Chapter 4 Applying The Decomposition of the Foster and Wolfson Bipolarization Index to Earnings Functions

Abstract This chapter shows that the algorithm recently proposed to decompose the Foster and Wolfson bipolarization index by income sources (see Barcena-Martin, Deutsch, & Silber, forthcoming) may be extended to break down wage bipolarization by its determinants. The chapter gives an empirical illustration comparing the determinants of wage bipolarization and inequality in various European countries in 2011, with a special focus on Portugal. In Portugal higher levels of education are the main source of bipolarization and inequality. Gender and working in the public sector are important determinants of bipolarization while age and having a temporary job are important determinants of inequality.