nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2009‒03‒14
seven papers chosen by
Maximo Rossi
University of the Republic

  1. Do Smart Parents Raise Smart Children? : The Intergenerational Transmission of Cognitive Abilities By Silke Anger; Guido Heineck
  2. What Should Be Done about Rising Unemployment in the UK? By Bell, David N.F.; Blanchflower, David G.
  3. Is income becoming more polarized Italy? A closer look with a distributional approach By Riccardo Massari
  4. Health Care Expenditure and Income in the OECD Reconsidered: Evidence from Panel Data By Badi H. Baltagi; Francesco Moscone
  5. Weakly relative poverty By Ravallion, Martin; Chen, Shaohua
  6. Migration in an enlarged EU: A challenging solution? By Kahanec, Martin; Zimmermann, Klaus F
  7. Labor Regulations, Unions, and Social Protection in Developing Countries: Market distortions or Efficient Institutions? By Richard B. Freeman

  1. By: Silke Anger; Guido Heineck
    Abstract: Complementing prior research on income mobility and educational transmission, we provide evidence on the intergenerational transmission of cognitive abilities using data from the German Socio-Economic Panel Study. Our estimates suggest that individuals¿ cognitive skills are positively related to the abilities of their parents, even when educational attainment and family background is controlled for. We differentiate between mothers¿ and fathers¿ IQ transmission and find different effects on the cognition of sons and daughters. We show that cognitive skills which are based on past learning are more strongly transmitted from parents to children than cognitive skills which are related to innate abilities. Our findings are not compatible with a pure genetic model, but rather point to the importance of parental investments for the cognitive outcomes of children.
    Keywords: Cognitive abilities, intergenerational IQ transmission, skill formation
    JEL: J10 J24 I20
    Date: 2009
  2. By: Bell, David N.F. (University of Stirling); Blanchflower, David G. (Dartmouth College)
    Abstract: This paper considers the issue of unemployment one of the most pressing issues facing the UK and other governments, as the current recessions deepens. It begins by trying to accurately date the beginning of the current downturn in the British economy, arguing that it is clear that the recession commenced in the 2nd quarter of 2008. It then examines whether this recession is substantively different from past downturns in the UK and argues that, although the extreme rationing up of credit marks the current recession as different, some of the labour market consequences, such as the concentration of unemployment among the young and other disadvantaged groups, is typical of past experience. The paper reviews past literature on the causes of unemployment, arguing that the origin of the present difficulties lies with a collapse in demand rather than with frictions in the labour market caused by institutional inflexibilities. There is a large literature on the negative impact of unemployment both on society and on individuals. The adverse societal consequences are reviewed in the next section, while we discuss some of our own research on the adverse consequences on the individual in Section 6. Just as in previous recessions, it is becoming clear that some groups will suffer a much higher incidence of unemployment during this downturn and therefore suffer to a greater than average extent the adverse individual effects that we discussed in Section 6. The evidence on the composition of these groups is reviewed and presented along with some of our own research on this issue in the following section. One of the key groups who are likely to be affected by the recession is the young. In Section 8, we review the particular difficulties faced by them in trying to secure a footing in the labour market. In the last two decades many governments have introduced policies (collectively described as Active Labour Market Policies or ALMPs) for direct intervention in the labour market to improve outcomes for particular groups and for the young in particular. The next section reviews the evidence on the success of these policies. The final section discusses some policy proposals which we offer to alleviate what we believe will be the very serious adverse consequences of the likely increase in unemployment in the UK over the short to medium term.
    Keywords: unemployment, youth unemployment
    JEL: J21
    Date: 2009–02
  3. By: Riccardo Massari
    Abstract: During the 1990’s and the early 2000’s income inequality in Italy shows levels higher than many other OECD countries, not displaying any significant trend, upward or downward. This evidence relies essentially on summary measures of inequality, which may not capture aspects of the whole income probability density, such as multi-modalities and polarization. This paper applies a non-parametric tool, the “relative distribution”, to describe patterns of changes on the entire Italian household income distribution over the period 1989–2006. Furthermore, this approach also allows us to decompose the relative density into changes in location and changes in shape, in order to emphasize whether income distribution becomes more polarized or exhibits patterns of convergence toward middle income classes. A similar decomposition enables us to analyze the impact of selected covariates on income distribution. During the period Italy experienced a significant increase of household income polarization, which has particularly affected incomes below the median. In addition, this relative polarization is mainly correlated to changes in the returns to household-head occupational status.
    Keywords: Income distribution, Relative Distribution, Polarization
    JEL: D31 C14
    Date: 2009–02
  4. By: Badi H. Baltagi; Francesco Moscone
