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ABSTRACT. Market-driven wage dispersion is a central feature of income inequality. While neoclassical authors have typically focused on technological changes and insufficient investment in education to explain increasing wage dispersion, Keynesians have focused on a number of other structural, social, and demand-led causes. Namely, Keynesian theory suggests that wage dispersion is a result of weaker trade union power, a lack of wage bargaining coordination and an erosion of labor market institutions since the beginning of modern globalization and the radical shift towards market-based ideology in the 1970s/1980s. In this paper, the Keynesian perspective on the global trend of rising wage dispersion is elaborated. It is found that the deregulation of financial markets, shareholder value corporate governance systems, extensive outsourcing and the prevalence of deep economic shocks and long-lasting downturns are directly related to the type of globalization that developed during the last several decades. Furthermore, in order to reduce wage dispersion, strengthening of trade unions and wage bargaining institutions are recommended, including extension mechanisms and sufficiently high statutory minimum wages. Additionally, offshoring and outsourcing, as well as the stakeholder corporate governance system, have to be socially controlled. Tax policy can also play an important role by curbing very high wages. Finally, active demand management to guarantee high employment is recommended. All of these show that wage dispersion depends on many economic, social and political factors. In the end, only a new, more regulated, economic model can achieve a market-given wage dispersion compatible with a fair and sustainable society. pp. 28–71
JEL codes: E24; J3

Keywords: market-driven wage dispersion; personal income distribution

How to cite: Herr, Hansjörg, and Bea Ruoff (2014), “Wage Dispersion as Key Factor for Changing Personal Income Distribution,” Journal of Self-Governance and Management Economics 2(3): 28–71.

HANSJÖRG HERR
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Berlin School of Economics and Law,
University of Applied Sciences, Germany
BEA RUOFF
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Berlin School of Economics and Law,
University of Applied Sciences, Germany
(corresponding author)

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