nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2007‒05‒12
nine papers chosen by
Maximo Rossi
University of the Republic

  1. From Bottom to Top: The Entire Distribution of Market Income in Germany, 1992 - 2001 By Stefan Bach; Giacomo Corneo; Viktor Steiner
  2. Product Market Regulation, Firm Selection and Unemployment By Gabriel Felbermayr; Julien Prat
  3. Why is the Payoff to Schooling Smaller for Immigrants? By Paul W. Miller; Barry R. Chiswick
  4. Would You Be Happier If You Were Richer? A Focusing Illusion By Daniel Kahneman; Alan B. Krueger; David Schkade; Norbert Schwarz; Arthur A. Stone
  5. The Reliability of Subjective Well-Being Measures By Alan B. Krueger; David A. Schkade
  6. How Many U.S. Jobs Might Be Offshorable? By Alan S. Blinder
  7. Health and wellbeing in Udaipur and South Africa By Anne Case; Angus Deaton
  8. Child mortality, income and adult height By Carlos Bozzoli; Angus Deaton; Climent Quintana-Domeque
  9. The macroeconomics of the labor market: Three fundamental views By Marika Karanassou; Hèctor Sala; Dennis J. Snower

  1. By: Stefan Bach; Giacomo Corneo; Viktor Steiner
    Abstract: We analyze the distribution and concentration of market incomes in Germany in the period 1992 to 2001 on the basis of an integrated data set of individual tax returns and the German Socio-Economic Panel. The unique feature of this integrated data set is that it encompasses the whole spectrum of the population, from the very poor to the very rich. We find a modest increase in overall inequality of market incomes as measured by the Gini coefficient. However, we also document a substantial drop of median income and a remarkable income growth at the top 0.1% of the income distribution. The increase of income inequality was stronger in East Germany than in West Germany. In both regions, the income concentration process strongly benefited the economic elite, which we define as the richest 0.001% persons in the population. While the elite mainly obtains its income from business and capital, the income share that it receives in form of wage income is increasing.
    Keywords: Income Distribution, Top Incomes, Inequality
    JEL: D31 D33 H24
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:diw:diwwpp:dp683&r=ltv
  2. By: Gabriel Felbermayr (University of Tübingen); Julien Prat (University of Vienna and IZA)
    Abstract: This paper analyzes the effect of Product Market Regulation (PMR) on unemployment in a search model with heterogeneous multiple-worker firms. In our setup, PMR modifies the distribution of firm productivities, thereby affecting the equilibrium rate of unemployment. We distinguish between PMR related to entry costs and PMR that generates recurrent fixed costs. We find that: (i) higher entry costs raise the rate of unemployment mainly through our novel selection effect, (ii) higher fixed costs lower unemployment through the selection effect and increase it through the competition effect analyzed in Blanchard and Giavazzi (2003). We propose econometric evidence consistent with the unemployment effects of sunk versus recurring costs.
    Keywords: product market regulation, unemployment, search model, firms heterogeneity
    JEL: E24 J63 L16 O00
    Date: 2007–04
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp2754&r=ltv
  3. By: Paul W. Miller (Department of Economics, The University of Western Australia); Barry R. Chiswick (Department of Economics, The University of Illinois at Chicago)
    Abstract: This paper is concerned with why immigrants appear to have consistently lower partial effects of schooling on earnings than the native born, both across destinations and in different time periods within countries. It uses the Over-Required-Under education approach to occupations, a new decomposition technique developed especially for this approach, and data from the 2000 Census of the United States. Based on the average (mode or mean) level of schooling in their occupation, the schooling of the native and foreign born adult men is divided into the “required” (average) level, and years of under- or over-education. Immigrants have a wider variance in schooling, with an especially large proportion undereducated given the average schooling level in their occupation. Immigrants are shown to receive approximately the same rate of return to the “required” (occupational norm) level of education, but experience a smaller negative effect of years of undereducation, and to a lesser extent a small positive effect of overeducation. About two-thirds of the smaller effect of schooling on earnings for immigrants is due to their different payoffs to undereducation and overeducation. The remainder is largely due to their different distribution of years of schooling. The country-of-origin differences in the returns to under- and over-education are consistent with country differences in the international transferability of skills to the US and the favorable selectivity of economic migrants, especially those from countries other than the English-speaking developed countries. The decomposition developed is used to quantify the contribution of favorable selection in immigration and the less-than-perfect international transferability of skills. The results suggest that favorable selection is the more important contributor to the smaller payoff to schooling for immigrants.
