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A large literature has studied the impact of labour market institutions on wage inequality, but their effect on income inequality has received little attention. In this paper the authors argue that personal income inequality is a function of the wage differential, the labour share, and the unemployment rate. Labour market institutions then affect income inequality through these three channels and their overall effect is theoretically ambiguous. They use a panel of OECD countries for the period 1960-2000 to examine these effects. They find that greater unionization and a higher degree of wage bargaining coordination have opposite effects on inequality, implying conflicting effects of greater union presence on the distribution of income.
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