Democracies Pay Higher Wages

Dani Rodrik

NBER Working Paper No. 6364
Issued in January 1998
NBER Program(s):   LS

Controlling for labor 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 percent were Mexico to attain a level of democracy comparable to that prevailing in the U.S.

(411 K)

Published: (Revised and expanded version) Quarterly Journal of Economics (August 1999).

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