nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2014‒06‒14
thirteen papers chosen by
Maximo Rossi
University of the Republic

  1. Reduction of income inequality and subjective well-being in Europe By Hajdu, Tamás; Hajdu, Gábor
  2. Inequality of opportunity and economic growth: A cross-country analysis By Francisco H. G. Ferreira; Christoph Lakner; Maria Ana Lugo; Berk Ozler
  3. Tackling Social Exclusion: Evidence from Chile By Ginja, Rita; Carneiro, Pedro; Galasso, Emanuela
  4. Selective schooling systems increase inequality By Simon Burgess; Matt Dickson
  5. Educational Policies and Income Inequality By Checchi, Daniele; van de Werfhorst, Herman G.
  6. The Luxembourg Income Study By Martin Ravallion
  7. Yuan and Roubles: Comparing Wage Determination in Urban China and Russia at the Beginning of the New Millennium By Gustafsson, Björn Anders; Li, Shi; Nivorozhkina, Ludmila; Wan, Haiyuan
  8. Personality, IQ, and Lifetime Earnings By Gensowski, Miriam
  9. Trust and the Welfare State: The Twin Peaks Curve By Yann Algan; Pierre Cahuc; Marc Sangnier
  10. Intrahousehold Inequality By Pierre-André Chiappori; Costas Meghir
  11. Job Displacement Insurance: An Overview By Parsons, Donald O.
  12. Income Inequality, Social Mobility, and the Decision to Drop Out of High School By Melissa S. Kearney; Phillip B. Levine
  13. Online networks and subjective well-being By Sabatini, Fabio; Sarracino, Francesco

  1. By: Hajdu, Tamás; Hajdu, Gábor
    Abstract: Using four waves of the European Social Survey (179,273 individuals from 29 countries) the authors analyze the association of reduction of income inequality (redistribution) with subjective wellbeing. Their results provide evidence that people in Europe are negatively affected by income inequality, whereas reduction of inequality has a positive effect on well-being. Since the authors simultaneously estimate the effects of income inequality and its reduction, their results indicate that not only the outcome (inequality), but also the procedure (redistribution) that leads to the outcome influences subjective well-being. The authors argue that living in a country where taxes and transfers reduce income inequality to a greater extent, the poor may feel more protected, and the rich may also feel more generous, which may result in an emotional benefit for them. It is also possible that well-being is associated not only with actual, but also with perceived inequality. The positive effect of redistribution seems to be stronger for less affluent members of the societies and left-wing oriented individuals. The estimations are different in Eastern and Western Europe: In post-communist countries people appear to be harder hit by inequality, whereas the impact of inequality reduction on well-being is higher in the East than in the West. --
    Keywords: subjective well-being,satisfaction,inequality,redistribution,inequality reduction
    JEL: D63 I31
    Date: 2014
  2. By: Francisco H. G. Ferreira (World Bank and IZA); Christoph Lakner (World Bank); Maria Ana Lugo (World Bank); Berk Ozler (University of Otago and the World Bank)
    Abstract: Income differences arise from many sources. While some kinds of inequality, caused by effort differences, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress. We construct two new metadata sets, consisting of 118 household surveys and 134 Demographic and Health Surveys, to revisit the question of whether inequality is associated with economic growth and, in particular, to examine whether inequality of opportunity – driven by circumstances at birth - has a negative effect on subsequent growth. Results are suggestive but not robust: while overall income inequality is generally negatively associated with growth in the household survey sample, we find no evidence that this is due to the component we attribute to unequal opportunities. In the DHS sample, both overall wealth inequality and inequality of opportunity have a negative effect on growth in some of our preferred specifications, but the results are not robust to relatively minor changes. On balance, although our results are suggestive of a negative association between inequality and growth, the data at our disposal does not permit robust conclusions as to whether inequality of opportunity is bad for growth.
    Keywords: inequality, inequality of opportunity, economic growth.
    JEL: D31 D63 O40
    Date: 2014–05
  3. By: Ginja, Rita (Department of Economics); Carneiro, Pedro (University College London, CEMMAP, IFS.); Galasso, Emanuela (World Bank.)
    Abstract: We study an innovative welfare program in Chile which combines a period of frequent home visits to households in extreme poverty, with guaranteed access to social services. Program impacts are identi ed using a regression discontinuity design, exploring the fact that program eligibility is a discontinuous function of an index of family income and assets. We nd strong and lasting impacts of the program on the take up of subsidies and employment services. These impacts are important only for families who had little access to the welfare system prior to the intervention.
