New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2009‒06‒17
ten papers chosen by

  2. What if Congress Doubled R&D Spending on the Physical Sciences? By Richard Freeman; John Van Reenen
  3. Unions and Workplace Performance in Britain and France By Alex Bryson; John Forth; Patrice Laroche
  4. Government Transfers and Political Support By Marco Manacorda; Edward Miguel; Andrea Vigorito
  5. Unemployment Insurance and Cultural Transmission: Theory and Application to European Unemployment By Jean-Baptiste Michau
  6. Does Relative Income Matter? Are the Critics Right? By Richard Layard; Guy Mayraz; Stephen Nickell
  7. Ethnic and Gender Wage Gaps in Ecuador By Lourdes Gallardo; Hugo Nopo
  8. Empirics of Strategic Interdependence: The Case of the Racial Tipping Point By William Easterly
  9. Building Social Trust: A Human Capital Approach By Fali Huang
  10. The Informal Sector Wage Gap: New Evidence Using Quantile Estimations on Panel Data By Olivier Bargain; Prudence Kwenda

  1. By: Ian McDonald
    Abstract: This paper argues that the theory of wage and price setting in macroeconomics should be broadened to include insights from behavioural economics, in particular prospect theory and loss aversion. The paper shows how broader microeconomic foundations can explain the main features of a realistic Phillips curve, which are the concurrence of a steep SRPC at low unemployment, a flat SRPC at high unemployment and speed-limit effects. The resulting macroeconomic model has the benefits of consistency with important properties of natural rate models, especially a crucial role for inflation expectations and, in determining the economy’s macroeconomic potential, for supply factors, plus the benefit of consistency with the standard IS/LM model. The paper also shows that the behavioural aspects of these broader microeconomic foundations were alluded to by Keynes and Robinson in 1936 when macroeconomics was created.
    JEL: E12 E24 E31
    Date: 2008–08
  2. By: Richard Freeman; John Van Reenen
    Abstract: Many business, academic, and scientific groups have recommended that the Congress substantiallyincrease R&D spending in the near future. President Bush's American Competitiveness Initiative callsfor a doubling of spending over the next decade in selected agencies that deal with the physical sciences, including the National Science Foundation. We consider the rationale for government R&D spending in the context of globalization and as an investment in human capital and knowledge creation with gestation times far longer than Federal funding cycles. To assess the impact of a large increase in R&D spending on the science job market, we examine the impact of the 1998- 2003 doubling of the NIH budget on the bio-medical sciences. We find that the rapid increase in NIH spending and ensuing deceleration created substantial adjustment problems in the market for researchand failed to address long-standing problems with scientific careers that are likely to deter many young people from choosing a scientific career. We argue that because research simultaneouslyproduces knowledge and add to the human capital of researchers, which has greater value for youngscientists because of their longer future career life span than to older scientists, there is reason for funding agencies to tilt their awards to younger researchers.
    Keywords: Basic Science, R&D, labor markets for scientists, globalization
    JEL: J23 J45
    Date: 2009–05
  3. By: Alex Bryson; John Forth; Patrice Laroche
    Abstract: Using nationally representative workplace surveys we examine the relationship between unionization and workplace financial performance in Britain and France. We find that union bargaining is detrimental to workplace performance in Britain and that this effect is larger when unionization is endogenized. In France, union bargaining is associated with poorer workplace performance but the effect disappears once unionization is treated as endogenous. However, high levels of union density do have a negative impact on workplace performance in France. In Britain the union effect does not rise with union density.
    Keywords: Trade union, firm performance, France, Britain
    JEL: J51 L25
    Date: 2009–04
  4. By: Marco Manacorda; Edward Miguel; Andrea Vigorito
    Abstract: We estimate the impact of a large anti-poverty program - the Uruguayan PANES - on political support for thegovernment that implemented it. The program mainly consisted of a monthly cash transfer for a period ofroughly two and half years. Using the discontinuity in program assignment based on a pre-treatment score, wefind that beneficiary households are 21 to 28 percentage points more likely to favor the current government(relative to the previous government). Impacts on political support are larger among poorer households and forthose near the center of the political spectrum, consistent with the probabilistic voting model in politicaleconomy. Effects persist after the cash transfer program ends. We estimate that the annual cost of increasinggovernment political support by 1 percentage point is roughly 0.9% of annual government social expenditures.
    Keywords: Conditional cash transfers, redistributive politics, voting, regression discontinuity
    JEL: I38 D72
    Date: 2009–03
  5. By: Jean-Baptiste Michau
    Abstract: This paper emphasizes the two-way causality between the provision of unemployment insurance andthe cultural transmission of work ethic. Values affect the size of the moral-hazard problem and, hence,the policy to be implemented. Conversely, when parents rationally choose how much effort to exert toraise their children to work hard, they form expectations on the policy that will be implemented by thenext generation. In this context, I determine the dynamics of preferences across generations and showthat the different cultural traits, i.e. high and low work ethics, are complementary. The model couldgenerate a lag between the introduction of unemployment insurance and a deterioration of the workethic. Relying on a calibration, I argue that it can account for a substantial fraction of the history ofEuropean unemployment since World War II. As this explanation is compatible with the co- existenceof generous unemployment insurance and low unemployment in the 1950s and 1960s, it could be seenas an alternative to the dominant story that relies on the occurrence of large shocks since the 1970s.Supportive empirical evidence is provided.
