nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2013‒04‒20
twelve papers chosen by
Maximo Rossi
University of the Republic

  1. The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An Overview By Nora Lustig; Carola Pessino; John Scott
  2. “Changes in Wage Structure in Mexico Going Beyond the Mean: An Analysis of Differences in Distribution, 1987-2008” By Claudia Tello; Raul Ramos; Manuel Artís
  3. Inequality and happiness: When perceived social mobility and economic reality do not match By Bjørnskov, Christian; Dreher, Axel; Fischer, Justina A. V.; Schnellenbach, Jan; Gehring, Kai
  4. Deconstructing the Decline in Inequality in Latin America By Nora Lustig; Luis F. Lopez-Calva; Eduardo Ortiz-Juarez
  5. Untangling Trade and Technology: Evidence from Local Labor Markets By Autor, David; Dorn, David; Hanson, Gordon H.
  6. Income Comparison, Income Formation, and Subjective Well-Being: New Evidence on Envy versus Signaling By Heinz Welsch; Jan Kühling
  7. How Does Subjective Well-Being Evolve with Age? A Literature Review By López Ulloa, Beatriz Fabiola; Moller, Valerie; Sousa-Poza, Alfonso
  8. The Geography of Inequality: Difference and Determinants of Wage and Income Inequality across US Metros By Florida , Richard; Mellander , Charlotta
  9. Measuring Impoverishment: An Overlooked Dimension of Fiscal Incidence By Sean Higgins; Nora Lustig
  10. Multi-dimensional Deprivation in Ireland Among 9-Year Olds in Ireland: An Analysis of the Growing Up in Ireland Survey By James Williams; Aisling Murray; Christopher Whelan
  11. Transfers to Households with Children and Child Development By Daniela Del Boca; Christopher Flinn; Matthew Wiswall
  12. Heterogeneity in the Production of Human Capital By Polachek, Solomon; Das, Tirthatanmoy; Thamma-Apiroam, Rewat

  1. By: Nora Lustig (Department of Economics, Tulane University); Carola Pessino (School of Government and Executive Director, Centro de Investigaciones y Evaluación en Economía Social para el Alivio de la Pobreza, Universidad Torcuato Di Tella, Buenos Aires, Argentina); John Scott (CIDE (Centro de Investigación y Docencia Económicas), Mexico and,Consejero Académico, CONEVAL (Consejo Nacional de Evaluación de la Política de Desarrollo Social), Mexico)
    Abstract: How much redistribution and poverty reduction is being accomplished in Latin America through social spending and taxes? Standard fiscal incidence analyses applied to Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay yield the following results. Direct taxes and cash transfers reduce inequality and poverty by nontrivial amounts in Argentina, Brazil, and Uruguay, less so in Mexico and relatively little in Bolivia and Peru. While direct taxes are progressive, the redistributive impact is small because direct taxes as a share of GDP are low. Cash transfers are quite progressive in absolute terms except in Bolivia where programs are not targeted to the poor. In Bolivia and Brazil, indirect taxes almost completely offset the poverty-reducing impact of cash transfers. In-kind transfers in education and health reduce inequality in all countries by considerably more than cash transfers.
    Keywords: fiscal incidence, inequality, poverty, taxes, social spending, Latin America
    JEL: H22 I3 O1
    Date: 2013–04
  2. By: Claudia Tello (Faculty of Economics, University of Barcelona); Raul Ramos (Faculty of Economics, University of Barcelona); Manuel Artís (Faculty of Economics, University of Barcelona)
    Abstract: This paper conducts an empirical analysis of the relationship between wage inequality, employment structure, and returns to education in urban areas of Mexico during the past two decades (1987-2008). Applying Melly’s (2005) quantile regression based decomposition, we find that changes in wage inequality have been driven mainly by variations in educational wage premia. Additionally, we find that changes in employment structure, including occupation and firm size, have played a vital role. This evidence seems to suggest that the changes in wage inequality in urban Mexico cannot be interpreted in terms of a skill-biased change, but rather they are the result of an increasing demand for skills during that period.
