The Transition to the Knowledge Economy, Labour Market Institutions, and Income Inequality in Advanced Democracies

Hosted by the European Institute

Room COW 1.11, Cowdray House, United Kingdom


David Hope

Angelo Martelli

The transition from Fordism to the knowledge economy in the advanced democracies was underpinned by the ICT revolution. The introduction and rapid diffusion of ICT pushed up wages for college-educated workers with complementary skills and allowed top managers and CEOs to reap greater rewards for their talents. Despite these common pressures, income inequality did not rise to the same extent everywhere; the Anglo-Saxon countries stand out as being particularly unequal. To shed new light on this puzzle, we carry out a panel data analysis of 18 OECD countries between 1970 and 2007. The analysis stands apart from the existing empirical literature by taking a comparative perspective. We look at the extent to which the relationship between the knowledge economy and income inequality is influenced by national labour market institutions. We find that the expansion of knowledge employment is positively associated with both the 90–10 wage ratio and the income share of the top 1%, but that these effects are mitigated by the presence of strong labour market institutions, such as coordinated wage bargaining, strict employment protection legislation and high bargaining coverage. The study provides robust evidence against the argument that industrial relations systems are no longer important safeguards of wage solidarity in the knowledge economy.

David Hope is a Lecturer in Political Economy in the King’s College London Department of Political Economy. He is also a Visiting Research Fellow at the London School of Economics (LSE) International Inequalities Institute (III). Prior to joining King’s, he was a post-doctoral researcher at the LSE III. David holds a PhD (2017) in Political Science from the LSE Department of Government and has previously studied Economics at both the LSE (MSc) and University College London (BSc). During his time as a PhD student, he was the Economics Editor for the CORE project; an ambitious international collaboration to overhaul the undergraduate economics curriculum. In his professional life before beginning the PhD, he worked as an economist for PwC, Oxera and HM Treasury.

Angelo Martelli is a Postdoctoral Research Fellow at the European Institute of the London School of Economics and Political Science. He is currently a Consultant for the Jobs Group of the World Bank and a Policy Fellow for the Open Innovation Team of the UK Cabinet Office and HM Treasury. His research interests span labour economics and European political economy. He is an Associate at the LSE Institute of Global Affairs where he co-leads the Global Migration Initiative and was an integral part in the launch of the Alliance of Leading Universities on Migration (ALUM). Before arriving at the LSE for his PhD he graduated from Pompeu Fabra University with a MSc and Master of Advanced Studies in Economics and from Bocconi University with a BSc in International Economics and Management. Former President of the LSE Italian Society. He has published Op-Eds for several international newspapers including WSJ and El Pais.

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