nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2014‒03‒15
ten papers chosen by
Maximo Rossi
University of the Republic

  1. Adaptation to Poverty in Long-Run Panel Data By Andrew E. Clark; Conchita D´Ambrosio; Simone Ghislandi
  2. Economic Growth Evens-Out Happiness: Evidence from Six Surveys By Andrew E. Clark; Sarah Flèche; Claudia Senik
  3. Human well-being and in-work benefits: A randomized controlled trial By Dorsett, Richard; Oswald, Andrew J.
  4. Job Search and the Age-Inequality Profile By Petra Marotzke
  5. Aggregate Costs of Gender Gaps in the Labor Market: A Quantitative Estimate By Marc Teignier; David Cuberes
  6. Borrowing Constraints, College Aid, and Intergenerational Mobility By Hanushek, Eric; Leung, Charles Ka Yui; Yilmaz, Kuzey
  7. Selection and the Measured Black-White Wage Gap Among Young Women Revisited By Albrecht, James; van Vuuren, Aico; Vroman, Susan
  8. Institutions, Human Capital and Development By Daron Acemoglu; Francisco A. Gallego; James A. Robinson
  9. Equilibrium Tax Rates and Income Redistribution: A Laboratory Study By Marina Agranov; Thomas R. Palfrey
  10. Conflict and segregation in networks: An experiment on the interplay between individual preferences and social influence By Penélope Hernández; Guillem Martínez-Canovas; Manuel Muñoz-Herrera; Lea Ellwardt