    Keywords: wage inequality, quantile regressions, decomposition. JEL classification: J31
    Date: 2012–12
  3. By: Bjørnskov, Christian; Dreher, Axel; Fischer, Justina A. V.; Schnellenbach, Jan; Gehring, Kai
    Abstract: We argue that perceived fairness of the income generation process affects the association between income inequality and subjective well-being, and that there are systematic differences in this regard between countries that are characterized by a high or, respectively, low level of actual fairness. Using a simple model of individual labor market participation under uncertainty, we predict that high levels of perceived fairness cause higher levels of individual welfare, and lower support for income redistribution. Income inequality is predicted to have a more favorable impact on subjective well-being for individuals with high fairness perceptions. This relationship is predicted to be stronger in societies that are characterized by low actual fairness. Using data on subjective well-being and a broad set of fairness measures from a pseudo micro-panel from the WVS over the 1990-2008 period, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the predicted differences in individual tolerance for income inequality, and the predicted influence of actual fairness. --
    Keywords: happiness,life satisfaction,subjective well-being,inequality,income distribution,redistribution,political ideology,justice,fairness,World Values Survey
    JEL: I31 H40 D31 J62 Z13
    Date: 2013
  4. By: Nora Lustig (Department of Economics, Tulane University); Luis F. Lopez-Calva (Poverty and Gender Unit, Latin America and the Caribbean Vice-presidency, World Bank); Eduardo Ortiz-Juarez (Regional Bureau for Latin America and the Caribbean, United Nations Development Programme (UNDP))
    Abstract: Inequality in Latin America unambiguously declined in the 2000s. The Gini coefficient fell in 14 of the 17 countries where there is comparable data, and the change was statistically significant for all of them. Existing studies point to two main explanations for the decline in inequality: a reduction in hourly labor income inequality, and more robust and progressive government transfers. Available evidence suggests that it is the skill premium--or, more precisely, the returns to primary, secondary and tertiary education vs. no schooling or incomplete primary schooling--that drives the decline in hourly labor income inequality. The causes behind the decline in returns to schooling, however, have not been unambiguously established. Some studies find that returns fell because of an increase in the supply of workers with more educational attainment; others, because of a shift in demand away from skilled-labor.
    Keywords: inequality, skill premium, government transfers, Latin America
    JEL: D31 I24 H53 O15 O54
    Date: 2013–04
  5. By: Autor, David (MIT); Dorn, David (CEMFI, Madrid); Hanson, Gordon H. (University of California, San Diego)
    Abstract: We juxtapose the effects of trade and technology on employment in U.S. local labor markets between 1990 and 2007. Labor markets whose initial industry composition exposes them to rising Chinese import competition experience significant falls in employment, particularly in manufacturing and among non-college workers. Labor markets susceptible to computerization due to specialization in routine task-intensive activities experience significant occupational polarization within manufacturing and non-manufacturing but no net employment decline. Trade impacts rise in the 2000s as imports accelerate, while the effect of technology appears to shift from automation of production activities in manufacturing towards computerization of information-processing tasks in non-manufacturing.
    Keywords: technological change, trade flows, import competition, skill demand, job tasks, local labor markets
    JEL: F16 J21 J23 O33
    Date: 2013–04
  6. By: Heinz Welsch (University of Oldenburg, Department of Economics); Jan Kühling (University of Oldenburg, Department of Economics)
    Abstract: Drawing on the distinction between envy and signaling effects in income comparison, this paper uses 307,465 observations for subjective well-being and its covariates from Germany, 1990-2009, to study whether the nature of income comparison has changed in the process of economic development, and how such changes are related to changes in the nature of income formation. By conceptualizing a person’s comparison income as the income predicted by an earnings equation, we find that, while in 1990-1999 envy has been the dominant concern in West Germany and signaling the dominant factor in East Germany, income comparison was non-existing in 2000-2009. We also find that the earnings equation reflects people’s ability more accurately in the second than in the first period. Together, these findings suggest that comparing one’s income with people of the same ability is important only when ability is insufficiently reflected in own income.
    Keywords: income comparison; envy; signaling; subjective well-being; income formation
    JEL: D31 I31 J31 P36 Z13
    Date: 2013–04
  7. By: López Ulloa, Beatriz Fabiola (University of Hohenheim); Moller, Valerie (Rhodes University); Sousa-Poza, Alfonso (University of Hohenheim)
    Abstract: This literature review provides an overview of the theoretical and empirical research in several disciplines on the relation between ageing and subjective well-being, i.e., how subjective well-being evolves across the lifespan. Because of the different methodologies, data sets and samples used, comparison among disciplines and studies is difficult. However, extant studies do show either a U-shaped, inverted U-shaped or linear relation between ageing and subjective well-being.
    Keywords: life satisfaction, ageing, U-shape
    JEL: J14 J28
    Date: 2013–04
  8. By: Florida , Richard (University of Toronto); Mellander , Charlotta (Jönköping International Business School)
    Abstract: This paper examines the geographic variation in inequality, and it distinguishes between wage and income inequality. Wage inequality is associated with skills, human capital, technology and metro size - in line with the literature on skill-biased technical change. Income inequality is instead more closely associated with race, poverty, lower levels of unionization and lower taxes. This suggests that income inequality is a product not only of skill-biased technical change, but also of the enduring legacy of race and poverty at the bottom of the socio-economic order, as well as the unraveling of the post-war social compact between capital and labor.
    Keywords: inequality; income; wage; high-tech; skills
    JEL: J24 O10 O33 R00
    Date: 2013–04–12
  9. By: Sean Higgins (Department of Economics, Tulane University); Nora Lustig (Department of Economics, Tulane University)
    Abstract: The effect of taxes and benefits on the poor is usually measured using standard poverty and inequality indicators, stochastic dominance tests, and measures of progressivity and horizontal inequity. However, these measures can fail to capture an important aspect: that some of the poor are made poorer (or some of the non-poor made poor) by the tax-benefit system. We call this impoverishment and formally establish the relationships between impoverishment, stochastic dominance tests, horizontal inequity, and progressivity measures. The directional mobility literature provides a useful framework to measure impoverishment. We propose using a transition matrix and income loss matrix, and establish a mobility dominance criterion to compare alternate tax-benefit systems. We illustrate with data from Brazil.
