New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2011‒08‒29
eleven papers chosen by

  1. Finance and Income Inequality: What Do the Data Tell Us? By George R. G. Clarke; Lixin Colin Xu; Heng-fu Zou
  2. Can Compulsory Military Service Raise Civilian Wages? Evidence from the Peacetime Draft in Portugal By Card, David; Cardoso, Ana Rute
  3. Inequality and poverty under Latin America’s new left regimes By Darryl McLeod; Nora Lustig
  4. An integrated approach for the measurement of inequality, poverty, and richness By Nuno Crespo; Sandrina Berthault Moreira; Nádia Simões
  5. Multidimensional indices of achievements and poverty: What do we gain and what do we lose? By Nora Lustig
  6. The decline in inequality in Latin America: How much, since when and why By Nora Lustig; Luis Felipe Lopez-Calva; Eduardo Ortiz-Juarez
  7. Commitment to Equity Assessment (CEQ). A diagnostic framework to assess governments’ fiscal policies. Handbook By Nora Lustig
  8. The rise and fall of income inequality in Latin America By Leonardo Gasparini; Nora Lustig
  9. Are Conditional Cash Transfers Effective in Urban Areas? Evidence from Mexico By Jere R. Behrman; Jorge Gallardo-Garcia; Susan W. Parker; Petra E. Todd; Viviana Velez-Grajales
  10. Explaining Charter School Effectiveness By Joshua D. Angrist; Parag A. Pathak; Christopher R. Walters
  11. "Beauty Is the Promise of Happiness"? By Daniel S. Hamermesh; Jason Abrevaya

  1. By: George R. G. Clarke (Research Department, World Bank); Lixin Colin Xu (Research Department, World Bank; Guanghua School of Management, Peking University); Heng-fu Zou (Research Department, World Bank)
    Abstract: Although there are distinct conjectures about the relationship between finance and income inequality, little empirical research compares their explanatory power. We examine the relationship between finance and income inequality for 83 countries between 1960 and 1995. Because financial development might be endogenous, we use instruments from the literature on law, finance, and growth to control for this. Our results suggest that, in the long run, inequality is less when financial development is greater, consistent with Galor and Zeira (1993) and Banerjee and Newman (1993). Although the results also suggest that inequality might increase as financial sector development increases at very low levels of financial sector development, as suggested by Greenwood and Jovanovic (1990), this result is not robust. We reject the hypothesis that financial development benefits only the rich. Our results thus suggest that in addition to improving growth, financial development also reduces inequality.
    JEL: D3 G2 O1
    Date: 2011
  2. By: Card, David (University of California, Berkeley); Cardoso, Ana Rute (IAE Barcelona (CSIC))
    Abstract: Although the practice of military conscription was widespread during most of the past century, credible evidence on the effects of mandatory service is limited. Angrist (1990) showed that the Vietnam-era draft in the U.S. lowered the early-career wages of conscripts, a finding he attributed to the low value of military experience. More recent studies have found a mixed pattern of effects, with both negative (the Netherlands) and positive (in Sweden) earnings impacts. Even among Vietnam era draftees, Angrist and Chen (2011) find that the net effect on earnings by age 50 is close to zero. We provide new evidence on the long-term impacts of peacetime conscription in a "low education" labor market, using longitudinal data for Portuguese men born in 1967. These men were inducted at a relatively late age (21), allowing us to use pre- conscription wages as a control for potential ability differences between conscripts and non- conscripts. Our estimates of the average impact of military service for men who had entered the labor market by age 21 are slightly positive (1-2 percent) but not significantly different from zero throughout the period from 2 to 20 years after their service. These small average effects arise from a significantly positive later-life impact for men with only primary education, coupled with a zero-effect for men with higher education. The positive impacts for less-educated men suggest that mandatory service can be a valuable experience for poorly-educated men who might otherwise spend their careers in low-level jobs.
