Labour Markets, Institutions and Inequality

Labour Markets, Institutions and Inequality

Building Just Societies in the 21st Century

Edited by Janine Berg

Labour market institutions, including collective bargaining, the regulation of employment contracts and social protection policies, are instrumental for improving the well-being of workers, their families and society. In many countries, these institutions have been eroded, whilst in other countries they do not exist at all.

Chapter 8: Redistribution policies

Malte Luebker

Subjects: development studies, development economics, economics and finance, development economics, labour economics, social policy and sociology, labour policy


As the preceding chapters in Part I and II of this volume have documented, labour markets are central to understanding the evolution of income in equality (see also ILO/IILS, 2008 and UNRISD, 2011, Ch. 1). Labour market institutions and the bargaining power of workers and their trade unions help to shape the functional distribution of income and hence how much of the value-added in an economy finds its way into the pockets of workers in the form of wages. Workers will generally be in a weaker position to demand pay rises in the face of high unemployment, which also leaves the jobless without any wage income. As Islam and Hengge have argued in Chapter 3, full employment policies are therefore equity enhancing in multiple ways. Labour market institutions also shape inequality between wage earners. By setting a floor to the wage distribution, minimum wages can contain wage inequality (Chapter 5 by Belser and Rani). Likewise, strong trade unions and collective bargaining institutions usually benefit workers at the bottom end of the pay scale more than those near the top (Chapter 4 by Hayter). Policy-makers are rediscovering the role of sound labour market institutions in protecting the weak. However, while institutions can make societies more equitable, achieving true equality of opportunity often remains an elusive goal. Further, levelling the playing field does not address other sources of inequality, such as the – sometimes grotesquely uneven – distribution of initial wealth.

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