nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2005‒06‒14
eight papers chosen by
Maximo Rossi
Universidad de la República

  1. Class and Tastes: The Effects of Income and Preference Heterogeneity on Redistribution By Fernández, Raquel; Levy, Gilat
  2. Autopsy on an Empire: Understanding Mortality in Russia and the Former Soviet Union By Brainerd, Elizabeth; Cutler, David M
  3. Job Security and Job Protection By Clark, Andrew E; Postel-Vinay, Fabien
  4. Product Market Integration, Wages and Inequality By Andersen, Torben M; Sorensen, Allan
  5. Culture: An Empirical Investigation of Beliefs, Work and Fertility By Fernández, Raquel; Fogli, Alessandra
  6. The Behavioral Effects of Minimum Wages By Armin Falk; Ernst Fehr; Christian Zehnder
  7. The College Wage Premium, Overeducation, and the Expansion of Higher Education in the UK By Ian Walker; Yu Zhu
  8. Statistical Discrimination in Labor Markets: An Experimental Analysis By David Dickinson; Ronald Oaxaca

  1. By: Fernández, Raquel; Levy, Gilat
    Abstract: In this paper we analyze the interaction of income and preference heterogeneity in a political economy framework. We ask whether the presence of preference heterogeneity (arising, for example, from different ethnic groups or geographic locations) affects the ability of the poor to extract resources from the rich and, conversely, whether income inequality affects which preferences are given precedence in society. We study the equilibrium of a game in which coalitions of individuals form parties, parties propose platforms, and all individuals vote, with the winning policy chosen by plurality. Political parties are restricted to offering platforms that are credible (in that they belong to the Pareto set of their members). The platforms specify the values of two policy tools: a general redistributive tax which is lump-sum rebated (or used to fund a general public good) and a series of taxes whose revenue is used to fund specific (targeted) goods tailored to particular preferences or localities. Individuals differ both in income and also as to whether they receive utility from some specific good. Our analysis demonstrates that taste conflict first dilutes but later reinforces class interests. When the degree of taste diversity is low, the equilibrium policy is characterized by some amount of general income distribution and some targeted transfers. As a group, however, the poor obtain less income distribution than if taste heterogeneity did not exist. As taste diversity increases in society, the set of equilibrium policies becomes more and more tilted towards special interest groups and against general redistribution. As diversity increases further, however, these policies are not sustainable. There exists a critical threshold of diversity above which the only policy that can emerge supports exclusively general redistribution. In fact, this policy is identical to the one that would be instituted in the absence of any taste diversity at all.
    Keywords: diversity; income inequality; political parties; preferences; redistribution
    JEL: D30 D72
    Date: 2005–01
  2. By: Brainerd, Elizabeth; Cutler, David M
    Abstract: Male life expectancy at birth fell by over six years in Russia between 1989 and 1994. Many other countries of the former Soviet Union saw similar declines, and female life expectancy fell as well. Using cross-country and Russian household survey data, we assess six possible explanations for this upsurge in mortality. Most find little support in the data: the deterioration of the health care system, changes in diet and obesity, and material deprivation fail to explain the increase in mortality rates. The two factors that do appear to be important are alcohol consumption, especially as it relates to external causes of death (homicide, suicide, and accidents) and stress associated with a poor outlook for the future. However, a large residual remains to be explained.
    Keywords: eastern europe; health; mortality; Russia
    JEL: I12 J10 P36
    Date: 2005–02
  3. By: Clark, Andrew E; Postel-Vinay, Fabien
    Abstract: We construct indicators of the perception of job security for various types of jobs in 12 European countries using individual data from the European Community Household Panel (ECHP). We then consider the relation between reported job security and OECD summary measures of Employment Protection Legislation (EPL) strictness on one hand, and Unemployment Insurance Benefit (UIB) generosity on the other. We find that, after controlling for selection into job types, workers feel most secure in permanent public sector jobs, least secure in temporary jobs, with permanent private sector jobs occupying an intermediate position. We also find that perceived job security in both permanent private and temporary jobs is positively correlated with UIB generosity, while the relationship with EPL strictness is negative: workers feel less secure in countries where jobs are more protected. These correlations are absent for permanent public jobs, suggesting that such jobs are perceived, by and large, to be insulated from labour market fluctuations.
    Keywords: employment protection legislation; perceived job security; unemployment insurance benefits
    JEL: I31 J28 J65
    Date: 2005–02
  4. By: Andersen, Torben M; Sorensen, Allan
    Abstract: International integration strengthening intra-industrial trade may have important implications for employment, wages and inequality. The reason is that product market integration enhances export possibilities through easier access to foreign markets, but also import threats arising from foreign firms entering the domestic market. We explore the implications of these mechanisms in a general equilibrium version of a Ricardian trade model allowing for heterogeneity and imperfect competition in both product and labour markets. International integration is interpreted as a reduction in trade frictions. We find that wage dispersion in general tend to be U-shaped, at first falling and then increasing in product market integration. This finding has important implications not only for the ‘globalization’ debate, but also for empirical analysis.
