Journal articles: 'Wage compression'

1

Zoega, Gylfi, and Thorlakur Karlsson. "Does wage compression explain rigid money wages?" Economics Letters 93, no. 1 (October 2006): 111–15. http://dx.doi.org/10.1016/j.econlet.2006.03.043.

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Hibbs, Douglas A., and Håkan Locking. "Wage compression, wage drift and wage inflation in Sweden." Labour Economics 3, no. 2 (September 1996): 109–41. http://dx.doi.org/10.1016/0927-5371(95)00017-8.

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3

Oude Nijhuis, Dennie. "Explaining postwar wage compression." Labor History 58, no. 5 (June 5, 2017): 587–610. http://dx.doi.org/10.1080/0023656x.2017.1332652.

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Benzidia, Majda, and Michel Lubrano. "A Bayesian look at American academic wages: From wage dispersion to wage compression." Journal of Economic Inequality 18, no. 2 (April 23, 2020): 213–38. http://dx.doi.org/10.1007/s10888-019-09431-9.

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&NA;, &NA;. "O.R. NURSES REPORT WAGE COMPRESSION." AJN, American Journal of Nursing 91, no. 5 (May 1991): 111. http://dx.doi.org/10.1097/00000446-199105000-00035.

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Watts, Martin J., and William Mitchell. "Wages and Wage Determination in 2007." Journal of Industrial Relations 50, no. 3 (June 2008): 399–416. http://dx.doi.org/10.1177/0022185608089996.

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In 2007 money wages rose marginally faster than in 2006 but there was no evidence of generalized wage pressures arising from skill shortages. The Reserve Bank raised interest rates twice during the year, further reducing housing affordability. The Fair Pay Commission decision in July temporarily restored the real wages of the lowest paid, but there was further compression of the lower deciles of the wage distribution. With petrol prices continuing to rise, household living standards are under threat, particularly those of workers reliant on the wage adjustment through the Commission whose next decision will not be operational until October 2008. The election of the Labor Government in November led to speculation as to extent to which the Work Choices legislation would be amended.

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7

Margo, Robert A. "Explaining Black-White Wage Convergence, 1940–1950." ILR Review 48, no. 3 (April 1995): 470–81. http://dx.doi.org/10.1177/001979399504800306.

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During the 1940s, racial differences in wages narrowed at an unusually rapid pace. Using a decomposition technique different from that of previous studies, the author shows that wage compression between and within groups—the so-called “Great Compression”—was a major factor behind racial wage convergence in the 1940s. In addition to wage compression, occupational shifts, internal migration, and diminishing racial differences in schooling helped to narrow the black-white wage gap between 1940 and 1950.

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Mallison, Mary B. "PRYING THE LID OFF WAGE COMPRESSION." AJN, American Journal of Nursing 89, no. 7 (July 1989): 909. http://dx.doi.org/10.1097/00000446-198907000-00001.

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9

Aksoy, Tolga. "UNION WAGE COMPRESSION AND SKILL ACQUISITION." Bulletin of Economic Research 71, no. 3 (December 2, 2018): 313–41. http://dx.doi.org/10.1111/boer.12176.

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10

Heyman, Fredrik. "How Wage Compression Affects Job Turnover." Journal of Labor Research 29, no. 1 (July 14, 2007): 11–26. http://dx.doi.org/10.1007/s12122-007-9030-1.

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11

Alexopoulos, Michelle, and Jon Cohen. "What's wrong with forced wage compression? The fair wage hypothesis redux." Economics Letters 83, no. 3 (June 2004): 391–98. http://dx.doi.org/10.1016/j.econlet.2003.12.017.

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Mallison, Mary B. "Editorial: Prying the Lid off Wage Compression." American Journal of Nursing 89, no. 7 (July 1989): 909. http://dx.doi.org/10.2307/3426361.

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13

Lindquist, Matthew J. "The welfare costs of union wage compression." European Economic Review 49, no. 3 (April 2005): 639–58. http://dx.doi.org/10.1016/s0014-2921(03)00074-6.