    Keywords: Social Exclusion; Social Protection; Chile; Extreme Poverty
    JEL: C26 I38 J08
    Date: 2014–05–09
  4. By: Simon Burgess; Matt Dickson
    Abstract: We investigate the impact on earnings inequality of a selective education system in which school assignment is based on initial test scores. We use a large, representative household panel survey to compare adult earnings inequality of those growing up under a selective education system with those educated under a comprehensive system. Controlling for a range of background characteristics and the current location, the wage distribution for individuals who grew up in selective schooling areas is quantitatively and statistically significantly more unequal. The total effect sizes are large: 14% of the raw 90-10 earnings gap and 18% of the conditional 90-10 earnings gap can be explained by differences across schooling systems.
    Keywords: selective schooling, inequality, wages
    JEL: I24 J31
    Date: 2014–05
  5. By: Checchi, Daniele (University of Milan); van de Werfhorst, Herman G. (University of Amsterdam)
    Abstract: In this paper we study the associations between educational policies, distributions of educational attainments and income distributions. By matching inequality measures on test scores, years of education and labour earnings by country, birth cohorts and gender, we show that inequality in education (measured both at quality and quantity levels) affect earnings inequality. We then consider potential endogeneity of educational distributions and we resort to instrumental estimation using information on government reforming activity in the field of education. By controlling for country-specific and time fixed effects, and by separating age and cohorts effects, we prove that educational inequality respond to educational reforms, identifying educational policies (like later entry into compulsory education or introduction of standardised tests) capable to reduce income inequalities thirty years later.
    Keywords: educational inequality, test score, earnings inequality, educational policies
    JEL: I24 I28
    Date: 2014–05
  6. By: Martin Ravallion (Department of Economics, Georgetown University)
    Abstract: The Luxembourg Income Study (now known as LIS) provides public access for research purposes to harmonized unit-record data sets for multiple countries, in addition to providing summary statistics from those data, including poverty and inequality measures. LIS is a well-managed and undeniably important global public institution for research on inequality and social policy in rich countries. However, LIS's eligibility criteria, country coverage, timeliness and some of its measurement practices limit its usefulness for many other purposes. The paper identifies a number of issues that would need to be addressed by a truly global micro-data base for studying poverty and inequality.
    Keywords: Income, poverty, inequality, household surveys, data access.
    JEL: C81 I32
    Date: 2014–05
  7. By: Gustafsson, Björn Anders (University of Gothenburg); Li, Shi (Beijing Normal University); Nivorozhkina, Ludmila (Rostov State Economic University); Wan, Haiyuan (National Development and Reform Commission)
    Abstract: Earnings inequality and earnings determination in urban China 2002 and Russia 2003 are compared using samples covering large parts of the two countries. The results from estimated earnings functions are put in perspective of the outcome from a similar comparison made at the end of the 1980s. We confirm that earnings inequality has increased rapidly in both countries and is found to be similar across countries. As at the end of the 1980s, the gender wage gap is larger in Russia where earnings reach a maximum at a lower age than in China. The association between education and income in China has increased to become stronger than in Russia. The earnings penalty of being employed in the public service sector in Russia has increased while the publically employed in China enjoy a positive payoff of limited magnitude.
    Keywords: wages, wage inequality, gender wage gap, China, Russia
    JEL: J16 J31 J45 P23
    Date: 2014–06
  8. By: Gensowski, Miriam (University of Copenhagen)
    Abstract: Talented individuals are seen as drivers of long-term growth, but how do they realize their full potential? In this paper, I show that even in a group of high-IQ men and women, lifetime earnings are substantially influenced by their education and personality traits. I identify a previously undocumented interaction between education and traits in earnings generation, which results in important heterogeneity of the net present value of education. Personality traits directly affect men's earnings, with effects only developing fully after age 30. These effects play a much larger role for the earnings of more educated men. Personality and IQ also influence earnings indirectly through educational choice. Surprisingly, education and personality skills do not always raise the family earnings of women in this cohort, as women with very high education and IQ are less likely to marry, and thus have less income through their husbands. To identify personality traits, I use a factor model that also serves to correct for prediction error bias, which is often ignored in the literature. This paper complements the literature on investments in education and personality traits by showing that they also have potentially high returns at the high end of the ability distribution.
