The “big trade-off,” described by Arthur Okun some thirty years ago, is back again: equality or efficiency, or to put it differently, modern highly developed economies and societies have to choose between the Scylla of income inequality and the Charybdis of unemployment. Furthermore, it looks like the continental European economies—foremost Germany and France—sided with more egalitarian ends accepting higher unemployment while the liberal economies such as the United States and the United Kingdom chose higher inequality for lower unemployment. In this paper it is argued that the trade-off is not a supply-side necessity to maintain work effort in a situation of incomplete contracts, but is a politico-economic issue of particular interest groups seeking rents. However, unlike in Mancur Olson's seminal approach, it is not the trade unions that are forming distributional coalitions on the labor market, but rather the meritocracy which is happy to use Keynesian-type demand management to advance their material interests by pursuing a “meritocratically optimal rate of unemployment” (MORU).
Albert, M.1991. Capitalisme contre capitalisme. Paris. English version: 1993. Capitalism vs capitalism. Paris: Editions du Seuil.
2.
Alesina, A., R. Di Tella, and R. MacCullock.2001. Inequality and happiness: Are Europeans and Americans different? CEPR Discussion Paper No. 2877.
3.
Amable, B.2003. The diversity of modern capitalism. Oxford University Press, UK.
4.
Andel, N.1986. Changing concepts of public debt in the history of economic thought. In Public finance and public debt, proceedings of the 40th congress of the IIPF, ed. B. P. Herber, 1—13. Detroit: Wayne State University Press.
5.
Arestis, P., and M. Sawyer.1998. Keynesian economic policies for the new millennium. Economic Journal108: 181—95.
6.
Baldwin, P.1990. Politics and social solidarity: Class bases of European welfare states, 1875—1975. Cambridge University Press, UK.
7.
Barth, E., and J. Zweimüller.1995. Relative wages under decentralized and corporatist bargaining systems. Scandinavian Journal of Economics97 (3): 369—84.
8.
Benabou, R.2000. Meritocracy, redistribution, and the size of the pie. In Meritocracy and economic inequality, ed. J. K. Arrow, 317—39. Princeton NJ: Princeton University Press.
9.
Boddy, R., and J. Crotty, J.1974. Class conflict and macropolicy: The political business cycle. Review of Radical Political Economics7 (1): 1—19.
10.
Bowles, S., R. Edwards, and F. Roosevelt.2005. Understanding capitalism: Competition, command, and change. Oxford University Press, UK.
11.
Bullock, A.1977. Fontana dictionary of modern thought. London: Fontana Press.
12.
Bürklin, W., et al., eds. 1997. Eliten in Deutschland: Rekrutierung und integration. Opladen, Germany: Leske & Budrich.
13.
Burniaux, J.-M.1998. Income distribution and poverty in selected OECD countries . OECD Economic Department Working Paper No. 189.
14.
Cockett, R.1995. Thinking the unthinkable: Think-tanks and the economic counter-revolution 1931—1983. London: HarperCollins.
15.
Collard, D.1968. The new right: A critique. London: Fabian Society.
16.
Cornwall, J., and W. Cornwall.2005. Power and institutions in macroeconomic theory. Centre of Economic and Public Policy. Working Paper No. 02/05. Cambridge University Press, UK.
17.
Cox, R.W.1996. Ideologies and the new international economic order: Reflections on some recent literature. In Approaches to world order, ed. R. W. Cox and T. J. Sinclair, 376—419. Cambridge University Press, UK.
18.
Davis, S., and C. Meyer.2000. Future wealth. Boston, MA: Harvard Business School Press.
19.
Delhey, J.1999. Inequality and attitudes: Postcommunism, Western capitalism and beyond. WZB Discussion Paper FS III/99-403.
20.
Desai, R.1994. Second-hand dealers in ideas: Think-tanks and the Thacherite hegemony. New Left Review203: 27—64.
21.
Esping-Andersen, G.1990. The three worlds of welfare capitalism. Princeton, NJ: Princeton University Press .
22.
EU Commission.2004. Employment in Europe 2003. Brussels.
23.
Förster, M.F.2000. Trends and driving factors in income distribution and poverty in the OECD area. OECD Social Policies Studies Division, Labour Market and Social Policy Occasional Paper No. 42.
24.
Fritsche, U., et al. 2005. Wirtschaftspolitische regime westlicher industrienationen: Unterschiede, wachstumsperspektiven und wirtschaftspolitische optionen in ausgewählten ländern, abschlussbericht eines forschungsprojektes der Hans-Böckler-Stiftung . Unpublished manuscript. Berlin.
25.
Galbraith, J.K.1997. Dangerous metaphor: The fiction of the labor market . Public Policy Brief No. 36. Annandale-on-Hudson, NY: The Jerome Levy Institute of Bard College.
