ABSTRACT
Introduction Since the 1970s most advanced capitalist countries have faced various changes in their domestic institutions and in international economic relations. These changes include financialization, globalization, market deregulation, the privatization of state-owned enterprises, and the retrenchment of the welfare state, all of which had the purpose of allowing market mechanisms to function as freely as possible. That these changes would significantly affect economic dynamics is commonly accepted. Financialization has the tendency to favor shareholders in the income distribution of firms so that the firms would appear attractive to shareholders, which also leads to a reduction in labor’s bargaining power. Globalization tends to intensify competition between firms, resulting in a downward pressure on product costs and prices. One could find a similar effect on firms’ pricing behavior in the case of product market liberalization. Deregulation of the labor market could enhance competition between workers so that some earn more and others less within a competitive environment. Regarding bargaining between firms and labor, however, labor could lose power and the wage rate may be reduced or, at most, remain the same. While these changes and their correlation with economic dynamics are critical, more significant is the fact that such changes interact with one another. For example, under financialization and globalization, financial markets develop beyond national borders, producing a huge amount of international capital flow. Intensive global competition could also intensify the pressure to liberalize domestic markets. The question is therefore whether these changes observed since the 1970s have been correlated with the dynamics of income distribution, and if so, how? Figure 8.1 shows the evolution of wage share in some advanced countries. Note that here we use an adjusted wage share, which is obtained by dividing the wage share by the ratio of the number of employees to that of workers, in order to adjust the influence of income earned by those who are self-employed. Two observations can be made based on this figure: First, the wage share fluctuates counter-cyclically in the short run. When an economy is booming, the level of
wage share in that economy is declining, and vice versa. Such a fluctuation is derived from the fact that the speed of adjustment of employment and/or wage rate is lower than that of demand and supply in product markets. This chapter focuses on the medium-to long-term evolution of adjusted wage share in order to investigate the effects of institutional changes, which are supposed to change in the medium to long term, on income distribution, although the short-term change of adjusted wage share is significant in itself. Second, one can recognize the downward trend in wage share common to most advanced countries since the 1980s. Nevertheless, the extent of the decline depends largely on each country. For example, the wage share in France, Italy, and Japan experienced a significant decline, whereas the one in the USA remained relatively stable (see Table 8.1). How can one explain the compatibility between the divergent movements of income distribution across countries and market-oriented, or neoliberal, institutional changes commonly observed in advanced countries? This chapter investigates the
diversity of change in institutional configurations in advanced countries from the 1980s to the 2000s and its relationship with the evolution of income distribution in each country. The remainder of this chapter is organized as follows. Section 1 provides an overview of preceding studies. We investigate the determinants of change in income distribution, in particular, that of wage share. We also discuss the differences and similarities in institutional changes across countries, introducing the concept of “policy regime.” Section 2 illustrates the diversity of institutional change among advanced countries since the 1980s using multivariate analysis. Based on the results of the previous section, Section 3 provides an econometric analysis to examine the correlation between the diversity of institutional change and the evolution of wage share. Section 4 concludes this study.
