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This chapter considers two theories to explain the earnings dispersion in the different countries studied: shifting pay norms and pyramidal/superstar theories. It argues that the fanning out of the upper part of the earnings distribution in some, but not all, countries could be explained by a shift to a less redistributive pay norm. However, this argument has hardly been recognized in the literature. The superstar model has received more attention, but this attention has concentrated exclusively on the recent rise in top earnings.

This chapter follows the examination in the previous chapter of differences in the dispersion of individual pay about the average in the presence of a given structure of pay by occupation. The differences are explored by another approach here, which tries to account for some of the remarkable properties of the statistical form of the distribution of individual earnings, and thereby to contribute to a philosophy of the inequality of pay between one person and another. The different sections of the chapter are: The form of the distribution of individual earnings; Processes by which distributions are formed; An index of ability to work; The generation of the distribution of ability to work by factors impinging in successive stages of personal development; The link between ATW [ability to work] and pay; and The influence of particular factors upon individual earnings. The last section reviews and discusses the material presented, drawing out six main points.

This chapter reviews the discussions in the preceding chapters. It argues that the distribution of earnings is not outside our control. Although governments are constrained by the global economy and by the pace of technological change, policy still has a role. The evolution of pay norms is partly endogenous, and state enterprises can influence the resulting market equilibrium. Conversely, the privatization of state enterprises can affect pay at both the top and the bottom of the distribution.

This chapter considers the explanation of top earnings that has received much recent attention: the superstar theory. Here, trade and technology have a clear role in expanding the reach of the most talented, and make the earnings gradient steeper. It argues that the superstar explanation should be complemented by a model of salaries in hierarchical organizations. Such a theory, where earnings depend on position in a pyramidal organization, cannot be enough on its own either.

This chapter considers a behavioural model of changes in differentials, directed particularly at explaining the fanning out of the upper part of the earnings distribution. It suggests that changes may be observed in the extent to which earnings are governed by pay norms — changes corresponding to a switch from a redistributive norm to one where people are paid on their individual productivity, or vice versa. An external shock causes an abrupt reversal of direction and convergence to a new equilibrium. This could be caused by a change in the political climate, shifting the degree of conformity with the social norm, which is then magnified as more people change their behaviour. It could be caused by a change in the capital market, as where firms become more short term in their outlook, and less willing to invest in establishing a reputation.

This chapter presents tables of data on the United Kingdom and an account of its increased earnings distribution. It shows that there is evidence of widening dispersion from the mid 1950s to the mid-1960s. There was narrowing of the deciles from the late-1960s to 1977, with a large rise in the bottom decile. The bottom decile fell from 1977 to the end of the 1980s, after which it has stabilized, along with the rest of the bottom half of the distribution. The top decile has continued to rise, with a fanning out of the upper half of the earnings distribution.

This chapter presents tables of data on the United States and an account of its increased earnings distribution. It shows that the 1940s were a period of wage compression; the 1950s saw a large reversal of this compression, continuing at the top into the early 1960s. The mid-1960s and 1970s were a period of hiatus. The bottom decile fell in the 1980s, but then recovered some of the lost ground in the 1990s. The top decile rose in the 1980s, paused, and then continued its upward path, so that by 2005 it was above the equivalent of its 1939 value. There has been a distinct ‘fanning out’ of the upper part of the US earnings distribution.

This chapter presents tables of data on Canada and an account of its increased earnings distribution. It highlights the difficulties in reaching conclusions about the changes in earnings dispersion in Canada in recent decades. The pictures drawn here underscore the problems associated with the absence of a single, authoritative series covering the past twenty-five years. The graphs also underline the fact that the changes in recent decades — a fall in the bottom decile in the early 1980s, and a rise in the top decile in the later 1980s (and possibly after 2000) — are smaller in magnitude than the ‘dramatic’ reduction in dispersion from 1931 to 1951, and are not dissimilar to the widening that characterized the Golden Age of the 1950s and early 1960s.

This chapter examines the long run earnings data of five OECD countries: Canada, France, Germany, the United States, and the United Kingdom. It shows that the Anglo-Saxon countries have all seen large rises and falls in the deciles. Generalizations about the time path of change do not necessarily hold universally, but there appear to be three distinct phases in the pre-1980 period, which exhibit common features in several — but not all — of the five countries studied: compression of the earnings distribution in the 1930s and 1940s; rise in the top decile of the earnings distribution during the Golden Age from 1950 to the mid-1960s (with the exception of Germany), accompanied in some cases by falls in the bottom decile or lower quartile, and a ‘tilt’ at the very top; and narrowing of the distribution in the late 1960s and 1970s (stability of top decile in United States and Germany).

