nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2012‒02‒20
twelve papers chosen by
Maximo Rossi
University of the Republic

  1. Is There Such Thing as Middle Class Values? Class Differences, Values and Political Orientations in Latin America By López-Calva, Luis Felipe; Rigolini, Jamele; Torche, Florencia
  2. Unhappiness and Job Finding By Gielen, Anne C.; van Ours, Jan C.
  3. Beauty and the beast in the labor market: Evidence from a distribution regression approach By DOORLEY Karina; SIERMINSKA Eva
  4. Does Formal Work Pay? The Role of Labor Taxation and Social Benefit Design in the New EU Member States By Koettl, Johannes; Weber, Michael
  5. Exploring the Causes of Frictional Wage Dispersion By Tjaden, Volker; Wellschmied, Felix
  6. Poverty dynamics in Nairobi's slums: testing for true state dependence and heterogeneity effects By FAYE Ousmane; ISLAM Nizamul; ZULU Eliya
  7. Labor Informality and the Incentive Effects of Social Security: Evidence from a Health Reform in Uruguay By Marcelo Bérgolo; Guillermo Cruces
  8. Poor, or just feeling poor ? on using subjective data in measuring poverty By Ravallion, Martin
  9. Income Inequality and Health: Lessons from a Refugee Residential Assignment Program By Grönqvist, Hans; Johansson, Per; Niknami, Susan
  10. Child Gender And Parental Investments In India: Are Boys And Girls Treated Differently? By Silvia H. Barcellos; Leandro Carvalho; Adriana Lleras-Muney
  11. What Does Human Capital Do? A Review of Goldin and Katz's The Race between Education and Technology By Daron Acemoglu; David Autor
  12. Envy, Guilt, and the Phillips Curve By Ahrens, Steffen; Snower, Dennis J.

  1. By: López-Calva, Luis Felipe (World Bank); Rigolini, Jamele (World Bank); Torche, Florencia (New York University)
    Abstract: Middle class values have long been perceived as drivers of social cohesion and growth. In this paper we investigate the relation between class (measured by the position in the income distribution), values, and political orientations using comparable values surveys for six Latin American countries. We find that both a continuous measure of income and categorical measures of income-based class are robustly associated with values. Both income and class tend to display a similar association to values and political orientations as education, although differences persist in some important dimensions. Overall, we do not find strong evidence of any "middle class particularism": values appear to gradually shift with income, and middle class values lay between the ones of poorer and richer classes. If any, the only peculiarity of middle class values is moderation. We also find changes in values across countries to be of much larger magnitude than the ones dictated by income, education and individual characteristics, suggesting that individual values vary primarily within bounds dictated by each society.
    Keywords: middle class, income, values, political orientations
    JEL: D3 D7 O1 Z1
    Date: 2012–01
  2. By: Gielen, Anne C. (IZA); van Ours, Jan C. (Tilburg University)
    Abstract: It is puzzling that people feel quite unhappy when they become unemployed, while at the same time active labor market policies are needed to bring unemployed back to work more quickly. Using data from the German Socio-Economic Panel, we investigate whether there is indeed such a puzzle. First, we find that nearly half of the unemployed do not experience a drop in happiness, which might explain why at least some workers need to be activated. In addition to that, we find that even though unemployed who experience a drop in happiness search more actively for a job, it does not speed up their job finding. Apparently, there is no link between unhappiness and the speed of job finding. Hence, there is no contradiction between unemployed being unhappy and the need for activation policies.
    Keywords: happiness, unemployment duration
    JEL: I31 J64
    Date: 2012–01
    Abstract: We apply an innovative technique to allow for differential effects of physical appearance across the wage distribution, as traditional methods confound opposing effects. Counterfactual wage distributions constructed using distribution regression,show that unattractive women are more likely to earn less than the median wage, particularly in professions where physical appearance is important. We also find a premium for well-paid attractive men in these professions. A comparison with results from traditional models shows that the characteristics of people in different physical appearance classes contributes to the effects identified using the latter and only a small portion could be discrimination.
