Taking the Sector Seriously: Data, Developments, and Drivers of Intrasectoral Earnings Inequality

The widespread increase in earnings inequality within postindustrial countries has received a lot of attention in both the public debate and the academic literature. Remarkably, the developments in earnings inequality have mainly been studied at the country level, whereas there is substantial variation across sectors within countries. This study explores the developments and the drivers of earnings inequality at the sectoral level. From an empirical perspective, this study aims to contribute to the inequality literature by analyzing measures of sectoral earnings inequality. The study relies on newly assembled data based on Luxembourg Income Study micro data for eleven sectors across eight countries over the past few decades. As a theoretical contribution, the study examines the three key explanations for increasing earnings inequality that have been debated and analysed by economists, sociologists and political scientists—namely, globalisation, technological change and waning labour union power—but this time with sectoral earnings inequality data. Interestingly, the results provide only limited support for the argument that international trade leads to higher levels of earnings inequality. When we focus the analysis on trade with less developed countries we find a positive association between trade and earnings inequality. With regard to technological change, our findings provide mixed evidence for the hypothesis that skill-biased technological change increases earnings inequality. Our results bring back the waning country-wide labour union power as an important driver of earnings inequality. This corresponds with the fact that our sectoral data reveal a more general trend towards rising inequality across sectors over time.