nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2013‒12‒15
fourteen papers chosen by
Maximo Rossi
University of the Republic

  1. The ins and outs of top income mobility By Rolf Aaberge; Anthony B. Atkinson; Jørgen Modalsli
  2. Changes in Income Distribution and the Role of Tax-benefit Policy During the Great Recession: An International Perspective By Bargain, Olivier; Callan, Tim; Doorley, Karina; Keane, Claire
  3. Decomposing the recent inequality decline in Latin America By Azevedo, Joao Pedro; Inchauste, Gabriela; Sanfelice, Viviane
  4. The median as watershed By Rolf Aaberge; A B Atkinson
  5. U.S. versus Sweden : The effect of alternative in-work tax credit policies on labour supply of single mothers By Rolf Aaberge; Lennart Flood
  6. A Vibrant European Labor Market with Full Employment By Ritzen, Jo; Zimmermann, Klaus F.
  7. Do Extended Unemployment Benets Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market By Henry S. Farber; Robert G. Valletta
  8. The Costs of Early School Leaving in Europe By Brunello, Giorgio; De Paola, Maria
  9. Distributional Impact of Commodity Price Shocks: Australia over a Century By Sambit Bhattacharyya; Jeffrey G. Willliamson
  10. What do labor market institutions do? By Holmlund, Bertil
  11. Social comparisons in wage delegation: Experimental evidence By Charness, Gary; Cobo-Reyes, Ramon; Lacomba, Juan A; Lagos, Francisco; Perez, Jose M
  12. Lovely and lousy jobs By Alan Manning
  13. Self Employment in Developing Countries: a Search-Equilibrium Approach By Renata Narita
  14. Comparing Real Wage Rates By Orley Ashenfelter

  1. By: Rolf Aaberge; Anthony B. Atkinson; Jørgen Modalsli (Statistics Norway)
    Abstract: This paper is concerned with the question of whether top income earners are permanently there or only temporarily receive the highest incomes. How much mobility is there at the top of the income distribution, and how has mobility changed over time? The paper makes both a methodological and an empirical contribution to answering these questions. The first part of the paper introduces a family of top income mobility measures based on differences in average annual incomes of top income earners in short-term and long-term distributions of income. Norwegian income tax records are then employed to study top income mobility in Norway since 1967. The results reveal low levels of top income mobility, but a relatively large increase in mobility starting at the same time as the income shares of the top income receivers started to increase around 1990.
    Keywords: Top income shares; Income mobility; Inequality
    JEL: J31 E24 D63 N34
    Date: 2013–10
    URL: http://d.repec.org/n?u=RePEc:ssb:dispap:762&r=ltv
  2. By: Bargain, Olivier; Callan, Tim; Doorley, Karina; Keane, Claire
    Abstract: This paper examines the impact on inequality and poverty of the economic crisis in four European countries, namely France, Germany, the UK and Ireland, and the contribution of tax and benefit policy changes. The period examined, 2008 to 2010, was one of great economic turmoil, yet it is unclear whether changes in inequality and poverty rates over this time period were mainly driven by changes in market income distributions or by tax-benefit policy reforms. We disentangle these effects by producing counterfactual (no reform) scenarios using tax-benefit microsimulation and representative household surveys of each country. For the period under study, we find that the policy reaction has contributed to stabilizing or even decreasing inequality and relative poverty in the UK, France and especially in Ireland, a country where rising unemployment would have otherwise increased poverty. Market income inequality has nonetheless pushed up inequality and relative poverty in France. Relative poverty and, notably, child poverty, have increased in Germany due to policy responses combined with the increasing inequality of market income.
    Date: 2013–12–06
    URL: http://d.repec.org/n?u=RePEc:ese:emodwp:em21-13&r=ltv
  3. By: Azevedo, Joao Pedro; Inchauste, Gabriela; Sanfelice, Viviane
    Abstract: Over the past decade, 12 of 14 Latin American countries have experienced a reduction in inequality. Based on a series of counterfactual simulations, the observed changes in inequality are decomposed in order to identify the main determinants of inequality. In contrast to methods that focus on aggregate summary statistics, the method adopted in this paper generates counterfactual distributions, so that the analysis can account for changes related to demographics, occupation, labor earnings and transfers, pensions, and other nonlabor income sources. The results show that for the majority of countries in the sample, the most important contributor to the observed decline in inequality has been the relatively strong growth in labor earnings at the bottom of the income distribution. In particular, most of the reduction in inequality can be attributed to an increase in earnings per hour for the bottom of the income distribution. The paper also contributes to the literature on inequality in Latin America by providing the Shapley-Shorrocks value of this decomposition.