    Keywords: Wages; Distribution; Physical Appearance; Discrimination
    JEL: D31 J24 J30 J70
    Date: 2011–12
  4. By: Koettl, Johannes (World Bank); Weber, Michael (World Bank)
    Abstract: The analysis presented in this paper defines three different synthetic measurements of disincentives for formal work: two standard measurements, namely the tax wedge and the marginal effective tax rate (METR); and a new, innovative measurement called formalization tax rate (FTR). The novelty of the latter is that it measures disincentives stemming not only from labor taxation, but also from benefit withdrawal due to formalization. A descriptive analysis across a large number of OECD and Eastern European countries reveals that the disincentives for formal work – when measured through the FTR – are especially high for low-wage earners. This suggests that formal work might not pay in this segment of the labor market, in particular for the so-called mini-jobs and midi-jobs (low paying part-time work). Another novelty of the paper is its empirical approach. Using EU-SILC 2008 data and OECD Tax and Benefit data for six Eastern European countries (Bulgaria, Czech Republic, Estonia, Latvia, Poland, and Slovakia), we match disincentives for formal work to individual observations in a large data set. Applying a probit regression, the analysis finds a significant positive correlation between FTR or METR and the incidence of being informal. In other words, controlling for individual and job characteristics, the higher the FTR or the METR that individuals are facing is, the more likely they are to work informally. The tax wedge, on the other hand, yields a negative correlation. This indicates that the tax wedge is not sufficiently capturing disincentives for formal work. We also conclude that in cross-country analysis, it might be more useful to use the tax wedge that applies to low wage earners as opposed to average wage earners.
    Keywords: tax evasion, non-wage labor costs and benefits, informal employment, measurement of work disincentives, formalization tax rate
    JEL: H26 J32 O17
    Date: 2012–01
  5. By: Tjaden, Volker (University of Bonn); Wellschmied, Felix (University of Bonn)
    Abstract: Standard search models are unreliable for structural inference of the underlying sources of wage inequality because they are inconsistent with observed residual wage dispersion. We address this issue by modeling skill development and duration dependence in unemployment benefits in a random on the job search model featuring two-sided heterogeneity. General human capital and search on the job are the main drivers behind our model's empirical success in replicating wage dispersion (residual and overall). A realistic quantitative appraisal of search efficiencies needs to account for one third of job to job transitions resulting in wage losses. Controlling for them has important implications for the inferred sources of wage inequality. We find that the search friction accounts for around 18 percent of observed wage inequality.
    Keywords: frictional wage dispersion, search model, heterogeneity
    JEL: J24 J31 J64
    Date: 2012–01
  6. By: FAYE Ousmane; ISLAM Nizamul; ZULU Eliya
    Abstract: We investigate the factors underlying poverty transitions in Nairobi’s slums focusing on whether differences in characteristics make some individuals more prone to enter poverty and persist in, or whether past experience of poverty matters on future poverty situations. Answers to these issues are crucial for designing effective and successful poverty alleviation policies in informal residential settlements in Africa. The paper uses an endogenous switching model, which accounts for initial conditions, non-random attrition, and unobserved heterogeneity. The estimations are based on a two-wave sample of a panel dataset from the Nairobi Urban Health and Demographic Surveillance System (NUHDSS), the first urban-based Health and Demographic Surveillance Systems (HDSS) in Africa. Estimation results indicate that true state dependence (TSD) constitutes the major factor driving poverty persistence. There is little heterogeneity effects; only 10 percent of poverty persistence is likely due to heterogeneity. Moreover, even when household and individual observed characteristics differ notably, the TSD size remains very large. This implies that active anti-poverty programs aimed at breaking the cycle of poverty constitute the most appropriate policies for taking people out of poverty and preventing them to fall back in. Indeed, this does not exclude policies focusing on individual heterogeneities. Active policies for improving individual’s education, personal skills and capacities, or living environment would also allow preventing people entering poverty or persisting in.
    Keywords: Poverty dynamics; state dependence; unobserved heterogeneity; attrition; simulated maximum likelihood; urban poverty
    JEL: C15 C35 I32 O18 R23
    Date: 2011–11
  7. By: Marcelo Bérgolo; Guillermo Cruces
    Abstract: This paper studies the incentive effects of social security benefits on labor market informality following a policy reform in Uruguay. The reform extended health benefits to dependent children of private sector salaried workers, and thus altered the incentive structure of holding formal jobs within the household. The identification strategy of the reform¿s effects relies on a comparison between workers with children (affected by the reform) and those without children (unaffected by the reform). Difference in differences estimates indicate a substantial effect of this expansion of coverage on informality rates, which fell significantly by about 1.3 percentage points (a 5 percent change) among workers in the treatment group with respect to those in the control group. The evidence also indicates that individuals within households jointly optimized their allocation of labor to the formal and informal sector. Workers responded to the increased incentives for only one member of the household to work in the formal sector. These findings provide evidence of the relevant and substantial incentive effects of social security benefits on the allocation of employment.
