Wives' work and income distribution in European countries

Women's participation in the labour market varies substantially across Europe. While female participation rates are usually high in Northern countries, they decline as one moves South, where more traditional household models still predominate and women devote more time to domestic rather than to labour-market activities. At the same time, income is more equally distributed in Northern than in Southern European countries. This paper takes a cross-country approach to analyse the impact of wives' work on income distribution, using the last wave of the ECHP (European Community Household Panel) data set. Decompositions of inequality measures and counterfactual distributions are used to assess the impact of higher female employment rates on inequality in household income distribution. The decomposition of inequality by household type shows that income in all the countries studied is distributed more equally among dual-earner than among male-breadwinner households. Since the percentage of dual-earner families is higher in Northern European countries, inequality is lower. Sub-group analysis also shows that within-group inequality is the main source of inequality in all countries concerned, while between-groups inequality has a lower impact. Decomposition by sources of income reveals that, in European countries, women's earnings account for a lower proportion of overall inequality than men's earnings and that the impact of women's work on income distribution is mainly due to the "employment effect": wherever women work less, inequality in women's earnings distribution is higher, due to the higher number of zero values in the distribution. Moreover, analysis of inequality among working wives shows that female labour income is often distributed more equally where women's employment rate is higher. Finally, counterfactual distributions are used to show that an increase in women's participation in the labour market can cause a decrease in household income distribution inequality.