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ALMEIDA-SANTOS, FILIPE, and KAREN MUMFORD. "EMPLOYEE TRAINING AND WAGE COMPRESSION IN BRITAIN*." Manchester School 73, no. 3 (June 2005): 321–42. http://dx.doi.org/10.1111/j.1467-9957.2005.00449.x.

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Knight, J. B., and R. H. Sabot. "Educational expansion, government policy and wage compression." Journal of Development Economics 26, no. 2 (August 1987): 201–21. http://dx.doi.org/10.1016/0304-3878(87)90026-5.

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Leonardi, Marco, Michele Pellizzari, and Domenico Tabasso. "Wage Compression within the Firm: Evidence from an Indexation Scheme." Economic Journal 129, no. 624 (May 29, 2019): 3256–91. http://dx.doi.org/10.1093/ej/uez022.

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Abstract We revisit the role of labour market institutions by showing how they affect the sharing of firm-specific rents between employers and employees. We look at an Italian wage indexation mechanism (‘Scala Mobile’) that compressed the distribution of wages, imposing real wage increases at the bottom of the distribution. After developing a simplified version of a search model with intra-firm bargaining and on-the-job search, we document that skilled workers received lower wage adjustments when employed at firms with many unskilled workers and they tended to move towards more skill-intensive firms. Moreover, the system drove the least skill-intensive firms out of the market.

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17

Maloney, Thomas N. "Wage Compression and Wage Inequality Between Black and White Males in the United States, 1940–1960." Journal of Economic History 54, no. 2 (June 1994): 358–81. http://dx.doi.org/10.1017/s0022050700014522.

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The gap between the mean wages of black men and white men in the United States narrowed substantially between 1940 and 1950. There was, however, almost no change in this wage gap between 1950 and 1960. Some of this discontinuity in the path of black progress can be explained by general changes in the wage structure—wage compression in the 1940s and slight expansion in the 1950s. However, most of the gains of the 1940s were driven by race-specific factors, including increasing relative wages controlling for worker characteristics. These race-specific gains ceased in the 1950s.

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18

Pfeifer, Christian. "Intra-firm Wage compression and Coverage of Training Costs." ILR Review 69, no. 2 (October 12, 2015): 435–54. http://dx.doi.org/10.1177/0019793915610307.

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19

Shin, Dongsoo. "Contracts under Wage Compression: A Case of Beneficial Collusion." Southern Economic Journal 74, no. 1 (July 2007): 143–57. http://dx.doi.org/10.1002/j.2325-8012.2007.tb00831.x.

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20

PONTUSSON, JONAS, DAVID RUEDA, and CHRISTOPHER R. WAY. "Comparative Political Economy of Wage Distribution: The Role of Partisanship and Labour Market Institutions." British Journal of Political Science 32, no. 2 (March 28, 2002): 281–308. http://dx.doi.org/10.1017/s000712340200011x.

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Through a pooled cross-section time-series analysis of the determinants of wage inequality in sixteen OECD countries from 1973 to 1995, we explore how political-institutional variables affect the upper and lower halves of the wage distribution. Our regression results indicate that unionization, centralization of wage bargaining and public-sector employment primarily affect the distribution of wages by boosting the relative position of unskilled workers, while the egalitarian effects of Left government operate at the upper end of the wage hierarchy, holding back the wage growth of well-paid workers. Further analysis shows that the differential effects of government partisanship are contingent on wage-bargaining centralization: in decentralized bargaining systems, Left government is associated with compression of both halves of the wage distribution.

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21

Barth, Erling, and Karl Ove Moene. "Employment as a Price or a Prize of Equality: A Descriptive Analysis." Nordic Journal of Working Life Studies 2, no. 2 (June 1, 2012): 5. http://dx.doi.org/10.19154/njwls.v2i2.2355.

