The Equality Multiplier: How Wage Compression and Welfare Empowerment Interact
Erling Barth, Karl Ove Moene
Photo: Wiley and Sons
Journal of the European Economic Association, volume 14, issue 5, pp. 1011-1037, 2016
We explore how more wage equality fuels the generosity of the welfare state via political competition in elections, and how a more generous welfare state fuels wage equality via empowerment of weak groups in the labor market. Together the two mechanisms may generate a cumulative process that explains how equality multiplies, and why countries with more equal distributions of market outcomes also have stronger welfare states. The complementarity between wage setting and welfare spending can explain why almost equally rich countries differ so much in economic and social equality among their citizens.