Political Systems and Institutions

The political system of the country you live in can affect its levels of inequality. Democracy, trade unions and the introduction of the minimum wage have all been found to decrease inequality.

Political and Electoral System

Democracy: Cross-country analysis suggests that democracy is associated with a reduction in economic inequality. Democracy increases the number of stakeholders that people in power are responsible to and therefore increases economic redistribution through increased pressure[1].

Electoral system: Cross-national comparative research suggests that democracies with a proportional voting system have lower levels of inequality than those with a majoritarian voting system, like the UK[2].


Economic inequality affects the political response to voter demands. Research shows that US senators are more likely to listen to the preferences of high and middle-income voters than low-income voters. This persists even when senators vote on matters that have a disproportionate impact on low-income people, such as the level of the national minimum wage[3].  This is attributable to:

  • Low income voters’ lower propensity to vote or directly lobby their congressional representatives[4].
  • The ability of high-income voters to influence politics via donations to campaigns and political parties[5].  This influence may be used to lobby against raising the minimum wage in order to reduce business costs[6]

Criticisms and Issues

The extent to which these examples from the US are applicable to the British political system is debateable:

  • UK research does not explain the exact effect of voter turnout on politicians’ voting habits in the UK, or how political and economic inequalities shape public policy.
  • The US system functions very differently to the UK system.  It has fewer restrictions on the use of political advertising and money in political campaigns, which make it potentially more easily influenced by high-income citizens.

Political Institutions and Worker Representation

Certain political institutions and ways of organising the labour market decrease inequality:

  • The national minimum wage and the strength of workers’ bargaining power in the negotiation of wages decrease pay inequality by limiting low pay[7].
  • Increased union membership pushes wages upwards with an increasing effect up to the lowest 35% of the income spectrum and decreases the pay of those in the top 20%[8] [9].
  • Unions mostly cover those with a medium skill level and with higher pay levels compared to non-union workers who tend to be less well paid. Although this largely has the effect of increasing equality, uneven union membership may increase inequality[10].

Political Parties

  • Research suggests the political party in power in a country has a strong effect on inequality. This is based on the idea that firms’ decisions of what to pay workers and how many to hire are influenced by taxes, government contracts and safety and environmental regulations.
  • Research from the US has suggested that when the Democratic Party has a higher percentage control over Congress than the Republican Party the income share held by the top 1% decreases. It is suggested that this occurs partly because officials appointed by the Democrats are more likely to enforce regulations against business and partly because Democratic policies decrease inequality[11] [12].
  • It has been suggested that the more time right wing parties spend in office over time, the higher the inequality[13] [14].

[1] (Reuveny and Quan 2003)

[2] (Birchfield and Crepaz 1998)

[3] (Bartels 2009)

[4] (Bartels 2009)

[5] (Bonica et al. 2013)

[6] (Bonica et al. 2013)

[7] (Salverda and Mayhew 2009)

[8] (Firpo, Fortin and Lemieux 2009)

[9] (Card, Lemieux and Riddell 2004)

[10] (Card, Lemieux and Riddell 2004)

[11] (Volscho and Kelly 2012)

[12] This research, however, could be criticised for mistaking correlation for causation; its findings may therefore not be reliable. It could be the case that as the income of those at the top decreases, the government attempts to raise the tax rate in order to maintain the same levels of incoming revenue. Similarly, it is unclear which government’s policy causes the decrease in inequality: whether it is as a result of a current Democratic government or the delayed influence of policies by a former Republican government.

[13] (Brady and Leicht 2008)

[14] Different definitions of left and right between the UK and the US limit the generalizability of this study.