06]***

[0.83]

log oil price in national currency

-2.567

[2.88]***

tax wedge

-36.702

[5.94]***

time trend

0.136

0.058

-2.687

[0.10]

[0.53]

[1.67]*

Constant

yes

yes

yes

yes

Country fixed effects

yes

yes

yes

yes

Year fixed effects

yes

______yes______

yes

_______yes______

Observations

135

135

135

135

Root mean squared error

1.3

1.06

0.08

1.31

R2

0.96

0.94

0.99

0.81

Controls for changes in definition included.

We now consider the alternative strategy of estimating the simultaneous equation system defined
by equations (18), (19), (20) and (21) through three-stage least squares. The estimated coefficients are
reported in table 6.21 Previous results are confirmed: our three endogenous variables (the labour share,
wage differential and unemployment rate) are correlated with income inequality, whereas the
unemployment benefit exerts its impact only indirectly, through the labour share. The equation for the
determination of the labour share is consistent with what we have already found in least square estimation
(table 2), including country and year fixed effects. Similarly, for the wage differential the pressure for wage
compression deriving from union presence and/or from minimum wage legislation is consistent with the
OLS estimates reported in table 3, even if capital accumulation and unemployment benefit loose

21 Note that sample size declines from 210 to 135 observations, because we cannot use the extended series for the
wage differential.

21



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