    Keywords: Immigrants, Schooling, Occupations, Earnings, Rates of Return, Selectivity
    JEL: F22 I21 J24 J31 J61
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:uwa:wpaper:06-03&r=ltv
  4. By: Daniel Kahneman (Princeton University); Alan B. Krueger (Princeton University and NBER); David Schkade (University of California, San Diego); Norbert Schwarz (University of Michigan); Arthur A. Stone (Stony Brook University)
    Abstract: Most people believe that they would be happier if they were richer, but survey evidence on subjective well-being is largely inconsistent with that belief. Subjective well-being is most commonly measured by questions that ask people, “All things considered, how satisfied are you with your life as a whole these days?” or “Taken all together, would you say that you are very happy, pretty happy, or not too happy?” Such questions elicit a global evaluation of one’s life. An alternative method asks people to report their feelings in real time, which yields a measure of experienced happiness. Surveys in many countries conducted over decades indicate that, on average, reported global judgments of life satisfaction or happiness have not changed much over the last four decades, in spite of large increases in real income per capita. While reported life satisfaction and household income are positively correlated in a cross-section of people at a given time, increases in income have been found to have mainly a transitory effect on individuals’ reported life satisfaction. (1-3) Moreover, the correlation between income and subjective well-being is weaker when a measure of experienced happiness is used instead of a global measure. This article reviews recent evidence that helps interpret these observations.
    Date: 2006–05
    URL: http://d.repec.org/n?u=RePEc:pri:cepsud:125krueger&r=ltv
  5. By: Alan B. Krueger (Princeton University); David A. Schkade (University of California, San Diego)
    Abstract: Economists are increasingly analyzing data on subjective well-being. Since 2000, 157 papers and numerous books have been published in the economics literature using data on life satisfaction or subjective well-being, according to a search of Econ Lit.1 Here we analyze the test-retest reliability of two measures of subjective well-being: a standard life satisfaction question and affective experience measures derived from the Day Reconstruction Method (DRM). Although economists have longstanding reservations about the feasibility of interpersonal comparisons of utility that we can only partially address here, another question concerns the reliability of such measurements for the same set of individuals over time. Overall life satisfaction should not change very much from week to week. Likewise, individuals who have similar routines from week to week should experience similar feelings over time. How persistent are individuals’ responses to subjective well-being questions? To anticipate our main findings, both measures of subjective well-being (life satisfaction and affective experience) display a serial correlation of about 0.60 when assessed two weeks apart, which is lower than the reliability ratios typically found for education, income and many other common micro economic variables (Bound, Brown, and Mathiowetz, 2001 and Angrist and Krueger, 1999), but high enough to support much of the research that has been undertaken on subjective well-being.
    Date: 2007–01
    URL: http://d.repec.org/n?u=RePEc:pri:cepsud:138krueger&r=ltv
  6. By: Alan S. Blinder (Princeton University)
    Abstract: Using detailed information on the nature of work done in over 800 BLS occupational codes, this paper ranks those occupations according to how easy/hard it is to offshore the work— either physically or electronically. Using that ranking, I estimate that somewhere between 22% and 29% of all U.S. jobs are or will be potentially offshorable within a decade or two. (I make no estimate of how many jobs will actually be offshored.) Since my rankings are subjective, two alternatives are presented—one is entirely objective, the other is an independent subjective ranking. It is found that there is little or no correlation between an occupation’s “offshorability” and the skill level of its workers (as measured either by educational attainment or wages). However, it appears that, controlling for education, the most highly offshorable occupations were already paying significantly lower wages in 2004.
