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The Macroeconomic Effect of Codetermination on Income Equality

"Many studies on the effect of codetermination at company-level reveal its significant influence on wage levels within companies. However, does this effect at the micro-level result in higher income equality at the macro-level as well? A cross-sectional regression analysis of data on EU and OECD countries will be used to test for the codetermination’s effect on income distribution. Assessing the impact of codetermination, a new index on codetermination strength will be introduced, combining the scope of codetermination rights with the threshold of codetermination laws. The results suggest a significant negative impact on the Gini index which indicates that codetermination rights lead to higher income equality."

2012

Academic Paper

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The macroeconomic effect of codetermination is influenced by both scope and threshold. Higher levels of codetermination correlate with greater national equality. Codetermination led to significantly lower income share for the highest decile of income, while union strength had no significant impact. Codetermination level has a stronger correlation with national equality than trade union density (together they explain more than 2/3rds of the variation).
Felix Hörsich
Codetermination
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