  1. By: Andrew E. Clark; Conchita D´Ambrosio; Simone Ghislandi
    Abstract: We consider the link between poverty and subjective well-being, and focus in particular on potential adaptation to poverty. We use panel data on almost 45,800 individuals living in Germany from 1992 to 2011 to show first that life satisfaction falls with both the incidence and intensity of contemporaneous poverty. We then reveal that there is little evidence of adaptation within a poverty spell: poverty starts bad and stays bad in terms of subjective well-being. We cannot identify any causes of poverty entry which are unambiguously associated with adaptation to poverty.
    Keywords: Income, poverty, subjective well-being, adaptation, SOEP
    JEL: I31 D60
    Date: 2014
  2. By: Andrew E. Clark; Sarah Flèche; Claudia Senik
    Abstract: In spite of the great U-turn that saw income inequality rise in Western countries in the 1980s, happiness inequality has dropped in countries that have experienced income growth (but not in those that did not). Modern growth has reduced the share of both the “very unhappy” and the “perfectly happy”. The extension of public amenities has certainly contributed to this greater happiness homogeneity. This new stylized fact comes as an addition to the Easterlin paradox, offering a somewhat brighter perspective for developing countries.
    Keywords: Happiness, inequality, economic growth, development, Easterlin paradox
    JEL: D31 D6 I3 O15
    Date: 2014
  3. By: Dorsett, Richard (National Institute of Economic and Social Research); Oswald, Andrew J. (University of Warwick)
    Abstract: Many politicians believe they can intervene in the economy to improve people’s lives. But can they? In a social experiment carried out in the United Kingdom, extensive in-work support was randomly assigned among 16,000 disadvantaged people. We follow a sub-sample of 3,500 single parents for 5 ensuing years. The results reveal a remarkable, and troubling, finding. Long after eligibility had ceased, the treated individuals had substantially lower psychological well-being, worried more about money, and were increasingly prone to debt. Thus helping people apparently hurt them. We discuss a behavioral framework consistent with our findings and reflect on implications for policy.
    Keywords: Well-Being
    Date: 2014
  4. By: Petra Marotzke (Department of Economics, University of Konstanz, Germany)
    Abstract: In line with earlier literature, I document a U-shaped relationship between age and wage dispersion in the U.S.. To explain this outcome, I consider a life-cycle model of labor market search with strategic wage bargaining, heterogeneous firm-worker matches, and endogenous search effort. Three factors shape the age-inequality profile of wages in the model economy: the time until retirement, match heterogeneity, and the workers’ bargaining power. Young workers switch employers often and are gradually matched to better jobs, which leads to the initial reduction in the variance of log wages. Middle-aged and older workers switch employers less frequently and have a longer search history. As workers are differently successful in the labor market, the variance of match productivities rises in the second half of the working life. The calibrated model captures the U-shape of the age-inequality profile of wages in conjunction with the hump-shaped age profile of average wages, as well as employment-to-employment transitions that decrease with age.
    Keywords: Search Frictions, Wage Dispersion, Life Cycle, Wage Bargaining
    JEL: J31 J41 J64
    Date: 2014–03–04
  5. By: Marc Teignier (Facultat d'Economia i Empresa; Universitat de Barcelona (UB)); David Cuberes (University of Sheffield)
    Abstract: This paper examines the quantitative effects of gender gaps in entrepreneurship and labor force participation on aggregate productivity and income per capita. We simulate an occupational choice model with heterogeneous agents in entrepreneurial ability, where agents choose to be workers, self-employed or employers. The model assumes that men and women have the same talent distribution, but we impose several frictions on women's opportunities and pay in the labor market. In particular, we restrict the fraction of women participating in the labor market. Moreover, we limit the number of women who can work as employers or as self-employed and, finally, women who become workers receive a lower wage. Our model shows that gender gaps in entrepreneurship and in female workers' pay affect aggregate productivity negatively, while gender gaps in labor force participation reduce income per capita. Specifically, if all women are excluded from entrepreneurship, average output per worker drops by almost 12% because the average talent of entrepreneurs falls down, while if all women are excluded from the labor force income per capita is reduced by almost 40%. In the cross-country analysis, we find that gender gaps and their implied income losses differ importantly across geographical regions, with a total income loss of 27% in Middle East and North Africa and a 10% loss in Europe.
    Keywords: Span of control, Aggregate productivity, Entrepreneurship talent, Gender inequality
    JEL: E2 J21 J24 O40
    Date: 2014
  6. By: Hanushek, Eric; Leung, Charles Ka Yui; Yilmaz, Kuzey
    Abstract: This paper provides a consistent comparison of general tuition subsidies, need-based student aid, merit-based student aid, and income continent loans (ICL). Each of these policies is analyzed through a dynamic general equilibrium model in which individuals differ in family wealth and opportunities of completing college. The overlapping generation structure of the model permits evaluation of different aid schemes in their implications on the aggregate outcomes, income distribution and intergenerational mobility. Compared to current U.S. tuition and loan policies, the ICL and need-based policies are most effective in promoting the aggregate efficiency and income equality, while merit-based policies are least effective.
    Keywords: need-based student aid; merit-based student aid; income contingent loan; efficiency-equality tradeoff; intergenerational mobility
    JEL: D10 H20 I20
    Date: 2014–03
  7. By: Albrecht, James (Georgetown University); van Vuuren, Aico (VU University Amsterdam); Vroman, Susan (Georgetown University)
    Abstract: Derek Neal (JPE 2004) used the NLSY79 to show that the observed median log wage gap between young white and young black women in 1990 underestimated the true, selection-corrected gap, i.e., the gap we would have expected to see had all of these women been employed in 1990. In this paper, we use the NLSY97 to update his analysis. The observed median log wage gap increased substantially between 1990 and 2011, as did the selection-corrected gap. These increases are explained to a considerable extent by changes in the distribution of educational attainment across young white and black women.
    Keywords: racial log wage gap, selection, women
    JEL: J15 J16 J31 J71
    Date: 2014–02
  8. By: Daron Acemoglu; Francisco A. Gallego; James A. Robinson
    Abstract: In this paper we revisit the relationship between institutions, human capital and development. We argue that empirical models that treat institutions and human capital as exogenous are misspecified both because of the usual omitted variable bias problems and because of differential measurement error in these variables, and that this misspecification is at the root of the very large returns of human capital, about 4 to 5 times greater than that implied by micro (Mincerian) estimates, found in some of the previous literature. Using cross-country and cross-regional regressions, we show that when we focus on historically-determined differences in human capital and control for the effect of institutions, the impact of institutions on long-run development is robust, while the estimates of the effect of human capital are much diminished and become consistent with micro estimates. Using historical and cross-country regression evidence, we also show that there is no support for the view that differences in the human capital endowments of early European colonists have been a major factor in the subsequent institutional development of these polities.
    JEL: I25 O10 P16
    Date: 2014–02
  9. By: Marina Agranov; Thomas R. Palfrey
    Abstract: This paper reports results from a laboratory experiment that investigates the Meltzer-Richard model of equilibrium tax rates, inequality, and income redistribution. We also extend that model to incorporate social preferences in the form of altruism and inequality aversion. The experiment varies the amount of inequality and the collective choice procedure to determine tax rates. We report four main findings. First, higher wage inequality leads to higher tax rates. The effect is significant and large in magnitude. Second, the average implemented tax rates are almost exactly equal to the theoretical ideal tax rate of the median wage worker. Third, we do not observe any significant differences in labor supply or average implemented tax rates between a direct democracy institution and a representative democracy system where tax rates are determined by candidate competition. Fourth, we observe negligible deviations from labor supply behavior or voting behavior in the directions implied by altruism or inequality aversion.
    JEL: C92 D63 D72 H23
    Date: 2014–02
  10. By: Penélope Hernández (ERI-CES); Guillem Martínez-Canovas (ERI-CES); Manuel Muñoz-Herrera (University of Groningen); Lea Ellwardt (University of Groningen)
    Abstract: We examine the interplay between a person's individual preference and the social influence others exert. We provide a model of network relationships with conflicting preferences, where individuals are better off coordinating with those around them, but not all prefer the same action. We test our model in an experiment, varying the level of conflicting preferences between individuals. Our findings suggest that preferences are more salient than social influence, under conflicting preferences: subjects relate mainly with others who prefer the same. This leads to two undesirable outcomes: network segregation and social inefficiency. The same force that helps people individually hurts society.
    Keywords: Heterogeneity, Social Networks, Formation, Equilibrium selection
    JEL: C62 C72 D82 D85
    Date: 2014–01

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