8
Pontusson, Rueda and Way further explore the wage floor hypothesis by developing a
very preliminary analysis of the relationship between government partisanship and income
replacement policies, on the one hand, and that between income replacement policies and
wage inequality, on the other. They plot average income replacement rates provided by
public schemes during the first year of unemployment in 1985-91 against each country's
average partisanship score for 1970-90.
10
And then they plot 50-10 ratios in 1991 against the
average unemployment replacement rates. Their analysis suggests that there is a very weak
association between Left government and the generosity of unemployment compensation and
that the relationship between unemployment compensation and 50-10 compression is even
weaker. In other words, both steps in the argument linking Left government to egalitarianism
via a wage floor effect seem to falter.
It is however clear that the connection between government partisanship and policy,
on one side, and policy and wage inequality, on the other, needs to be paid more attention to.
Pontusson, Rueda and Way recognize that their analysis of the effects of income replacement
rates over inequality (as well as their relationship to government partisanship) is very
rudimentary. Income replacement policies are not the only tool at the disposal of a
government to influence the market power and the wages of poorly paid workers. In fact,
since replacement rates do not reflect the percentage of workers who are entitled to
unemployment benefits,
11
there are reasons why this policy is in fact not the most appropriate
for assessing the influence of governments on inequality. The analysis needs to be extended
10
Based on OECD, “Unemployment Benefit Entitlements and Replacement Rates”
(electronic database), these unemployment replacement rates refer to someone who
earned the equivalent of the average production worker at the time that he or she became
unemployed and include various income maintenance programs (in addition to
unemployment insurance in the narrow sense). See OECD, “Unemployment and Related
Benefits,” The OECD Jobs Study: Evidence and Explanations (1994), part II, chapter 8,
for more details.
11
The prerequisites for unemployment benefits differ substantially in OECD nations. As
a consequence, there is great variation in terms of the percentage of unemployed people
that receives benefits.
Convention