    Keywords: stochastic dominance, poverty, fiscal incidence, mobility
    JEL: I32 H22
    Date: 2013–04
  10. By: James Williams (Economics and Social Research Institute, Dublin); Aisling Murray (Economics and Social Research Institute, Dublin); Christopher Whelan (School of Sociology and Social Policy, Queen’s University, UCD Geary Institute and School of Sociology, University College Dublin)
    Abstract: In this paper we make use of the 9-year old wave of the Growing Up in Ireland study to analyse multidimensional deprivation in Ireland. The Alkire and Foster adjusted head count ratio approach (AHCR; 2007, 2011a, 2011b) applied here constitutes a significant improvement on union and intersection approaches and allows for the decomposition of multidimensional poverty in terms of dimensions and sub-groups. The approach involves a censoring of data such that deprivations count only for those above the specified multidimensional threshold leading to a stronger set of interrelationships between deprivation dimensions. Our analysis shows that the composition of the adjusted head ratio is influenced by a range of socio-economic factors. For less-favoured socio-economic groups dimensions relating to material deprivation are disproportionately represented while for the more advantaged groups, those relating to behavioral and emotional issues and social interaction play a greater role. Notwithstanding such variation in composition, our analysis showed that the AHCR varied systematically across categories of household type, and the social class, education and age group of the primary care giver. Furthermore, these variables combined in a cumulative manner. The most systematic variation was in relation to the head count of those above the multidimensional threshold rather than intensity, conditional on being above that cut-off point. Without seeking to arbitrate on the relative value of composite indices versus disaggregated profiles, our analysis demonstrates that there is much to be gained from adopting an approach with clearly understood axiomatic properties. Doing so allows one to evaluate the consequences of the measurement strategy employed for the understanding of levels of multidimensional deprivation, the nature of such deprivation profiles and socio-economic risk patterns. Ultimately it permits an informed assessment of the strengths and weaknesses of the particular choices made.
    Keywords: Multidimensional poverty, decomposition of poverty, deprivation, composite poverty indices; childhood well-being; well-being indicators
    JEL: D31 D63 Z13
    Date: 2013–04–12
  11. By: Daniela Del Boca (University of Torino and CCA); Christopher Flinn (New York University and CCA); Matthew Wiswall (Arizona State University)
    Abstract: In this paper we utilize a model of household investments in the cognitive development of children to explore the impact of various transfer policies on the distribution of child cognitive outcomes in target populations. We develop a cost criterion that can be used to compare the cost effectiveness of unrestricted, restricted, and conditional cash transfer systems, and ï¬nd that conditional cash transfers are the most cost efficient way to attain any given gain in average child quality in a target population. Of course, this is only true if one uses efficiently designed cash transfer systems, and we are able to explore their design using our modeling framework.
    Keywords: Time Allocation; Child Development, conditional and unconditional cash transfer
    JEL: J13 D1
    Date: 2013–04
  12. By: Polachek, Solomon (Binghamton University, New York); Das, Tirthatanmoy (Temple University); Thamma-Apiroam, Rewat (Kasetsart University)
    Abstract: We derive a tractable nonlinear earnings function which we estimate separately for each individual in the NLSY79 data. These estimates yield five important parameters for each individual: three ability measures (two representing the ability to learn and one the ability to earn), a rate of skill depreciation, and a time discount rate. In addition, we obtain a population wide estimate of the rental rate of human capital. To illustrate heterogeneity in the production of human capital, we plot the distribution of these parameters along with NLSY79 reported AFQT scores. By utilizing these parameters, we are able to verify a number of heretofore untested theorems based on the life-cycle human capital model. In addition, we are able to show how these human capital production function parameters relate to cognitive ability, personality traits, and family background. Among our results, we find: Black-white differences in ability are smaller than those exhibited in standardized tests. Blacks have higher time discount and skill depreciation rates than whites. Individuals with higher time discount rates and greater rates of skill depreciation have fewer years of school. Individuals with both a high internal locus of control and self-esteem exhibit greater ability, lower skill depreciation, and smaller time discount rates. Individuals inclined towards depression have higher time discount rates. Agreeable, open, conscientious and extrovert individuals have a greater ability to learn but not necessarily a greater ability to earn. Neurotic individuals have a lower ability to learn. Higher parental education is associated with a greater ability to learn, lower skill depreciation, and a smaller time discount rate. Educational stimuli, such as growing up in a household that subscribed to magazines, are associated with higher ability. Conversely, growing up poor is associated with lower ability.
    Keywords: life-cycle model, ability to learn, ability to earn, heterogeneity, earnings function
    JEL: J24 J29 J31 J39
    Date: 2013–04

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