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Employment practices of firms are recognized as an important reason for societal incomeinequality in richer countries (Cobb, 2016). They are believed to translate countriesinstitutional characteristics into organizational structures that in turn shape the distribution ofincomes (Davis, 2017). However, empirical evidence is still scarce whether and to what extentthis is the case. In this paper, we employ fuzzy-set QCA in order to identify interactions betweencountries' institutional arrangements and their firms employment practices that establish causalmechanisms explaining income inequality. The analysis is based on panel data at country-levelfor 22 OECD countries between 1996 and 2012. We find that employment practices highlymatter: externalizing employment practices and temporary work for high income inequality;internal labor markets, less frequent temporary but frequent part-time work for lower incomeinequality. While different employment practices often arise from countries diverseinstitutional characteristics (Amable, 2003), employment practices that lead to high incomeinequality also pervade countries whose institutions differ substantially.