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To put Scandinavian employment in perspective, we ask whether wage compression hampers employment rates, or not. We answer by reviewing the most important theoretical arguments and the most informative regularities across countries with different wage distributions. The pattern seems to be that countries with compressed wage distributions tend to have higher employment, and countries with higher wage inequality tend to have lower employment. This also holds when we consider the rate of labor force participation. In line with the theoretical arguments, coordination in wage bargaining seems to contribute to both employment expansion and wage compression. There is a clear positive correlation between coordination and employment even when we control for inequality, country, and year-specific effects.

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22

Canal Domínguez, Juan Francisco, and César Rodríguez Gutiérrez. "Does collective bargaining influence the way the size of the firm impacts wage dispersion? Spanish evidence." International Journal of Manpower 41, no. 4 (February 14, 2020): 357–74. http://dx.doi.org/10.1108/ijm-06-2018-0194.

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PurposeThis paper analyses the relationship between wage dispersion and firm size within a “two-tier” system of collective bargaining (firm bargaining and multi-employer bargaining levels). Collective bargaining has a decisive role in setting wages in Spain, and its regulation highly limits the possibility for smaller firms to negotiate their own collective agreement.Design/methodology/approachBased on the Spanish Structure of Earnings Survey 2006, 2010 and 2014, the authors use variance decomposition in order to deeply analyse the effect of bargaining level on wage dispersion and compare the value of each decile of the distribution of wages for the purposes of identifying the quantitative differences in wage compression.FindingsIn general, the outcomes positively linked firm size and firm bargaining to wage dispersion. However, if firm size is taken into account, the effect of firm bargaining is limited among small firm workers because this type of firm is not usually covered by firm bargaining. On the other hand, the time analysis allows observing a wage compression that follows different patterns depending on firm size, compressing the higher part of the distribution in case of small firms and the lower part in case of large firms. This should be explained by the fact that wage negotiation is dependent on firm size.Social implicationsFirm size has determined firm adjustment strategies to face the recent economic crisis and allows to evaluate the impact that changes in collective bargaining can have on wage distributionOriginality/valueThere is no research that has tried to analyse the relationship between wage dispersion and firm size in a context where collective bargaining is essential to understand the wage structure. Normally, firm size plays a decisive role in wage policy given that the capacity of a company to negotiate an agreement is closely linked to its size.

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Domínguez, Juan Francisco Canal, and César Rodríguez Gutiérrez. "Collective bargaining, wage dispersion and the economic cycle: Spanish evidence." Economic and Labour Relations Review 27, no. 4 (October 25, 2016): 471–89. http://dx.doi.org/10.1177/1035304616675782.

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This research analyses the effect of a ‘two-tier’ system of collective bargaining (firm bargaining and multi-employer bargaining levels) on wage dispersion in Spain. The effect of collective bargaining on the two main concepts that make up wages (the contractual or basic-bargained wage, and the wage cushion) are analysed during the last period of the upward cycle (2002–2006) and the beginning of the global financial crisis (2006–2010). The wage cushion is defined as the difference between the earned wage and the basic-bargained wage. The results show that workers covered by firm bargaining experienced greater wage dispersion than workers covered by multi-employer bargaining. On the other hand, wage dispersion for all workers decreased during the analysis period, mainly during the first stage of the current economic crisis, and particularly among workers covered by multi-employer bargaining. Both the decreasing relevance of the wage cushion in actual wage formation and its reduced dispersion make it possible to explain this wage compression.

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24

International Monetary Fund. "Wage Compression, Employment Restrictions and Unemployment: The Case of Mauritius." IMF Working Papers 04, no. 205 (2004): 1. http://dx.doi.org/10.5089/9781451874587.001.

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25

Verdugo, Gregory. "The great compression of the French wage structure, 1969–2008." Labour Economics 28 (June 2014): 131–44. http://dx.doi.org/10.1016/j.labeco.2014.04.009.

