Diverging trends of wage inequality in Europe

Abstract

Since the middle/end of the 2000s wage inequality has increased in some European countries (such as Portugal or the UK) and decreased in others (especially in Hungary and Poland). In this article, we analyse the role of the minimum wage and of workers’ and firms’ observed characteristics behind these diverging trends in wage inequality. Our findings indicate that compositional changes as regards education are a key factor pushing up inequality in the majority of the countries, but particularly in Italy and Portugal. Other factors either contribute to increased or decreased inequality, specifically minimum wage changes, the percentage of nonnative employees and native wage premiums. Minimum wage changes seem to be of crucial importance in Greece, Hungary and Poland. Finally, the presence of nonnatives in the labour market is a key determinant in the UK, but also to some extent in Austria and Hungary.