DP1776 Democracies Pay Higher Wages

Author(s): Dani Rodrik
Publication Date: January 1998
Keyword(s): Democracy, Wages
JEL(s): H40, J30, O15
Programme Areas: International Macroeconomics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1776

Controlling for labour productivity, income levels, and other possible determinants, there is a robust and statistically significant association between the extent of democratic rights and wages received by workers. The association exists both across countries and over time within countries. The coefficient estimates suggest that non-negligible wage improvements result from the enhancement of democratic institutions: average wages in a country like Mexico would be expected to increase by 10?30% were Mexico to attain a level of democracy comparable to that prevailing in the United States.