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26

Barth, Erling, and Karl Ove Moene. "THE EQUALITY MULTIPLIER: HOW WAGE COMPRESSION AND WELFARE EMPOWERMENT INTERACT." Journal of the European Economic Association 14, no. 5 (June 27, 2016): 1011–37. http://dx.doi.org/10.1111/jeea.12163.

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27

Freeman, R. "Skill compression, wage differentials, and employment: Germany vs the US." Oxford Economic Papers 53, no. 3 (July 1, 2001): 582–603. http://dx.doi.org/10.1093/oep/53.3.582.

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28

Gross, Till, Christopher Guo, and Gary Charness. "Merit pay and wage compression with productivity differences and uncertainty." Journal of Economic Behavior & Organization 117 (September 2015): 233–47. http://dx.doi.org/10.1016/j.jebo.2015.06.009.

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29

Arnold, Lutz G. "Does the Choice between Wage Inequality and Unemployment Affect Productivity Growth?" German Economic Review 7, no. 1 (February 1, 2006): 87–112. http://dx.doi.org/10.1111/j.1468-0475.2006.00148.x.

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Abstract We present a non-scale continuous-time overlapping-generations growth model that provides an explanation for why economies with relative wage rigidity feature higher unemployment, but not slower productivity growth, than economies with flexible wages. The compression of the wage distribution associated with relative wage rigidity slows down human capital accumulation and growth ceteris paribus. But unemployment among the low-skilled workers strengthens the incentives to invest in human capital and, hence, growth. The two effects are offsetting, and growth is independent of the prevailing degree of relative wage rigidity. This knife-edge result is robust with respect to some modifications of the model.

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30

Petreski, Marjan, Nikica Mojsoska-Blazevski, and Mariko Ouchi. "The minimum wage as a wage equality policy: Evidence from North Macedonia." Ekonomski anali 64, no. 223 (2019): 61–81. http://dx.doi.org/10.2298/eka1923061p.

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The paper aims to investigate if the minimum wage increase of September 2017 resulted in better wage equality in North Macedonia. The increase of 19% was sizable and included levelling up in the three sectors with a lower minimum wage: textiles, apparel, and leather. We extend the ?cell? approach of Card (1992a) and rely on data from the Labour Force Survey 2017 and 2018. The results suggest that the 2017 increase in the minimum wage had a positive, significant, and robust effect on wages. However, the wage increases were almost entirely positioned on the left side of the wage distribution and implied wage compression up to or around the minimum wage. The bunching around the new minimum wage level ?equalised? workers: those who previously earned the new minimum wage level equalised with the less productive workers who approximated their wage only by the power of the law. Hence, wage equality improved. The results confirm that the minimum wage can be an important wage equality policy, with considerably limited upward spillover effects in the current policy and institutional setup.

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31

Ericson, Thomas. "The effects of wage compression on general and firm-specific training." Applied Economics Letters 15, no. 3 (February 2008): 165–69. http://dx.doi.org/10.1080/13504850600722054.

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32

Booth, A. L. "Is wage compression a necessary condition for firm-financed general training?" Oxford Economic Papers 56, no. 1 (January 1, 2004): 88–97. http://dx.doi.org/10.1093/oep/56.1.88.

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33

ETHERIDGE, BRYANT. "Contesting the Great Compression: The National Labor Relations Board and Skilled Workers’ Struggle to Control Wage Differentials, 1935–1955." Journal of Policy History 32, no. 2 (March 5, 2020): 183–213. http://dx.doi.org/10.1017/s0898030620000032.

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Abstract:This article argues that federal labor policy was a factor in causing the Great Compression, the dramatic compression of skill-based wage differentials that occurred in the 1940s, and in bringing it to an end. By giving the National Labor Relations Board the power to determine the appropriate collective-bargaining unit, New Dealers gave industrial unions the means with which to build a more egalitarian wage structure. Unskilled and semiskilled workers seized the opportunity and voted themselves big pay raises. Skilled craftsmen responded by petitioning the NLRB for permission to form their own craft bargaining units, a process known as “craft severance.” As conservatives gained influence in Washington in the 1940s, the board adopted a bargaining-unit policy more favorable to craft unions. By the early 1950s, skilled craftsmen had regained control of their wage demands and thereby helped bring the Great Compression to a halt.