    Keywords: Poverty Impact Evaluation,Inequality,Services&Transfers to Poor,Labor Policies,Emerging Markets
    Date: 2013–12–01
    URL: http://d.repec.org/n?u=RePEc:wbk:wbrwps:6715&r=ltv
  4. By: Rolf Aaberge; A B Atkinson (Statistics Norway)
    Abstract: This paper is concerned with concepts – poverty, inequality, affluence, and polarization – that are typically treated in different literatures. Our aim here is to place them within a common framework and to identify the way in which different classes of income transfers contribute to different objectives. In particular, we examine the role of transfers that preserve both the mean and the median, and the importance of distinguishing between transfers across the median and transfers on one side of the median. The aim of the paper is to bring out some of the implications of adopting the median as a dividing line for these measurement purposes, particularly with respect to the robustness of the conclusions reached. In doing so, we develop the two alternative approaches – primal and dual – applied to Lorenz curves in Aaberge (2001). Our focus is on “well-off” countries where poverty is a minority, rather than a majority, phenomenon. At the other end of the scale, rich people are found in all countries, but less attention has been paid to the definition of cut-offs for affluence. The measurement of “affluence” can proceed along similar lines to the measurement of poverty. The threshold may be set, relatively, as a percentage of the median, and we can ask similar questions about the sensitivity and seek similar dominance results. Moreover, we focus on societies that have a middle class in the sense that the median person is never defined as “rich”. The motivation of Foster and Wolfson’s paper “Polarization and the decline of the middle class” (1992/2010) was the sensitivity of conclusions to the – essentially arbitrary – definition of the middle class. They proposed “a range-free approach to measuring the middle class and polarization based on partial orderings” (2010, page 247). We introduce an alternative partial ordering defined in terms of a bi-polarization curve capturing the distance from the median.
    Keywords: Poverty; Affluence; Polarization; Dispersion; Tail-heaviness; Stochastic dominance; Transfer principles
    JEL: D31 D63 I32
    Date: 2013–08
    URL: http://d.repec.org/n?u=RePEc:ssb:dispap:749&r=ltv
  5. By: Rolf Aaberge; Lennart Flood (Statistics Norway)
    Abstract: An essential difference between the design of the Swedish and the US in-work tax credit systems relates to their functional forms. Where the US earned income tax credit (EITC) is phased out and favours low and medium earnings, the Swedish system is not phased out and offers 17 and 7 per cent tax credit for low and medium low incomes and a lump-sum tax deduction equal to approximately 2300 USD for medium and higher incomes. The purpose of this paper is to evaluate the efficiency and distributional effects of these two alternative tax credit designs. We pay particular attention to labour market exclusion; i.e. individuals within as well as outside the labour force are included in the analysis. To highlight the importance of the joint effects from the tax and the benefit systems it appears particular relevant to analyse the labour supply behaviour of single mothers. To this end, we estimate a structural random utility model of labour supply and welfare participation. The model accounts for heterogeneity in consumption-leisure preferences as well as for heterogeneity and constraints in job opportunities. The results of the evaluation show that the Swedish system without phase-out generates substantial larger labour supply responses than the US version of the tax credit. Due to increased labour supply and decline in welfare participation we find that the Swedish reform is self-financing for single mothers, whereas a 10 per cent deficit follows from the adapted EITC version used in this study. However, where income inequality rises modestly under the Swedish tax credit system, the US version with phase-out leads to a significant reduction in the income inequality.
    Keywords: Labour supply; Single mothers; In-work tax credit; Social assistance; Random utility model
    JEL: J22 I38
    Date: 2013–10
    URL: http://d.repec.org/n?u=RePEc:ssb:dispap:761&r=ltv
  6. By: Ritzen, Jo (IZA and Maastricht University); Zimmermann, Klaus F. (IZA and University of Bonn)
    Abstract: We sketch a visionary strategy for Europe in which full employment is quickly regained by 2020, where income inequality is reduced and the economies are more sustainable. We name this scenario "vibrant." It is contrasted with what would happen if present policies continue within the European Union (EU) and its member states. In the vibrant scenario, full employment is regained by more policy attention toward innovation and its underlying research and development (R&D), accompanied by more labor mobility within and between EU countries, in combination with a selective immigration policy based on labor market shortages. The road to full employment is embedded in a landscape with less income inequality and more "greening" of EU member states' economies. We translate the vibrant scenario into policy proposals distinguishing between the role for the EU and that of the member states. We hope these proposals will be included in the election programs for the upcoming 2014 European Parliament elections and in developing the mandate for the new European Commission in December 2014.