This chapter presents tables of data on Australia and an account of its increased earnings distribution. It shows that the widening of earning dispersion took place during the Golden Age of the 1950s; there was a possible reversal in the early 1970s; this was followed by renewed widening (with possibly a pause in the 1980s); widening resumed in the 1990s, and appears to have continued into this century.

This chapter discusses the selection and application of earnings distribution data. Topics covered include criteria data selection and quality grading, the variety of data sources available, problems with cross-country comparisons of data and comparability of data over time, and the use of metrics and language.

This chapter presents tables of data on Austria and an account of its increased earnings distribution. It shows that from 1980, there has been a widening in the earnings distribution in Austria. A comparison of wage tax results for 2004 with those for 1964, it shows that that the top decile has risen by twenty-one percent, enough to qualify as large. The upper quartile rose by ten percent, so that there has been a degree of ‘fanning out’.

This chapter presents tables of data on Germany and an account of its increased earnings distribution. It shows that there has been a widening of earnings dispersion and a fanning out at the top. The existence for Germany of data for the late 1920s and 1930s allows an insight into a period, and a political experience (the rise of the Nazi dictatorship), whose distributional consequences have been little studied.

This chapter discusses the evolution of the distribution of earnings in recent decades in the US, Canada, and eastern and western Europe. The data show that the late 1960s and 1970s were a period of earnings compression in a number of countries (Finland, France, Italy, Sweden, and the United Kingdom); there was not a lull before the storm, and the falls in the bottom decile after 1980 can be seen as a part reversal of the 1970s compression. In many countries, there has been a steady upward movement since 1980 in the top decile (Australia, Canada, Germany, Italy, Portugal, Sweden, the United Kingdom, and the United States). The finding of a fanning out at the top is evident for Australia, Germany, Italy, Portugal, Sweden, the United Kingdom, and the United States. The three Eastern European countries all showed a move towards increased earnings dispersion with the transition to a market economy, but there are differences, with dispersion being less, and more stable, in the Czech Republic than in Hungary and Poland.

This chapter presents tables of data on Finland and an account of its increased earnings distribution. It shows that there was a large a significant fall in earnings dispersion in Finland from the 1970s to the mid-1980s, after which the distribution remained stable in the sense that the observed changes were not large enough to register.

This chapter presents tables of data on France and an account of its increased earnings distribution. It shows that the history of the earnings distribution in France since the mid-1980s is one of broad stability and of a recent rise in the bottom decile, in contrast to a number of other countries. The previous sixty-five years were characterized less by stability and more by episodes of change. These episodes have tended to touch differently the upper and lower parts of the distribution. In the inter-war period, there is only evidence for the upper part, but there appears to have been a rise in the top percentiles followed by a fall with the arrival of the Front Populaire. In the Golden Age of the 1950s and early 1960s, earnings dispersion increased on account of the larger increases at the top of the distribution. The gap was narrowed dramatically after the events of May 1968, with the bottom decile jumping upwards, and then from 1972 beginning a period of steady increase until the mid-1980s.

This chapter presents tables of data on Ireland and an account of its increased earnings distribution. It shows that the period 1937 to 1951 exhibits a significant compression, which is of interest since Ireland was not directly engaged in the Second World War. The latter part of the 1950s and 1960s showed a rise in the top decile. There is then a gap in coverage, but in the period 1987 to 1997 there was a fanning out of the upper part of the earnings distribution.

This chapter presents tables of data on Netherlands and an account of its increased earnings distribution. It shows that the overall distribution of earnings in the Netherlands was fairly stable from 1970 to 1983, with an improvement in the position of those in the lower part of the distribution. This was followed by a period from the mid-1980s to the mid-1990s when the top decile increased; the bottom decile may have fallen and the incidence of low pay increased. Since the mid-1990s, any changes in dispersion are not large enough to register according to the criteria applied here.

This chapter presents tables of data on New Zealand and an account of its increased earnings distribution. It shows that although New Zealand is often presented as having experienced dramatic distributional changes, the evidence on the distribution of earnings is limited in its coverage of the post-war period. Estimates exist for the period 1984 to 1997, during which the bottom decile fell and the top decile rose significantly. Going back to the 1970s and earlier, there is some indication that the Golden Age in New Zealand benefited the top decile relative to the median.