Wage differentials and segmentation: The impact of institutions and changing economic conditions

Abstract

This paper uses data from the European Survey on Income and Living Conditions to offer new empirical evidence on how wage differentials are influenced by the changing economic conditions, that is, before and after the 2008–2010 recession, and shaped by the different institutional frameworks of European Union countries. We examine whether wage changes are homogeneous across groups of workers, as they are classified by their contractual relationship and working time, and by the heterogeneity in institutions that regulate and affect the labour market. Results obtained by estimating ordinary least squares and quantile regressions confirm the existence of contract and working time wage gaps and allow to estimate their different magnitudes along the wage distribution, and their rise during the recession. The impact of labour market institutions on shaping them is diverse, with more intervention of the government in the setting of the minimum wage and stricter regulation for atypical contracts reducing the wage gaps and producing larger positive effects for low-wage employees.