The gap between market rewards and economic well-being in modern societies

Both income distribution and wage determination studies often take for granted that a person's position in the distribution of earnings remains largely unaltered in the distributional process even though the ‘final’ distribution may be more compressed. However, with the growth of the welfare state and the increased female labour market participation, the relation between market rewards—mainly earnings—and a more comprehensive measure of economic well—being, such as equivalent disposable income, is in most countries less straightforward than earlier. The extent of reranking when comparing the distribution of market rewards and economic well-being is taken here as an indication of degree of market dependence. The hypotheses tested, with cross-national co-ordinated micro-data from the Luxembourg Income Study, are (i) that countries differ in their degree of market dependence but also (ii) that different clusters can be distinguished based on different types of welfare state models. The findings give strong support for the first hypothesis. The support for the second hypothesis is more partial. Thus there are large cross-national variations in degree of market dependence. This finding indicates that in order properly to analyze and understand societal distribution in modern societies we must incorporate both family structure and welfare state politics.