    Abstract: This paper reconsiders the long-run economic relationship between health care expenditure and income using a panel of 20 OECD countries observed over the period 1971-2004. In particular, the paper studies the non-stationarity and cointegration properties between health care spending and income. This is done in a panel data context controlling for both cross-section dependence and unobserved heterogeneity. Cross-section dependence is modelled through a common factor model and through spatial dependence. Heterogeneity is handled through fixed effects in a panel homogeneous model and through a panel heterogeneous model. Our findings suggest that health care is a necessity rather than a luxury, with an elasticity much smaller than that estimated in previous studies.
    Keywords: Health expenditure; income elasticity; cross section dependence; heterogeneous panels; factor models
    JEL: C31 C33 H51
    Date: 2009–02
  5. By: Ravallion, Martin; Chen, Shaohua
    Abstract: Prevailing measures of relative poverty put an implausibly high weight on relative deprivation, such that measured poverty does not fall when all incomes grow at the same rate. This stems from the (implicit) assumption in past measures that very poor people incur a negligible cost of social inclusion. That assumption is inconsistent with evidence on the social roles of certain private expenditures in poor settings and with data on national poverty lines. The authors propose a new schedule of"weakly relative"lines that relax this assumption and estimate the implied poverty measures for 116 developing countries. The authors find that there is more relative poverty than past estimates have suggested. In 2005, one half of the population of the developing world lived in relative poverty, half of whom were absolutely poor. The total number of relatively poor rose over 1981-2005, despite falling numbers of absolutely poor. With sustained economic growth, the incidence of relative poverty becomes less responsive to further growth. Slower progress against relative poverty can thus be seen as the"other side of the coin"to success against absolute poverty.
    Keywords: Rural Poverty Reduction,Population Policies,Achieving Shared Growth,Inequality
    Date: 2009–02–01
  6. By: Kahanec, Martin; Zimmermann, Klaus F
    Abstract: The 2004 and 2007 enlargements of the European Union were unprecedented in a number of economic and policy aspects. This essay provides a broad and in-depth account of the effects of the post-enlargement migration flows on the receiving as well as sending countries in three broader areas: labour markets, welfare systems, and growth and competitiveness. Our analysis of the available literature and empirical evidence shows that (i) EU enlargement had a significant impact on migration flows from new to old member states, (ii) restrictions applied in some of the countries did not stop migrants from coming but changed the composition of the immigrants, (iii) any negative effects in the labour market on wages or employment are hard to detect, (iv) post-enlargement migration contributes to growth prospects of the EU, (v) these immigrants are strongly attached to the labour market, and (vi) they are quite unlikely to be among welfare recipients. These findings point out the difficulties that restrictions on the free movement of workers bring about.
    Keywords: EU Eastern enlargement; free movement of workers; migration; migration effects
    JEL: F22 J16 J61
    Date: 2009–03
  7. By: Richard B. Freeman
    Abstract: This essay reviews what economists have learned about the impact of labor market institutions, defined broadly as government regulations and union activity on labor outcomes in developing countries. It finds that: 1) Labor institutions vary greatly among developing countries but less than they vary among advanced countries. Unions and collective bargaining are less important in developing than in advanced countries while government regulations are nominally as important. 2) Many developing countries compliance with minimum wage regulations produce spikes in wage distributions around the minimum in covered sectors. Most studies find modest adverse effects of the minimum on employment so that the minimum raises the total income of low paid labor. 3) In many countries minimum wages “spill-over†to the unregulated sector, producing spikes in the wage distributions there as well. 4) Employment protection regulations and related laws shift output and employment to informal sectors and reduce gross labor mobility. 5) Mandated benefits increase labor costs and reduce employment modestly while the costs of others are shifted largely to labor, with some variation among countries. 6) Contrary to the Harris-Todaro two sector model in which rural-urban migration adjust to produce a positive relation between unemployment and wages across regions and sectors, wages and unemployment are inversely related by the “wage curveâ€. 7) Unions affect non-wage outcomes as well as wage outcomes. 8) Cross-country regressions yield inconclusive results on the impact of labor regulations on growth while studies of country adjustments to economic shocks, such as balance of payments problems, find no difference in the responses of countries by the strength of labor institutions. 9) Labor institution can be critical when countries experience great change, as in China’s growth spurt and Argentina’s preservation of social stability and democracy after its 2001-2002 economic collapse. Cooperative labor relations tend to produce better economic outcomes. 10) The informal sector increased its share of the work force in the developing world in the past two decades. The persistence of large informal sectors throughout the developing world, including countries with high rates of growth, puts a premium on increasing our knowledge of how informal sector labor markets work and finding institutions and policies to deliver social benefits to workers in that sector.
    JEL: J01 J08 J2 J3 J31 J5
    Date: 2009–03

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