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34

Johnson, Mathew. "Implementing the living wage in UK local government." Employee Relations 39, no. 6 (October 2, 2017): 840–49. http://dx.doi.org/10.1108/er-02-2017-0039.

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Purpose The purpose of this paper is to understand the impact of living wages on organisational pay systems. Design/methodology/approach The research draws on 23 semi-structured interviews with HR managers, trade union representatives, and politicians at four UK local government case study sites. Findings The findings suggest that living wages can have a positive impact on directly employed workers in cleaning, catering and care services, but the research also finds that the localised adoption of living wages can lead to significant wage compression, resulting in a broad band of “low skill-low wage jobs”. Originality/value The theoretical contribution is twofold. In-line with earlier research the “first-order” effects of living wages are clear: hourly wages for a large number of women in part-time roles increased sharply. However, this is only part of the story as “second-order” effects such as ripples and spill-overs are less extensive than suggested by other studies. This is due to the limited scope for trade unions to restore wage differentials through collective bargaining, the slow progress in extending the living wage to contracted staff, and parallel processes of downsizing and outsourcing.

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35

Plowman, David. "Wage Differentials and Youth Unemployment." Economic and Labour Relations Review 5, no. 1 (June 1994): 21–29. http://dx.doi.org/10.1177/103530469400500103.

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There has been an increase in the rate of youth unemployment since the 1960s. Initially this increase was masked by the increased number staying on in the education system and the resultant drop in the participation rate for the under 20 age group. It is contended that the compression of youth/adult wage relativities since the 1970s has affected both the demand and supply for young workers. Demand has dropped since the experience premium attached to adult wages has been reduced. In the context of unemployed adult workers, the latter will be preferred to younger workers and new entrants to the labour market. On the supply side increased relative wages have induced more young workers into the labour force, increased the participation rate for this age group, and thus further increased the rate of unemployment. The persistence of this problem over time has given rise to relatively high levels of long-term youth unemployment Policy options to remedy this social and economic problem are necessarily constrained. On the industrial relations front a constraint is trade union antipathy to youth wage reduction policies which could give rise to generalised wage reductions. This paper proposes the extension of the special provisions of awards which permit for reduced payments as a means of assuaging union concerns.

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36

Jaworski, Taylor, and Gregory T. Niemesh. "Revisiting the Great Compression: Wage inequality in the United States, 1940–1960." Historical Methods: A Journal of Quantitative and Interdisciplinary History 51, no. 1 (January 2, 2018): 39–48. http://dx.doi.org/10.1080/01615440.2017.1393360.

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37

Möller, Joachim. "Wage dispersion in Germany and the US: is there compression from below?" International Economics and Economic Policy 5, no. 4 (December 2008): 345–61. http://dx.doi.org/10.1007/s10368-008-0122-z.

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Cobb, J. Adam, and Flannery G. Stevens. "These Unequal States: Corporate Organization and Income Inequality in the United States." Administrative Science Quarterly 62, no. 2 (October 13, 2016): 304–40. http://dx.doi.org/10.1177/0001839216673823.

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In an analysis of data on employment in the 48 contiguous United States from 1978 to 2008, we examine the connection between organizational demography and rising income inequality at the state level. Drawing on research on social comparisons and firm boundaries, we argue that large firms are susceptible to their employees making social comparisons about wages and that firms undertake strategies, such as wage compression, to help ameliorate their damaging effects. We argue that wage compression affects the distribution of wages throughout the broader labor market and that, consequently, state levels of income inequality will increase as fewer individuals in a state are employed by large firms. We hypothesize that the negative relationship between large-firm employment and income inequality will weaken when large employers are more racially diverse and their workers are dispersed across a greater number of establishments. Our results show that as the number of workers in a state employed by large firms declines, income inequality in that state increases. When these firms are more racially diverse, however, the negative relationship between large-firm employment and income inequality weakens. These results point to the importance of considering how corporate demography influences the dispersion of wages in a labor market.