    Date: 2007–03
    URL: http://d.repec.org/n?u=RePEc:pri:cepsud:142blinder&r=ltv
  7. By: Anne Case (Princeton University); Angus Deaton (Princeton University)
    Abstract: This paper presents a descriptive account of health and economic status in India and South Africa – countries in very different positions in the international hierarchy of life expectancy and income. The paper emphasizes the lack of any simple and reliable relationship between health and wealth between and within our sites in rural Rajasthan, in a shack township outside of Cape Town, and in a rural South African site that, until 1994, was part of a Bantustan. Income levels across our sites are roughly in the ratio of 4:2:1, with urban South Africa richest and rural Rajasthan poorest, while ownership of durable goods, often used as a short-cut measure or check of living standards, are in the ratio of 3:2:1. These differences in economic status are reflected in respondents’ own reports of financial status. People know that they are poor, but appear to adapt their expectations to local conditions, at least to some extent. The South Africans are taller and heavier than the Indians—although their children are no taller at the same age. South African self-assessed physical and mental health is no better, and South Africans are more likely to report that they have to miss meals for lack of money. In spite of differences in incomes across the three sites, South Africans and Indians report a very similar list of symptoms of ill-health. Although they have much lower incomes, urban women in South Africa have fully caught up with black American women in the prevalence of obesity, and are catching up in terms of hypertension. These women have the misfortune to be experiencing many of the diseases of affluence without experiencing affluence itself.
    Date: 2006–01
    URL: http://d.repec.org/n?u=RePEc:pri:rpdevs:case_deaton_health_wellbeing_udaipur_sa_05_%20revisedjan06&r=ltv
  8. By: Carlos Bozzoli (Princeton University); Angus Deaton (Princeton University); Climent Quintana-Domeque (Princeton University)
    Abstract: We investigate the childhood determinants of adult height in populations, focusing on the respective roles of income and of disease. We develop a model of selection and scarring, in which the early life burden of nutrition and disease is not only responsible for mortality in childhood but also leaves a residue of long-term health risks for survivors, risks that express themselves in adult height, as well as in late-life disease. Across a range of European countries and the United States, we find a strong inverse relationship between post-neonatal (one month to one year) mortality, interpreted as a measure of the disease and nutritional burden in childhood, and the mean height of those children as adults. In pooled birth-cohort data over 30 years for the United States and eleven European countries, post-neonatal mortality in the year of birth accounts for more than 60 percent of the combined cross-country and cross-cohort variation in adult heights. The estimated effects are smaller but remain significant once we allow for country and birth-cohort effects. In the poorest and highest mortality countries of the world, there is evidence that child mortality is positively associated with adult height. That selection should dominate scarring at high mortality levels, and scarring dominate selection at low mortality levels, is consistent with the model for reasonable values of its parameters.
    Date: 2007–03
    URL: http://d.repec.org/n?u=RePEc:pri:rpdevs:deaton_bozzoli_child_mortality_income_height_march_07_complete_with_abstract&r=ltv
  9. By: Marika Karanassou (Department of Economics, Queen Mary, University of London and IZA); Hèctor Sala (Grup d'Anàlisi Econòmica Aplicada (GEAP) i IZA, Departament d'Economia Aplicada, Universitat Autònoma de Barcelona); Dennis J. Snower (President Institute for World Economics, University of Kiel, CEPR and IZA)
    Abstract: We distinguish and assess three fundamental views of the labor market regarding the movements in unempoyment: (i) the frictionless equilibrium view; (ii) the chain reaction theory, or prolonged adjustment view; and (iii) the hysteresis view. While the frictionless view implies a clear compartmentalization between the short- and long-run, the hysteresis view implies that all the short-run fluctuations automatically turn into long-run changes in the unemployment rate. We assert the problems faced by these conceptions in explaining the diversity of labor market experiences across the OECD labor markets. We argue that the prolonged adjustment view can overcome these problems since it implies that the short, medium, and long runs are interrelated, merging with one another along an intertemporal continuum.
    Keywords: Unemployment, interactive labor market dynamics, interplay of lags and shocks, frictional growth, growth drivers.
    JEL: E22 E24 J21 J30
    Date: 2006–12
    URL: http://d.repec.org/n?u=RePEc:xrp:wpaper:creap2006-15&r=ltv

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