The decline of labour market institutions and the rise in wage inequality in Britain

Abstract

At the same time as the role of labour market institutions declined very dramatically in Britain there was a very sharp rise in wage inequality that, since 1980, has increased at a faster pace than in most advanced countries. Britain in the 1980s and early 1990s therefore provides a very good testing ground for evaluating the importance of labour market institutions in explaining the evolution of the wage structure. I look at this in terms of two institutions that have traditionally propped up wage levels at the bottom end of the wage distribution, unions and minimum wages. I find that their weakening has played an important part in the rise in wage inequality in Britain.