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39

Goldin, C., and R. A. Margo. "The Great Compression: The Wage Structure in the United States at Mid-Century." Quarterly Journal of Economics 107, no. 1 (February 1, 1992): 1–34. http://dx.doi.org/10.2307/2118322.

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Santos-Pinto, Luís. "Labor Market Signaling and Self-Confidence: Wage Compression and the Gender Pay Gap." Journal of Labor Economics 30, no. 4 (October 2012): 873–914. http://dx.doi.org/10.1086/666646.

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41

IVERSEN, TORBEN, and DAVID SOSKICE. "Real Exchange Rates and Competitiveness: The Political Economy of Skill Formation, Wage Compression, and Electoral Systems." American Political Science Review 104, no. 3 (August 2010): 601–23. http://dx.doi.org/10.1017/s0003055410000304.

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A major puzzle in the open economy literature is why some countries have persistently higher real exchange rates than others. Even more puzzling is the fact that countries with high real exchange rates are strong export performers. We solve both puzzles with a model that integrates two central debates in the comparative political economy of advanced economies: one linking wage bargaining, incomes policy, and competitiveness, and the other linking partisanship, political institutions, and redistribution. We bring the two together by emphasizing the role of skill formation. We argue that union centralization is necessary for wage restraint and training on a large scale, but this in turn requires a political coalition that subsidizes such training. When both are present, wage restraint generates external competitiveness, whereas wage compression pushes up sheltered prices and hence the real exchange rate, and vice versa. We test the argument on data on export performance and real exchange rates.

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42

Carlin, Paul S. "Is Lunch and other Break Time Productive in Sweden? A Hedonic Earnings Approach." ILR Review 50, no. 2 (January 1997): 324–41. http://dx.doi.org/10.1177/001979399705000208.

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This hedonic earnings analysis suggests that in Sweden in the mid-1980s, break time was, overall, productive at the margin—a result that contrasts with findings from similar studies using U.S. data. Among workers in “male” jobs, however, break time for meals appears to have been significantly less productive at the margin than normal work. To try to account for the male job effect, the author explores the possibility that high-productivity workers took longer breaks than other workers in response to high marginal tax rates, union-induced wage compression, or both. The results of his further analysis suggest that union-induced wage compression may have contributed to the male job effect, but he finds no support for the tax rate explanation.

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Witte, Nils. "Have Changes in Gender Segregation and Occupational Closure Contributed to Increasing Wage Inequality in Germany, 1992–2012?" European Sociological Review 36, no. 2 (October 25, 2019): 236–49. http://dx.doi.org/10.1093/esr/jcz055.

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Abstract Wage inequality continued to increase through the 1990s and 2000s in post-industrial economies. This article contributes to the debate on occupations and inequality by assessing the role of occupational segregation and occupational closure for understanding the increase in inequality. Using employee data for West Germany in 1992 and 2012 and based on decompositions of unconditional quantile regressions the article investigates the contribution of changes in both occupational characteristics to changes in the wage structure. Our findings suggest that both the employment increase in more closed occupations and increased rewards in these occupations have contributed to wage increases across the distribution, especially in the lower half of the wage distribution. Our results further suggest disproportional wage increases in female-dominated occupations at the bottom of the distribution and disproportional wage decreases in male-dominated occupations at the top. If these occupational characteristics had remained at 1992 levels, then 90/10 wage inequality would have been 25 per cent higher in 2012. Thus, changes in occupational characteristics have contributed to wage compression in the observation period.

