Contents

18.1. Introduction 1536

18.1.1 LayOut 1540

18.2. Earnings Distribution and Income Distribution: A ShortTale of Two Long Literatures 1540

18.2.1 IndividualorHouseholdIncomes? 1544

18.2.2 A Cursory Review of the Literature Related to Household Incomes Distribution

and LMIs 1547

18.2.2.1 Comparing Distributions 1550

18.2.2.2 DecompositionsofHouseholdIncomeInequality 1553

18.2.2.3 A Heuristic Help for the Role of Institutions and Earnings 1560

18.3.

18.3.1 MeasuringWageInequalityandDataSources 1561

18.3.1.1 Measures of Inequality 1562

18.3.1.2 Definitions of the Wage Variable 1565

18.3.1.3 Composition and Samples of the Population 1568

18.3.1.4 DataSourcesZStatisticalObservation 1568

18.3.2 Cross-Country Levels and Evolution of Wage Inequality 1573

18.3.2.1 U.S. Earnings Inequality 1573

18.3.2.2 Earnings Inequality in Other Countries 1580

18.3.3 Additional Evidence on Earnings Inequality in European Countries and the

United States 1585

18.3.4 SummaryConclusions 1592

18.4. Theoretical Approaches to Wage Dispersion and the Role of Institutions 1593

18.4.1 The Wage Inequality Debate 1980-2000 and the Role of LMIs 1593

18.4.2 Defining and Analyzing LMIs 1596

18.4.2.1 Method 1596

18.4.3 WhyDoLMIsExist? 1601

18.4.4 Do LMIs Matter for the Economy? 1605

18.4.5 Recent Theories Based on Demand and Supply of Labor Inputs 1606

18.4.6 RecentTheoriesBasedonLMIs 1612

18.4.6.1 Top Incomes 1614

18.4.6.2 Minimum Wage 1615

18.4.6.3 UnionPresence 1618

18.4.6.4 Unemployment Benefit 1619

18.4.6.5 Employment Protection Legislation 1619

Handbook of Income Distribution, Volume 2B

© 2015 Elsevier B.V.

All rights reserved. 1535

ISSN 1574-0056, http://dx.doi.org/10.1016/B978-0-444-59429-7.00019-4

18.4.6.6 Labor Market Policies 1620

18.4.6.7 Stepwise Institutional Change 1621

18.4.7 Summing Up 1622

18.5. LMIs and Wage Inequality: An Empirical Assessment 1623

18.5.1 ASimpleSchemetoAccountforBetween-GroupInequality 1624

18.5.2 The Within-Group Inequality and the Role of LMIs 1634

18.5.3 Empirical Assessment 1643

18.5.3.1 Cross-SectionaiApproach 1643

18.5.3.2 Longitudinal or Pseudo-Longitudinal Approach 1648

18.5.4 Discussion 1653

18.6. Conclusion and Future Research 1655

Acknowledgments 1657

Appendix A. Country Codes 1658

Appendix B. Data Sources and Additional Tables on Earnings 1659

Appendix C. Data Sources and Descriptive Statistics on LMIs 1665

Appendix D. Literature Summary Tables: Household Incomes and Earnings and Wage Dispersion

and Institutions 1670

References 1714