nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2005‒05‒23
five papers chosen by
Maximo Rossi
Universidad de la República

  1. Educational opportunity and income inequality By Igal Hendel; Joel Shapiro; Paul Willen
  2. Effective labor regulation and microeconomic flexibility By Ricardo Caballero; Kevin N. Cowan; Eduardo M. R. A. Engel; Alejandro Micco
  3. The effects of minimum wages on the distribution of family incomes: a nonparametric analysis By David Neumark; Mark Schweitzer; William Wascher
  4. Culture: an empirical investigation of beliefs, work, and fertility By Raquel Fernandez; Alessandra Fogli
  5. Happiness and the Human Development Index: The Paradox of Australia By David G. Blanchflower; Andrew J. Oswald

  1. By: Igal Hendel; Joel Shapiro; Paul Willen
    Abstract: Affordable higher education is, and has been, a key element of social policy in the United States with broad bipartisan support. Financial aid has substantially increased the number of people who complete university—generally thought to be a good thing. We show, however, that making education more affordable can increase income inequality. The mechanism that drives our results is a combination of credit constraints and the ‘signaling’ role of education first explored by Spence (1973). When borrowing for education is difficult, lack of a college education could mean that one is either of low ability or of high ability but with low financial resources. When government programs make borrowing easier or tuition more affordable, high-ability persons become educated and leave the uneducated pool, driving down the wage for unskilled workers and raising the skill premium.
    Keywords: Education - Economic aspects ; Income distribution
    Date: 2004
  2. By: Ricardo Caballero; Kevin N. Cowan; Eduardo M. R. A. Engel; Alejandro Micco
    Abstract: Microeconomic flexibility, by facilitating the process of creative destruction, is at the core of economic growth in modern market economies. The main reason why this process is not infinitely fast is the presence of adjustment costs, some of them technological, others institutional. Chief among the latter is labor market regulation. While few economists would object to such a view, its empirical support is rather weak. In this paper we revisit this hypothesis and find strong evidence for it. We use a new sectoral panel for 60 countries and a methodology suitable for such a panel. We find that job security regulation clearly hampers the creative-destructive process, especially in countries where regulations are likely to be enforced. Moving from the 20th to the 80th percentile in job security, in countries with strong rule of law, cuts the annual speed of adjustment to shocks by a third while shaving off about one percent from annual productivity growth. The same movement has negligible effects in countries with weak rule of law.
    Keywords: Labor market ; Productivity
    Date: 2004
  3. By: David Neumark; Mark Schweitzer; William Wascher
    Abstract: The primary goal of a national minimum wage floor is to raise the incomes of poor families with members in the work force. We present evidence on the effects of minimum wages on family incomes from March CPS surveys. Using non-parametric estimates of the distributions of family income relative to needs in states and years with and without minimum wage increases, we examine the effects of minimum wages on this distribution, and on the distribution of the changes in income that families experience. Although minimum wages do increase the incomes of some poor families, the evidence indicates that their net effect is, if anything, to increase the proportions of families with incomes below or near the poverty line. Thus, it would appear that reductions in the proportions of families that are poor or near-poor should not be counted among the potential benefits of minimum wages.
    Keywords: Minimum wage ; Poverty
    Date: 2004
  4. By: Raquel Fernandez; Alessandra Fogli
    Abstract: We study the effect of culture on important economic outcomes by using the 1970 census to examine the work and fertility behavior of women born in the U.S. but whose parents were born elsewhere. We use past female labor force participation and total fertility rates from the country of ancestry as our cultural proxies. These variables should capture, in addition to past economic and institutional conditions, the beliefs commonly held about the role of women in society (i.e., culture). Given the different time and place, only the beliefs embodied in the cultural proxies should be potentially relevant. We show that these cultural proxies have positive and significant explanatory power for individual work and fertility outcomes, even after controlling for possible indirect effects of culture. We examine alternative hypotheses for these positive correlations and show that neither unobserved human capital nor networks are likely to be responsible.
    Date: 2005
  5. By: David G. Blanchflower (Dartmouth College and IZA Bonn); Andrew J. Oswald (University of Warwick, Harvard University and IZA Bonn)
    Abstract: According to the well-being measure known as the U.N. Human Development Index, Australia now ranks 3rd in the world and higher than all other English-speaking nations. This paper questions that assessment. It reviews work on the economics of happiness, considers implications for policymakers, and explores where Australia lies in international subjective well-being rankings. Using new data on approximately 50,000 randomly sampled individuals from 35 nations, the paper shows that Australians have some of the lowest levels of job satisfaction in the world. Moreover, among the sub-sample of English-speaking nations, where a common language should help subjective measures to be reliable, Australia performs poorly on a range of happiness indicators. The paper discusses this paradox. Our purpose is not to reject HDI methods, but rather to argue that much remains to be understood in this area.
    Keywords: well-being, happiness, HDI, macroeconomics
    JEL: E6
    Date: 2005–05

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