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Lester, T. William. "Restructuring Restaurant Work: Employer Responses to Local Labor Standards in the Full-Service Restaurant Industry." Urban Affairs Review 56, no. 2 (May 16, 2018): 605–39. http://dx.doi.org/10.1177/1078087418773907.

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Recent research shows that increasing the minimum wage does not result in significant job losses. Yet, there is still uncertainty as to how higher labor standards may reshape employment practices within firms. This article directly examines employer responses to higher labor standards through a qualitative case comparison of the full-service restaurant industry across two fundamentally different institutional settings: San Francisco—with the nation’s highest minimum wage and related mandates—and North Carolina’s Research Triangle region. Evidence shows that higher labor standards led to wage compression even while some employers offered higher benefits to reduce turnover. San Francisco employers seek higher-skilled, more professional workers, rather than invest in formal in-house training, and find better matches. Yet, higher-wage mandates have exacerbated the wage gap between occupations, and some employers have responded by radically restructuring industry compensation practices by adding service charges and eliminating tipping.

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Ortega, Daniel E. "The effect of wage compression and alternative labor market opportunities on teacher quality in Venezuela." Economics of Education Review 29, no. 5 (October 2010): 760–71. http://dx.doi.org/10.1016/j.econedurev.2010.01.004.

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Bonatti, Luigi. "The effects of wage compression on unemployment and on the intersectoral distribution of employment: a dynamic model." Economic Systems 26, no. 2 (June 2002): 127–44. http://dx.doi.org/10.1016/s0939-3625(02)00022-5.

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Prado, Svante, and Joacim Waara. "Missed the starting gun! Wage compression and the rise of the Swedish model in the labour market." Scandinavian Economic History Review 66, no. 1 (December 18, 2017): 34–53. http://dx.doi.org/10.1080/03585522.2017.1405275.

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48

Collins, William J., and Gregory T. Niemesh. "Unions and the Great Compression of wage inequality in the US at mid‐century: evidence from local labour markets." Economic History Review 72, no. 2 (August 2, 2018): 691–715. http://dx.doi.org/10.1111/ehr.12744.

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Qi, Haodong. "Real wage and labor supply in a quasi life-cycle framework: a macro compression by Swedish National Transfer Accounts (1985-2003)." Vienna Yearbook of Population Research 1 (2016): 83–114. http://dx.doi.org/10.1553/populationyearbook2014s83.

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Cantillon, Bea, Ive Marx, and Karel Van Den Bosch. "The Puzzle of Egalitarianism. The Relationship between Employment, Wage Inequality, Social Expenditure and Poverty." European Journal of Social Security 5, no. 2 (June 2003): 108–27. http://dx.doi.org/10.1177/138826270300500203.

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In social policy debates, there are fundamentally different views of links between such key variables as employment, low pay, social transfers and poverty. This paper reviews basic empirical evidence on the validity of these views and the policy prescriptions that follow from them, drawing mainly on cross-country comparative studies. These reveal that clear and striking cross-country correlations prevail, but not, as is often so readily suggested, between low pay (wage compression) and employment performance, or between employment performance and poverty. Instead, results indicate a strong but negative cross-country correlation between the level of social spending and the incidence of poverty, as well as a strong and positive cross-country correlation between the incidence of low pay and the incidence of relative poverty. While the former correlation has become part of the received wisdom in social policy research, the latter is more surprising, as the correlation is not due to a strong link between low pay and poverty at the individual level. In addition, the incidence of low wage employment and social expenditure are also strongly and (negatively) related. We examine these correlations in more depth, particularly the link between the level of social spending and poverty. Since there is such a clear and strong negative link between the level of social expenditure and the level of poverty, it is tempting to think that more social spending offers an easy means of reducing poverty. However, a simple simulation exercise using Luxemburg Income Study data from the mid 90's suggests that putting more money into social transfer systems as they currently exist in the EU would not have a positive outcome on poverty rates in all countries. In the final section of the paper, we briefly summarise the results, and put forward a recommendation for further research.

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Journal articles on the topic 'Wage compression'

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