    Keywords: personality traits, social skills, cognitive skills, returns to education, life-time earnings, Big Five, human capital, factor analysis
    JEL: J24 I24 J16
    Date: 2014–06
  9. By: Yann Algan (Department of Economics, Sciences Po - Sciences Po); Pierre Cahuc (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Marc Sangnier (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))
    Abstract: We show the existence of a twin peaks relation between trust and the size of the welfare state that stems from two opposing forces. Uncivic people support large welfare states because they expect to benefit from them without bearing their costs. But civic individuals support generous benefits and high taxes only when they are surrounded by trustworthy individuals. We provide empirical evidence for these behaviors and this twin peaks relation in the OECD countries.
    Keywords: welfare state; trust; civism; corruption; redistribution
    Date: 2014–06
  10. By: Pierre-André Chiappori; Costas Meghir
    Abstract: Studies of inequality often ignore resource allocation within the household. In doing so they miss an important element of the distribution of welfare that can vary dramatically depending on overall environmental and economic factors. Thus, measures of inequality that ignore intra household allocations are both incomplete and misleading. We discuss determinants of intrahousehold allocation of resources and welfare. We show how the sharing rule, which characterizes the within household allocations, can be identified from data on household consumption and labor supply. We also argue that a measure based on estimates of the sharing rule is is inadequate as an approach that seeks to understand how welfare is distributed in the population because it ignores public goods and the allocation of time to market work, leisure and household production. We discuss a money metric alternative, that fully characterizes the utility level reached by the agent. We then review the current literature on the estimation of the sharing rule based on a number of approaches, including the use of distribution factors as well as preference restrictions.
    JEL: D1 D11 D12 D13 D31 D6 H41
    Date: 2014–06
  11. By: Parsons, Donald O. (George Washington University)
    Abstract: Earnings losses from permanent job separations are a serious threat to the financial security of long-tenured workers. Job displacement insurance is presumably designed to offset these losses, but evidence suggests that consumption smoothing among the long-tenured displaced is seriously incomplete, at least in lightly regulated labor markets. Unemployment and reemployment wage insurance could fully cover these losses, but are costly to provide. Severance pay has emerged as a supplemental, if much criticized, instrument. Moral hazard limitations on unemployment insurance generosity mean that severance pay functions as scheduled (partial) unemployment insurance and scheduled wage insurance. Consumption smoothing over time through savings and borrowing is less efficient than ideal insurance, but may be preferred in second-best situations. Long-tenured separated workers are older on average, which introduces special problems, but also additional policy options, including early access to retirement accounts.
    Keywords: job displacement, unemployment insurance, wage insurance, severance pay, insurance adequacy, early retirement
    JEL: J65 J41 J33 J08
    Date: 2014–05
  12. By: Melissa S. Kearney; Phillip B. Levine
    Abstract: This paper considers the role that high levels of income inequality and low rates of social mobility play in driving the educational attainment of youth in low-income households in the United States. Using high school degree status from five individual-level surveys, our analysis reveals that low-socioeconomic status (SES) students, and particularly boys, who grow up in locations with greater levels of lower-tail income inequality and lower levels of social mobility are relatively more likely to drop out of high school, conditional on other individual characteristics and contextual factors. The data indicate that this relationship does not reflect alternative characteristics of the place, such as poverty concentration, residential segregation, or public school financing. We propose that the results are consistent with a class of explanations that emphasize a role for perceptions of one’s own identity, position in society, or chances of success. In the end, our empirical results indicate that high levels of lower-tail income inequality and low levels of social mobility hinder educational advancement for disadvantaged youth.
    JEL: D31 I24 J24
    Date: 2014–06
  13. By: Sabatini, Fabio; Sarracino, Francesco
    Abstract: Does Facebook make people lonely and unhappy? Empirical studies have produced conflicting results about the effect of social networking sites (SNS) use on individual welfare. We use a representative sample of the Italian population to investigate how actual and virtual networks of social relationships influence subjective well-being (SWB). We find a significantly negative correlation between online networking and self-reported happiness. We address endogeneity in online networking by exploiting technological characteristics of the pre-existing voice telecommunication infrastructures that exogenously determined the availability of broadband for high-speed Internet. We try to further disentangle the direct effect of SNS use on well-being from the indirect effect possibly caused by the impact of SNS’s on trust and sociability in a SEM analysis. We find that online networking plays a positive role in SWB through its impact on physical interactions. On the other hand, SNS use is associated with lower social trust, which is in turn positively correlated with SWB. The overall effect of networking on individual welfare is significantly negative.
    Keywords: social participation; online networks; Facebook; social trust; social capital; subjective well-being; hate speech; broadband; digital divide.
    JEL: C36 D85 O33 Z1 Z13
    Date: 2014–06–03

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