    Keywords: comparative advantages; inequality; rent sharing; trade frictions
    JEL: F15 F16 J39 J50
    Date: 2005–03
  5. By: Fernández, Raquel; Fogli, Alessandra
    Abstract: We study the effect of culture on important economic outcomes by using the 1970 Census to examine the work and fertility behaviour of women 30-40 years old, born in the US, but whose parents were born elsewhere. We use past female labour 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 to women’s behaviour in the US in 1970. 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 (e.g., education and spousal characteristics). We examine alternative hypotheses for these positive correlations and show that neither unobserved human capital nor networks are likely to be responsible. We also show that the effect of these cultural proxies is amplified the greater is the tendency for ethnic groups to cluster in the same neighbourhoods.
    Keywords: cultural transmission; family; female labour force participation; fertility; immigrants; neighbourhoods; networks
    JEL: J13 J21 Z10
    Date: 2005–05
  6. By: Armin Falk (IZA Bonn and University of Bonn); Ernst Fehr (University of Zurich and IZA Bonn); Christian Zehnder (University of Zurich and IZA Bonn)
    Abstract: The prevailing labor market models assume that minimum wages do not affect the labor supply schedule. We challenge this view in this paper by showing experimentally that minimum wages have significant and lasting effects on subjects’ reservation wages. The temporary introduction of a minimum wage leads to a rise in subjects’ reservation wages which persists even after the minimum wage has been removed. Firms are therefore forced to pay higher wages after the removal of the minimum wage than before its introduction. As a consequence, the employment effects of removing the minimum wage are significantly smaller than are the effects of its introduction. The impact of minimum wages on reservation wages may also explain the anomalously low utilization of subminimum wages if employers are given the opportunity of paying less than a minimum wage previously introduced. It may further explain why employers often increase workers' wages after an increase in the minimum wage by an amount exceeding that necessary for compliance with the higher minimum. At a more general level, our results suggest that economic policy may affect people’s behavior by shaping the perception of what is a fair transaction and by creating entitlement effects.
    Keywords: minimum wages, labor market, monopsony, fairness, reservation wages, entitlement
    JEL: C91 D63 E64 J38 J42 J58 J68
    Date: 2005–06
  7. By: Ian Walker (University of Warwick, Institute for Fiscal Studies and IZA Bonn); Yu Zhu (University of Kent and Centre for the Economics of Education)
    Abstract: This paper provides findings from the UK Labour Force Surveys from 1996 to 2003 on the financial private returns to a degree - the "college premium". The data covers a decade when the university participation rate doubled - yet we find no significant evidence that the mean return to a degree dropped in response to this large increase in the flow of graduates. However, we do find quite large falls in returns when we compare the cohorts that went to university before and after the recent rapid expansion of HE. The evidence is consistent with the notion that new graduates are a close substitute for recent graduates but poor substitutes for older graduates. There appears to have been a very recent increase in the number of graduates getting "non-graduate" jobs but, conditional on getting a graduate job the returns seem stable. Our results are consistent across almost all degree subjects - the exception being maths and engineering where we find that for men, and especially for women, there is a large increase in the proportion with maths and engineering degrees getting graduate jobs and that, conditional on this, the return is rising.
    Keywords: human capital, higher education, college premium
    JEL: I20 J30
    Date: 2005–06
  8. By: David Dickinson (Appalachian State University); Ronald Oaxaca
    Abstract: Statistical discrimination occurs when distinctions between demographic groups are made on the basis of real or imagined statistical distinctions between the groups. While such discrimination is legal in some cases (e.g., insurance markets), it is illegal and/or controversial in others (e.g., racial profiling and gender-based labor market discrimination). First moment statistical discrimination occurs when, for example, female workers are offered lower wages because females are perceived to be less productive, on average, than male workers. Second moment discrimination occurs when risk averse employers offer female workers lower wages based not on lower average productivity but on a higher variance in their productivity. Empirical work on statistical discrimination is hampered by the difficulty of obtaining suitable data from naturally-occurring labor markets. This article reports results from controlled laboratory experiments designed to study second moment statistical discrimination in a simulated labor marker setting. Since decision-makers may not view risk in the same way as economists or statisticians (i.e., risk=variance of distribution), we also examine two possible alternative measures of risk: the support of the distribution, and the probability of earning less than the expected (maximum) profits for the employer. Our results indicate that individuals do respond to these alternative measures of risk, and employers made statistically discriminatory wage offers consistent with loss-aversion in our full sample (though differences between male and female employers can be noted). If one can transfer these results outside of the laboratory, they indicate that labor market discrimination based only on first moment discrimination is biased downward. The public policy implication is that efforts and legislation aimed at reducing discrimination of various sorts face an additional challenge in trying to identify and limit relatively hidden, but significant, forms of statistical discrimination.
    Date: 2005

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