    Keywords: employment, labor mobility, innovation, income inequality, competition, labor markets, greening, happiness
    JEL: D31 D33 F55 I23 I24 I25 I28 J11 J18 J21 J31 J64 J83 O31 O38 O52
    Date: 2013–12
    URL: http://d.repec.org/n?u=RePEc:iza:izapps:pp73&r=ltv
  7. By: Henry S. Farber (Princeton University, NBER, IZA); Robert G. Valletta (Federal Reserve Bank of San Francisco, IZA)
    Abstract: In response to the Great Recession and sustained labor market downturn, the availability of unemployment insurance (UI) benefits was extended to new historical highs in the United States, up to 99 weeks as of late 2009 into 2012. We exploit variation in the timing and size of UI benet extensions across states to estimate the overall impact of these extensions on unemployment duration, comparing the experience with the prior extension of benets (up to 72 weeks) during the much milder downturn in the early 2000s. Using monthly matched individual data from the U.S. Current Population Survey (CPS) for the periods 2000-2005 and 2007-2012, we estimate the eects of UI extensions on unemployment transitions and duration. We rely on individual variation in benet availability based on the duration of unemployment spells and the length of UI benets available in the state and month, conditional on state economic conditions and individual characteristics. We nd a small but statistically signicant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment arising from both sets of UI extensions. The eect on exits and duration is primarily due to a reduction in exits from the labor force rather than a decrease in exits to employment (the job nding rate). The magnitude of the overall eect on exits and duration is similar across the two episodes of benet extensions. Although the overall eect of UI extensions on exits from unemployment is small, it implies a substantial eect of extended benets on the steady-state share of unemployment in the cross-section that is long-term.
    Keywords: unemployment insurance benefits, extensions, duration of unemployment, unemployment exit rate
    JEL: D19 E24 H31 J21 J64
    Date: 2013–04
    URL: http://d.repec.org/n?u=RePEc:pri:indrel:dsp01th83kz40p&r=ltv
  8. By: Brunello, Giorgio (University of Padova); De Paola, Maria (University of Calabria)
    Abstract: The reduction of early school leaving to less than 10 percent of the relevant population by 2020 is a headline target in the Europe 2020 strategy and one of the five benchmarks of the strategic framework for European cooperation in education and training. Designing adequate policies to combat early school leaving is a difficult task that requires both the identification of causal links and the measurement of costs and benefits. In this paper, we review the issues surrounding the measurement of the costs of early school leaving to individuals and societies, and examine several implemented policies that are expected to affect early school leavers. These include broad policies – such as changes in minimum school leaving age, tracking and school resources – as well as more targeted policies. While our focus is mainly on Europe, we also consider important evidence from across the Atlantic.
    Keywords: early school leaving, Europe, policy evaluation
    JEL: J24
    Date: 2013–12
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp7791&r=ltv
  9. By: Sambit Bhattacharyya; Jeffrey G. Willliamson
    Abstract: Abstract. This paper studies the distributional impact of commodity price shocks over the both the short and very long run. Using a GARCH model, we find that Australia experienced more volatility than many commodity exporting developing countries over the periods 1865- 1940 and 1960-2007. A single equation error correction model suggests that commodity price shocks increase the income share of the top 1, 0.05, and 0.01 percents in the short run. The very top end of the income distribution benefits from commodity booms disproportionately more than the rest of the society. The short run effect is mainly driven by wool and mining and not agricultural commodities. A sustained increase in the price of renewables (wool) reduces inequality whreas the same for non-renewable resources (minerals) increases inequality. We expect that the initial distribution of land and mineral resources explains the asymmetric result.
