Wage Inequalities and Low Pay: The Role of Labour Market Institutions

Abstract

Abstract In recent decades a number of industrialized countries have experienced significant changes in the distribution of earnings. Various factors, economic and institutional, have contributed to reshaping the structure of wage differentials across different groups of workers. Major changes have also occurred in the distribution of employment and unemployment within the labour force, with declining employment rates and growing joblessness particularly in European countries. In this context, some have argued that there is a trade-off between the extent of joblessness and overall wage dispersion, advocating greater labour market flexibility, especially in wage setting, to reduce unemployment. However, in the face of the increase in earnings inequality, concern has emerged for those individuals located at the bottom end of the earnings distribution who have been most strongly affected, in terms of social exclusion and poverty, by the changing economic conditions. In particular, the low paid, the low skilled, and less protected groups generally, such as women, young workers, and older men, appear to have borne most of the burden, in terms both of lower earnings and of the higher incidence of unemployment (OECD 1996a).