    Keywords: military conscription, longitudinal earnings, quasi-differences, sensitivity analysis
    JEL: J31 J24
    Date: 2011–08
  3. By: Darryl McLeod (Fordham University); Nora Lustig (Tulane University and Center for Global Development)
    Abstract: Inequality and poverty fell sharply in many Latin American countries during a decade in which voters in ten countries chose left-leaning leaders. Are these developments related? Using data for 18 Latin American countries, this paper presents econometric evidence that social democratic regimes in Brazil and Chile were more successful at reducing inequality and poverty than the so-called populist regimes of Argentina, Bolivia, and Venezuela. Both groups implemented policies to redistribute income, but the social democratic regimes’ efforts were more effective. The left populists regimes such as Argentina and Venezuela started the 1990-2008 sample window with lower levels of inequality, so to some extent recent reductions in inequality are a return to “normal” levels (as estimated by fixed effects). Conversely, inequality and poverty in Brazil and Chile fell to historic lows. Moreover, overall terms of trade shocks were more favorable to Argentina and Venezuela, so part of the drop in inequality can be attributed to commodity price booms.
    Keywords: inequality, poverty, social policy, new left, Latin America.
    JEL: D31 D33 I32 I38 O15 O54 P16
    Date: 2011
  4. By: Nuno Crespo (Lisbon University Institute and UNIDE – Economics Research Center); Sandrina Berthault Moreira (Polytechnic Institute of Setubal and UNIDE – Economics Research Center); Nádia Simões (Lisbon University Institute and UNIDE – Economics Research Center)
    Abstract: We propose a new and integrated approach to the measurement of inequality in income distribution, poverty, and richness. The proposed broad set of indicators is neutral and easy to calculate. The method allows a specific interpretation of the results, a decomposition according to households’ characteristics, and an immediate comparison of the results between different countries and time periods. We illustrate the application of the proposed measures and their decomposition based on evidence from Portugal. In addition, we characterize households in accordance with their position in the income distribution.
    Keywords: income inequality, poverty, richness, measurement.
    JEL: D30 D31
    Date: 2011
  5. By: Nora Lustig (Tulane University and Center for Global Development)
    Abstract: Poverty and wellbeing are multi-dimensional. Nobody questions that deprivations and achievements go beyond income. There is, however, sharp disagreement on whether the various dimensions of poverty and wellbeing can be aggregated into a single, multi-dimensional index in a meaningful way. Is aggregating dimensions of poverty and wellbeing useful? Is it sensible? Here I summarize and contrast three key papers that respond these questions in strikingly different ways. The papers are: The HDI 2010: New Controversies, Old Critiques by Jeni Klugman, Francisco Rodríguez and Hyung-Jin Choi; Understandings and Misunderstandings of Multidimensional Poverty Measurement by Sabina Alkire and James Foster; and, On Multidimensional Indices of Poverty by Martin Ravallion.
    Keywords: poverty measurement, multidimensional poverty, deprivation, axioms, Human Development Index, capabilities, substitutability, trade-offs, welfare, country classifications
    JEL: D63 I32 I38
    Date: 2011
  6. By: Nora Lustig (Tulane University and Center for Global Development); Luis Felipe Lopez-Calva (World Bank); Eduardo Ortiz-Juarez (RBLAC-UNDP)
    Abstract: Between 2000 and 2009, the Gini coefficient declined in 13 of 17 Latin American countries for which comparable data exist. The decline was statistically significant and robust to changes in the time interval, inequality measures and data sources. In depth country studies for Argentina, Brazil, Mexico and Peru suggest that there are two phenomena which underlie this trend: (i) a fall in the premium to skilled labor (as measured by returns to education); and (ii) higher and more progressive government transfers. The fall in the premium to skills results from a combination of supply and demand factors and, in Argentina—and to a lesser extent in Brazil--, from more active labor market policies as well.
    Keywords: Income inequality, wage gap, government transfers, Latin America.