    Keywords: comodity price shocks, commodity exporters, top incomes, inequality
    JEL: F14 F43 N17 O13
    Date: 2013–07–23
    URL: http://d.repec.org/n?u=RePEc:oxf:wpaper:oxcarre-research-paper-117&r=ltv
  10. By: Holmlund, Bertil (Department of Economics)
    Abstract: The past couple of decades have seen a huge increase in research on various labor market institutions. This paper offers a brief overview and discussion of research on the labor market impacts of minimum wages (MW), unemployment insurance (UI), and employment protection legislation (EPL). It is argued that research on UI is largely a success story, involving a fruitful interplay between search theory and empirical work. This research has established that UI matters for labor market behavior, in particular the duration of unemployment, although there remains substantial uncertainty about the magnitudes of the effects. The research on MW should have shaken economists’ belief in the competitive labor market model as a result of frequent failures to find noticeable employment effects despite considerable effects on wages. EPL research has established that employment protection reduces labor and job turnover but the jury is still out regarding the impact on overall employment and productivity.
    Keywords: minimum wages; unemployment Insurance; employment protection
    JEL: J01
    Date: 2013–11–28
    URL: http://d.repec.org/n?u=RePEc:hhs:uunewp:2013_023&r=ltv
  11. By: Charness, Gary; Cobo-Reyes, Ramon; Lacomba, Juan A; Lagos, Francisco; Perez, Jose M
    Keywords: Social and Behavioral Sciences
    Date: 2013–07–13
    URL: http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt8j55h1xj&r=ltv
  12. By: Alan Manning
    Abstract: The phenomenon of 'job polarisation' is increasing inequality as the labour market splits into high- and low-wage work. According to Alan Manning, who coined the term a decade ago, we cannot ignore job polarisation - but with sensible policies, we can manage it. Aiming for greater equality in the distribution of human capital is as important as ever. The most compelling explanation for job polarisation lies in the nature of technical progress: machines and software programs have been replacing employees in many routine jobs in the middle of the income distribution. But as Manning explains, while technology will undoubtedly continue to displace humans in some tasks, there is no reason to think that the jobs affected will always be the middle-skill ones.
    Keywords: Labor Demand and Technology, Inequality
    JEL: J21
    Date: 2013–12
    URL: http://d.repec.org/n?u=RePEc:cep:cepcnp:398&r=ltv
  13. By: Renata Narita
    Abstract: Self employment comprises around thirty percent of the workforce in Latin America. Most self employed evade payroll taxes, have low education, and run small businesses requiring low skills. I develop and estimate a life cycle search model where workers can be wage earners in the formal or informal sector, self employed or unemployed. Firms in the formal sector pay payroll and severance taxes, and in the informal sector, they can be fined. The estimated model (i) reproduces well the composition of workers over the life cycle as observed in Brazilian Labour Force data, and (ii) shows that the job value of the self employed is similar to that of informal wage earners. The model is used as a tool to evaluate the welfare impact of labour market policies, where self employment may be an option. When simulating an increase in the cost of informality by ten percent, results showed (i) small impact on employment composition and informality; (ii) significant cost pass-through to wages in the informal sector, meaning a reduction in the lowest wages in the economy, hence higher wage inequality. On the other hand, (iii) it led to substantial improvement in the welfare of formal firms and of all workers. These results prove that taking into account labour market frictions is important in welfare analyses of policies in multisectoral labour markets. As simulations which increase the cost of informality suggest, stricter enforcement of labour regulations (at least to a certain degree) can be a way towards efficient labor markets.
    Keywords: Self employment; Occupational choice; Informal Sector; Job Search; Labour market welfare
    JEL: J30 J24 O17 J42 J60
    Date: 2013–11–28
    URL: http://d.repec.org/n?u=RePEc:spa:wpaper:2013wpecon21&r=ltv
  14. By: Orley Ashenfelter (Princeton University)
    Abstract: A real wage rate is a nominal wage rate divided by the price of a good and is a transparent measure of how much of the good an hour of work buys. It provides an important indicator of the living standards of workers, and also of the productivity of workers. In this paper I set out the conceptual basis for such measures, provide some historical examples, and then provide my own preliminary analysis of a decade long project designed to measure the wages of workers doing the same job in over 60 countries workers at McDonald’s restaurants. The results demonstrate that the wage rates of workers using the same skills and doing the same jobs differ by as much as 10 to 1, and that these gaps declined over the period 2000-2007, but with much less progress since the Great Recession.
    Keywords: wage rate, nominal wage, workers, living standards
    JEL: C81 C82 D24 J31 N30 O57
    Date: 2012–03
    URL: http://d.repec.org/n?u=RePEc:pri:indrel:dsp01t435gd01h&r=ltv

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