Do Interactions between Finance and Labor Market Institutions Affect Wage Distribution ?

This article analyzes the linkages between financial liberalization, labor market institutions and wage inequality for 17 OECD countries over the 1989 to 2005 period. With the help of a fixed effect model with an interacted term, one crucial contribution of this article is to analyze the interacted impact of labor market institutions (i.e., workers' bargaining power and employment protection legislation) on the one hand and financial liberalization on the other hand on wage distribution. Our results indicate that changes in workers' bargaining power and in employment protection affect wage distribution (p9/p1 ratio). Estimates of the marginal effects show that by increasing labor markers regulation (i.e., reinforcing workers' bargaining power and increasing employment protection legislation) one also weakens the impact of financial liberalization on the increase in wage inequality.