From Wage Inequalities to Living Standard Inequalities at Household Level

Abstract

Our aim in this chapter is to explore how wage inequalities translate into standard of living inequalities in different European countries. Wage inequalities are measured at the individual level. They can be increased or reduced by three institutions: the labour law (minimum wage and collective agreements), the household and its composition and the tax-benefit system. Standards of living are therefore defined at the intersection of three institutions: the labour market, the family/household and the state (through social transfers). We propose a new methodology to distinguish the impact of these three institutions on standard of living inequalities. Publications on this subject usually describe how the tax-benefit systems reduce inequalities at the household level (see, for example, OECD, 2009 or Bargain and Callan, 2007). Bibi and Duclos (2008) compare the impact of market income and transfers across five OECD countries. The link between individual and household inequalities is rare except in works about the polarization of work and revenues (see Gregg and Wadsworth, 1996). Literature on poverty and inequality decomposition focuses on two main types of decomposition, decomposition by population subgroups (male/female, for instance) and decomposition by the type of income or any factor of income inequality.