Abstract
While there is renewed interest in earnings differentials between social classes, the contribution of social class to overall earnings inequality across countries and net of compositional effects remains largely uncharted territory. This paper uses data from the European Union Statistics on Income and Living Conditions to assess earnings differentials between social classes (as measured by ESeC) and the role of between-class inequality in overall earnings inequality across 30 European countries. We find that there is substantial variation in earnings differences between social classes across countries. Countries with higher levels of between-class inequality tend to display higher levels of overall earnings inequality, but this relationship is far from perfect. Even with highly aggregated class measures, between-class inequality accounts for a non-negligible share of total earnings inequality (between 15 and 25% in most countries). Controlling for observed between-class differences in composition shows that these account for much of the observed between-class earnings inequality, while in most countries between-class differences in returns to observed compositional variables do not play a major role. In all these respects we find considerable variation across countries, implying that both the size of between-class differences in earnings and the primary mechanisms that produce these class differences vary substantially between European countries.
Highlights
Earnings inequality has risen across many rich countries over recent decades, and this has been a major contributory factor in increasing overall income inequality (e.g. Nolan & Valenzuela, 2019; OECD, 2011)
We first argued that while cross-national variations in earnings differentials between social classes have recently received attention in the sociological literature (e.g. Albertini et al, 2020; Le Grand & Tåhlin, 2013), important open questions remain about their extent and contribution to overall earnings inequality and how these vary across a wide range of country contexts, ‘gross’ and net of differences in class composition
We have investigated these questions across 30 European countries using micro-data from EU-SILC 2018 and employing decompositions of the mean log deviation measure for earnings inequality
Summary
Earnings inequality has risen across many rich countries over recent decades, and this has been a major contributory factor in increasing overall income inequality (e.g. Nolan & Valenzuela, 2019; OECD, 2011). (The term “returns” would usually be used in a human capital context to refer to the earnings reward for having additional education or experience, but here we employ it as a convenient umbrella term to denote the direction and strength of the conditional association between earnings and each of these variables) These sets of observable factors point to different institutional channels that affect the class-earnings relationship, while the cross-national variation in how they affect the counterfactual level of between-earnings inequality is helpful in understanding how the nature of observed between-class earnings inequalities varies across countries.
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