Examining the correlation of the level of wage inequality with labor market institutions

Document pages: 21 pages

Abstract: Technological change is responsible for major changes in the labor market.One of the offspring of technological change is the SBTC, which is for manyeconomists the leading cause of the increasing wage inequality. However,despite that the technological change affected similarly the majority of thedeveloped countries, nevertheless, the level of the increase of wage inequalitywasn t similar. Following the predictions of the SBTC theory, the differentlevels of inequality could be due to varying degrees of skill inequalitybetween economies, possibly caused by variations in the number of skilledworkers available. However, recent research shows that the difference mentionedabove can explain a small percentage of the difference between countries.Therefore, most of the resulting inequality could be due to the different waysin which the higher level of skills is valued in each labor market. Theposition advocated in this article is that technological change is largelygiven for all countries without much scope to reverse. Therefore, in order toillustrate the changes in the structure of wage distribution that cause wageinequality, we need to understand how technology affects labor marketthis http URL this sense, the pay inequality caused by technological progressis not a phenomenon we passively accept. On the contrary, recognizing that thestructure and the way labor market institutions function is largely influencedby the way institutions respond to technological change, we can understand andmaybe reverse this underlying wage inequality.