26.
———. 1998. Created unequal: The crisis in American pay. New York: Free Press.
27.
Giersch, H., K.-H. Paqué, and H. Schmieding.1992. The fading miracle: Four decades of market economy in Germany. Cambridge University Press, UK.
28.
Gilder, G.1982. Wealth and poverty. London: Buchan and Enright.
29.
Golden, M., P. Lange, and M. Wallerstein.2002. Union centralization among advanced industrial societies: An empirical study. http://www.shelly.polisci.ucla.edu/data
30.
Guger, A., and M. Marterbauer.2004. Die langfristige entwicklung der einkommensverteilung in Österreich. WiFo-Studie im Auftrag des Bundesministeriums für soziale Sicherheit, Generationen und Konsumentenschutz. Wien.
31.
Hall, P., and D. Soskice , eds. 2001. Varieties of capitalism: The institutional foundations of comparative advantage. Oxford University Press, UK.
32.
Halpern, D.2005. A matter of respect. Prospect (112) (July): 40—43.
33.
Harrison, B., and B. Bluestone.1990. The great U-turn: Corporate restructuring and the polarizing of America. New York: Basic Books.
34.
Heise, A.1999. Grenzen der deregulierung. institutioneller und struktureller wandel in Großbritannien und Deutschland. Berlin.
35.
———. 2001. New politics. Integrative Wirtschaftspolitik für das 21 . Jahrhundert, Münster.
36.
———. 2005a. Limitations to Keynesian demand management through monetary policy—whither Cartesian policy control. Working Papers on Economic Government No. 14, Hamburg University of Economics and Political Science.
37.
———. 2005b. German social democratic economic politics in the light of agenda theory. Intervention— Journal of Economics2 (2): 131—51.
38.
Henley, A.1988. Political aspects of full employment: A reassessment of Kalecki. Political Quarterly59 (4): 437—50.
39.
Henry, W.1995. In defence of elitism. NY: Doubleday Anchor Books..
40.
IMF.2003. Unemployment and Labor Market Institutions: Why Reforms Pay Off. World Economic Outlook, Washington.
41.
Iversen, T.1999. Contested economic institutions: The politics of macroeconomics and wage bargaining in advanced democracies. Cambridge University Press, UK.
42.
Iversen, T., and D. Soskice.2004. Electoral system and the politics of coalition. Paper presented to the Conference of Europeanists, Chicago, March.
43.
Jäntti, M., and S.R. Jenkins.2001. Examining the impact of macro-economic conditions on income inequality. Working Paper ofthe Institute of Social and Economic Research, University of Essex No.17.
44.
Kalecki, M.1943. Political aspects of full employment. Political Quarterly14 (4): 322—31. Here cited after Kalecki , M.1999. In Collected works of Michal Kalecki: Vol. I: Capitalism, business cycles and full employment, ed. J. Osiatynski, 347—356. Oxford University Press, UK.
45.
Katz, L., and A. Krueger.1999. The high-pressure U.S. labor market of the 1990s. Brookings Papers on Economic Activity (1)1—87. Washington, DC: The Brookings Institution.
46.
Kekes, J.2003. The illusions of egalitarianism. Ithaca, NY: Cornell University Press.
47.
Kenworthy, L., and J. Pontusson.2005. Rising inequality and the politics of redistribution in affluent countries. LIS Working Paper No. 400.
48.
Keynes, J.M. [1930]1972. Economic possibilities for our grandchildren. In Nation and athenaeum. Reprinted in The collected writings of John Maynard Keynes, vol. 9: Essays in persuasion, 321—32. London: Macmillan.
49.
Kleinknecht, A.2003. Causes of the Dutch job miracle: There is no free lunch . De Economist151 (3): 329—33.
50.
Kotz, D. M., T. McDonough , and M. Reich, eds. 1994. Social structures of accumulation: The political economy of growth and crisis. Cambridge University Press, UK.
51.
Lippi, F.1999. Central bank independence, targets and credibility . Cheltenham, UK: Edward Elgar .
52.
Machan, T. R., ed. 2002. Liberty and equality. Stanford: Hoover Institution Press.
53.
Marglin, S., and J. Schor , eds. 1990. The golden age of capitalism . Oxford University Press, UK.
54.
Moene, K.O., and M. Wallerstein.1996. Egalitarian wage policies and economic performance. Paper presented at the annual meeting of the American Political Science Association, San Francisco , August 28—September 1.
55.
Moran, T.P.2005. Bootstrapping the LIS: Statistical inference and patterns of inequality in the global North. LIS Working Paper No. 378.
56.
Naastepad, C.W.M., and A. Kleinknecht.2004. The Dutch productivity slowdown: The culprit at last? Structural Change and Economic Dynamics15: 137—63.
57.