    JEL: D31 D33 H53 J48 O15 O54
    Date: 2011
  7. By: Nora Lustig (Tulane University and Center for Global Development)
    Abstract: Fiscal policy can change poverty and inequality substantially or slightly depending on the government’s redistributive effort. We develop a diagnostic framework to assess how aligned fiscal policies are with supporting a minimum living standard and human capital accumulation, as well as with reducing inequality. The Commitment to Equity Assessment (CEQ) evaluates efforts based on whether governments: i. collect and allocate enough resources to support a minimum living standard for all; ii. collect and distribute resources equitably; iii. ensure that spending is fiscally sustainable and that programs are of good quality and incentive compatible; iv. collect and publish relevant information, as well as are subject to independent evaluations. CEQ relies on inequality, poverty and tax and benefit incidence analyses.
    Keywords: poverty, inequality, fiscal incidence, social policy, Latin America.
    JEL: D31 H51 H52 H53 I32 I38 O15
    Date: 2011
  8. By: Leonardo Gasparini (CEDLAS, Universidad de La Plata); Nora Lustig (Tulane University and Center for Global Development)
    JEL: D31 D33 H53 J48 O15 O54
    Date: 2011
  9. By: Jere R. Behrman (Department of Economics, University of Pennsylvania); Jorge Gallardo-Garcia (Bates White Consulting, Wash DC); Susan W. Parker (División de Economía, Centro de Investigación y Docencia Económicas – CIDE); Petra E. Todd (Department of Economics. University of Pennsylvania); Viviana Velez-Grajales (Inter-American Development Bank, IDB Headquarters, Wash DC)
    Abstract: Conditional cash transfer (CCT) programs have spread worldwide as a new form of social assistance for the poor. Previous evaluations of CCT programs focus mainly on rural settings, and little is known about their effects in urban areas. This paper studies the short-term (one and two-year) effects of the Mexican Oportunidades CCT program on urban children/youth. The program provides financial incentives for children/youth to attend school and for family members to visit health clinics. To participate, families had to sign up for the program and be deemed eligible. Difference-in-difference propensity score matching estimates indicate that the program is successful in increasing school enrollment, schooling attainment and time devoted to homework and in decreasing working rates of boys.
    Keywords: conditional cash transfer programs, matching estimators, program evaluation
    JEL: I21 I28 J24
    Date: 2011–08–01
  10. By: Joshua D. Angrist; Parag A. Pathak; Christopher R. Walters
    Abstract: Estimates using admissions lotteries suggest that urban charter schools boost student achievement, while charter schools in other settings do not. We explore student-level and school-level explanations for these differences using a large sample of Massachusetts charter schools. Our results show that urban charter schools boost achievement well beyond ambient non-charter levels (that is, the average achievement level for urban non-charter students), and beyond non-urban achievement in math. Student demographics explain some of these gains since urban charters are most effective for non-whites and low-baseline achievers. At the same time, non-urban charter schools are uniformly ineffective. Our estimates also reveal important school-level heterogeneity in the urban charter sample. A non-lottery analysis suggests that urban schools with binding, well-documented admissions lotteries generate larger score gains than under-subscribed urban charter schools with poor lottery records. We link the magnitude of charter impacts to distinctive pedagogical features of urban charters such as the length of the school day and school philosophy. The relative effectiveness of urban lottery-sample charters is accounted for by over-subscribed urban schools' embrace of the No Excuses approach to education.
    JEL: H75 I21 I22 I28 J24
    Date: 2011–08
  11. By: Daniel S. Hamermesh; Jason Abrevaya
    Abstract: We measure the impact of individuals’ looks on life satisfaction/happiness. Using five data sets, from the U.S., Canada, the U.K., and Germany, we construct beauty measures in different ways that allow placing lower bounds on the effects of beauty. Beauty raises happiness: A one standard-deviation change in beauty generates about 0.10 standard deviations of additional satisfaction/happiness among men, 0.12 among women. Accounting for a wide variety of covariates, particularly effects in the labor and marriage markets, including those that might be affected by differences in beauty, the impact among men is more than halved, among women slightly less than halved.
    JEL: C20 I30 J10
    Date: 2011–08

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.