    Keywords: Labor :: Workforce & Employment, Labor :: Social Security, Health :: Health Policy, CEDLAS
    Date: 2011–03
  8. By: Ravallion, Martin
    Abstract: The challenges faced in calibrating poverty and welfare measures to objective data have long been recognized. Until recently, most economists have resisted a seemingly obvious solution, namely to ask people themselves:"Do you feel poor?"The paper studies the case for and against this approach. It is argued that, while one would not want to use self-assessments as welfare metrics in their own right, there is scope for using such data to help calibrate multidimensional measures. Indeed, the idea of a"social subjective poverty line"(below which people tend to think they are poor, but above which they do not) is arguably the most conceptually appealing way of defining poverty. However, the paper points to a number of concerns that have received insufficient attention, including the choice of covariates, survey design issues, measurement errors, frame-of-reference effects, and latent heterogeneity in personality traits and personal tradeoffs. Directions for future research are identified.
    Keywords: Rural Poverty Reduction,Economic Theory&Research,Services&Transfers to Poor,Crime and Society
    Date: 2012–02–01
  9. By: Grönqvist, Hans (Swedish Institute for Social Research, Stockholm University); Johansson, Per (IFAU, Uppsala University); Niknami, Susan (Swedish Institute for Social Research, Stockholm University)
    Abstract: This paper examines the effect of income inequality on health for a group of particularly disadvantaged individuals: refugees. Our analysis draws on longitudinal hospitalization records coupled with a settlement policy where Swedish authorities assigned newly arrived refugees to their first area of residence. The policy was implemented in a way that provides a source of plausibly random variation in initial location. The results reveal no statistically significant effect of income inequality on the risk of being hospitalized. This finding holds also for most population subgroups and when separating between different types of diagnoses. Our estimates are precise enough to rule out large effects of income inequality on health.
    Keywords: Income inequality; Immigration; Quasi-experiment
    JEL: I10 J15
    Date: 2012–02–14
  10. By: Silvia H. Barcellos; Leandro Carvalho; Adriana Lleras-Muney
    Abstract: Although previous research has not always found that boys and girls are treated differently in rural India, son-biased stopping rules imply that estimates of the effect of gender on parental investments are likely to be biased because girls systematically end up in larger families. We propose a novel identification strategy for overcoming this bias. We document that boys receive significantly more childcare time than girls. In addition boys are more likely to be breastfed longer, and to be given vaccinations and vitamin supplementation. We then present suggestive evidence that the differential treatment of boys is neither due to their greater needs nor to the effect of anticipated family size.
    JEL: I15 J16
    Date: 2012–01
  11. By: Daron Acemoglu; David Autor
    Abstract: Goldin and Katz’s <i>The Race between Education and Technology</i> is a monumental achievement that supplies a unified framework for interpreting how the demand and supply of human capital have shaped the distribution of earnings in the U.S. labor market over the 20th century. This essay reviews the theoretical and conceptual underpinnings of this work and documents the success of Goldin and Katz’s framework in accounting for numerous broad labor market trends. The essay also considers areas where the framework falls short in explaining several key labor market puzzles of recent decades and argues that these shortcomings can potentially be overcome by relaxing the implicit equivalence drawn between workers’ skills and their job tasks in the conceptual framework on which Goldin and Katz build. The essay argues that allowing for a richer set of interactions between skills and technologies in accomplishing job tasks both augments and refines the predictions of Goldin and Katz’s approach and suggests an even more important role for human capital in economic growth than indicated by their analysis.
    JEL: J30 J31 O14 O31 O33
    Date: 2012–02
  12. By: Ahrens, Steffen (Kiel Institute for the World Economy); Snower, Dennis J. (Kiel Institute for the World Economy)
    Abstract: We incorporate inequity aversion into an otherwise standard New Keynesian dynamic equilibrium model with Calvo wage contracts and positive inflation. Workers with relatively low incomes experience envy, whereas those with relatively high incomes experience guilt. The former seek to raise their income, and latter seek to reduce it. The greater the inflation rate, the greater the degree of wage dispersion under Calvo wage contracts, and thus the greater the degree of envy and guilt experienced by the workers. Since the envy effect is stronger than the guilt effect, according to the available empirical evidence, a rise in the inflation rate leads workers to supply more labor over the contract period, generating a significant positive long-run relation between inflation and output (and employment), for low inflation rates. This Phillips curve relation, together with an inefficient zero-inflation steady state, provides a rationale for a positive long-run inflation rate. Given standard calibrations, optimal monetary policy is associated with a long-run inflation rate around 2 percent.
    Keywords: inflation, long-run Phillips curve, fairness, inequity aversion
    JEL: D03 E20 E31 E50
    Date: 2012–01

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