Varieties of capitalism and income inequality

Abstract

Why do countries diverge significantly in the levels of income inequality across the Global North? Most scholars believe that the answer lies in the ways that economic resources are organized through institutions. Drawing on a country-level, longitudinal dataset from 1985 to 2016 matched with three other data sources, the author explains how and to what extent institutions matter for income inequality across the “varieties of capitalism.” To sort countries based on their institutional similarities, the author conducts cluster analysis and examines the extent to which institutions predict variation in the levels of income inequality, both cross-nationally and within each cluster of countries. In cross-national, panel data regressions, strong evidence is presented that labor market interventions such as vocational rehabilitation programs as well as characteristics of corporate governance are important determinants of income inequality.