Nordhaus, W.D.1975. The political business cycle. Review of Economic Studies42: 169—90.
58.
Oecd.1996. Employment outlook 1996. Paris.
59.
———. 1997. Employment outlook 1997. Paris .
60.
———. 1999. Employment outlook 1999. Paris .
61.
———. 2005. Employment outlook 2005. Paris .
62.
Okun, A.M.1970. The political economy of prosperity. NYW.W. Norton & Company.
63.
———. 1975. Equality and efficiency: The big tradeoff. Washington, DC: Brookings Institution Press .
64.
Olson, M.1965. The logic of collective action. Cambridge, MA: Harvard University Press.
65.
———. 1982. The rise and decline of nations. New Haven and London: Yale University Press.
66.
———. 1996. The varieties of Eurosclerosis: The rise and decline of nations since 1982. In Economic growth in Europe since 1945 , ed. N. Crafts and G. Toniolo, 73—94. Cambridge University Press, UK.
67.
Persson, T., and G. Tabellini.1991. Is inequality harmful for growth: Theory and evidence. CEPR Discussion Paper No. 581.
68.
Pontusson, J.2000. Labor market institutions and wage distribution . In Unions, employers, and central banks: Macroeconomic coordination and institutional change in social market economies, ed. T. Iversen, J. Pontusson , and D. Soskice, 292—330. Cambridge University Press, UK.
69.
Riese, H.1981. Theorie der produktion und einkommensverteilung . Kyklos34: 540—62.
70.
Robinson, J.1976. Michal Kalecki: A neglected prophet. New York Review of Books, 4 March.
71.
Rogers Hollingsworth, J.2000. Continuities and changes in social systems of production: The cases of Japan, Germany, and the United States. In Contemporary capitalism: The embeddedness of institutions, ed. J. Rogers Hollingsworth and R. Boyer , 265—310. Cambridge University Press, UK.
72.
Scharpf, F.W.1991. Crisis and choice in European social democracy . Ithaca, NY: Cornell University Press.
73.
Schettkat, R., and E. Appelbaum.1996. The importance of labor market institutions for economic development. In Beiträge zur neuKeynesianischen makroökonomik, ed. K. Gerlach and R. Schettkat, trans. Ruth Crowley and Fred Thompson. 135—55. Berlin.
74.
Siebert, H.1997. Labor market rigidities: At the root of unemployment in Europe. Journal of Economic Perspectives11: 37—54.
75.
Siklos, P.L.2004. Central bank behavior, the institutional framework, and policy regimes: Inflation versus noninflation targeting countries. Contemporary Economic Policy22 (3): 331—43.
76.
Smeeding, T.M.2002. Globalisation, inequality and the rich countries of the G-20: Evidence from the Luxembourg Income Study (LIS). In Globalisation, living standards and inequality, ed. D. Gruen, T. O'Brien, and J. Lawson, 179—206. Proceedings from the annual conference of the Reserve Bank of Australia Economic Department, Sydney, 27—29 May.
77.
Soskice, D.1999. Divergent production regimes: Coordinated and uncoordinated market economies in the 1980s and 1990s. In Continuity and change in contemporary capitalism, ed. H. Ketschelt, et al., 101—134. Cambridge University Press, UK.
78.
Sraffa, P.1960. Production of commodities by means of commodities . Cambridge University Press, UK.
79.
Thelen, K.2000. Why German employers cannot bring themselves to dismantle the German model. In Unions, employers, and central banks: Macroeconomic coordination and institutional change in social market economies , ed. T. Iversen, J. Pontusson, and D. Soskice , 138—59. Cambridge University Press, UK.
80.
Thurow, L.1971. The income distribution as a pure public good. Quarterly Journal of Economics83: 327—36.
81.
van der Pijl, K.1995. The second glorious revolution: Globalizing elites and historical change. In International political economy, ed. R. W. Cos and B. Hettne, 100—28. Nova Scotia.
82.
Volscho, T.W.2004. Income distribution in 14 OECD nations, 1967—2000: Evidence from the Luxembourg Income Study. LIS Working Paper No. 386.
83.
Wallerstein, I., and M. Golden, 2000. Postwar wage setting in the Nordic countries. In Unions, employers, and central banks: Macroeconomic coordination and institutional change in social market economies, ed. T. Iversen, J. Pontusson , and D. Soskice, 107—37. Cambridge University Press, UK.
84.
Western, B., and K. Beckett.1999. How unregulated is the U.S. labor market? The penal system as a labor market institution. American Journal of Sociology104 (4): 46—76.
85.
Young, M.1958. The rise of meritocracy, 1870—2033. London : Thames & Hudson.
86.
Zweimüller, J., and E. Barth.1994. Bargaining structure, wage determination, and wage dispersion in 6 OECD countries. Kyklos47: 81—93.