    Keywords: cultural transmission, European unemployment, unemployment insurance, work ethic
    JEL: E24 H31 J65 Z10
    Date: 2009–06
  6. By: Richard Layard; Guy Mayraz; Stephen Nickell
    Abstract: Do other peoples' incomes reduce the happiness which people in advanced countries experience fromany given income? And does this help to explain why in the U.S., Germany and some other advancedcountries, happiness has been constant for many decades? The answer to both questions is 'Yes'. Weprovide 4 main pieces of evidence. 1) In the U.S. General Survey (repeated samples since 1972)comparator income has a negative effect on happiness equal in magnitude to the positive effect ofown income. 2) In the West German Socio-Economic Panel since 1984 the same is true but with lifesatisfactionas the dependant variable. We also use the Panel to compare the effect of incomecomparisons and of adaptation as factors explaining the stable level of life-satisfaction: incomecomparisons emerge as much the more important. 3) When in our U.S. analysis we introduce"perceived" relative income as a potential explanatory variable, its effect is as large as the effect ofactual relative income - further supporting the view that comparisons matter. 4) Finally, for a panel ofEuropean countries since 1973 we estimate the effect of average income upon average lifesatisfaction,splitting income into two components: trend and cycle. The effect of trend income issmall and ill-defined. Our conclusions relate to time series and to advanced countries only. Theydiffer from those drawn in recent studies by Deaton and Stevenson/Wolfers, but those studies arelargely cross-sectional and mostly include non-advanced as well as advanced countries.
    Keywords: Easterlin Paradox, happiness, relative income, growth
    JEL: D31 D90 E01 H00 I31 O15
    Date: 2009–03
  7. By: Lourdes Gallardo; Hugo Nopo
    Abstract: Returns to labor for workers with similar endowments of productive characteristics in Ecuador are influenced by two characteristics that, arguably, should play no role on the determination of wages: gender and ethnicity. This paper analyzes wage gaps due to both characteristics in Ecuador for the period 2003-2007, applying a matching comparisons technique developed in Ñopo (2008). The results indicate ethnic wage gaps that are notably higher than gender wage gaps. Furthermore, ethnic wage gaps are higher among males than among females. Differences in human capital characteristics, however, explain almost one-half of the ethnic wage gaps but only a small fraction of the gender wage gaps. Both gender and ethnic wage gaps are more pronounced at the lower extremes of the earnings distribution.
    Keywords: Matching, Non-parametric, Wage Gaps, Gender, Ethnicity, Latin America
    JEL: C14 D31 J16 O54
    Date: 2009–04
  8. By: William Easterly
    Abstract: The Schelling model of a "tipping point" in racial segregation, in which whites flee a neighborhood once a threshold of nonwhites is reached, is a canonical model of strategic interdependence. The idea of "tipping" explaining segregation is widely accepted in the academic literature and popular media. I use census tract data for metropolitan areas of the US from 1970 to 2000 to test the predictions of the Schelling model and find that this particular model of strategic interaction largely fails the tests. There is more "white flight" out of neighborhoods with a high initial share of whites than out of more racially mixed neighborhoods
    JEL: D85 O10 R0 Z13
    Date: 2009–06
  9. By: Fali Huang (School of Economics, Singapore Management University)
    Abstract: Much evidence suggests individuals differ in their predisposition to cooperate, which is essentially a component of human capital. This paper examines the role of individual cooperative tendencies and their interactions with institutions in generating social trust; it also endogenizes cooperative tendencies using a human capital investment model. Multiple equilibria and ineffciencies exist due to positive externalities. An innovative fi?nding is that, when institutions are more e¤ective in punishing defecting behaviors, more people invest in cooperative tendencies and hence the endogenous social trust is higher, though the equilibrium cooperative tendencies are lower. This paper provides a plausible explanation for many empirical and experimental results
    JEL: Z13 J24
    Date: 2007–09
  10. By: Olivier Bargain (UCD Geary Institute); Prudence Kwenda (University College Dublin)
    Abstract: This paper provides new evidence on the wage gap between informal and formal salary workers in South Africa, Brazil and Mexico. We use rich datasets that allow us to define informality in a relatively comparable fashion across countries. We compute precise wage differentials by accounting for taxes paid in the formal sector. For each country, we analyze how the sector wage gap varies within groups, between groups and over time. To account for unobserved heterogeneity, we use large (unbalanced) panels to estimate fixed effects models at the mean and at different quantiles of the wage distribution. We find that unobserved heterogeneity explains a large part of the (conditional) wage gap. The remaining informal sector wage penalty is large in the lower part of the distribution but almost disappears at the top. The penalty primarily concerns young workers and is found to be procyclical. We carefully investigate the robustness of these results and discuss their policy implications as well as regularities across countries.
    Keywords: wage gap, informal sector, quantile regression, fixed effects model, selection
    JEL: J21 J23 J24 J31 C14 O17
    Date: 2009–06–10

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