nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2015‒08‒01
six papers chosen by
Maximo Rossi
Universidad de la República

  1. The Political Economy of Public Income Volatility: With an Application to the Resource Curse By Robinson, James A; Torvik, Ragnar; Verdier, Thierry
  2. Due Diligence: Job Search with Rationally Inattentive Workers By Daniel Martin; Chris Tonetti; Andrew Caplin; Joseph Briggs
  3. Poor Little Rich Kids? The Determinants of the Intergenerational Transmission of Wealth By Sandra E. Black; Paul J. Devereux; Petter Lundborg; Kaveh Majlesi
  4. Inequality when Effort Matters By Martin Ravallion
  5. The Role of International Policy Transfer and Diffusion for Policy Change in Social Protection - A Review of the State of the Art By Katja Bender; Sonja Keller; Holger Willing
  6. The effects of vocational education on adult skills and wages: What can we learn from PIAAC? By Giorgio Brunello; Lorenzo Rocco

  1. By: Robinson, James A; Torvik, Ragnar; Verdier, Thierry
    Abstract: We develop a model of the political consequences of public income volatility. As is standard, political incentives create inefficient policies, but we show that making income uncertain creates specific new effects. Future volatility reduces the benefit of being in power, making policy more efficient. Yet at the same time it also reduces the re-election probability of an incumbent and since some of the policy inefficiencies are concentrated in the future, this makes inefficient policy less costly. We show how this model can help think about the connection between volatility and economic growth and in the case where volatility comes from volatile natural resource prices, a characteristic of many developing countries, we show that volatility in itself is a source of inefficient resource extraction.
    Keywords: income volatility; politics; public policy; resource extraction
    JEL: D72 D78 Q2
    Date: 2015–07
  2. By: Daniel Martin (Paris School of Economics); Chris Tonetti (Stanford GSB); Andrew Caplin (New York University); Joseph Briggs (New York University)
    Abstract: We develop a model of late in life job search that accounts for end of life labor force exit and re-entry. Our key assumptions are that job offers consist of both wage and complex non-wage characteristics and that older workers care more about the non-wage characteristics of a job. In equilibrium, young workers choose jobs with high wages, but poor non-wage characteristics, while older workers are willing to trade off lower wages for better non-wage characteristics. However, due to rational inattention, older workers may ex-post regrettably accept low wage jobs with poor non-wage characteristics. Such mistakes produce welfare losses and generate employment patterns in the model consistent with the empirical patterns of older US workers.
    Date: 2015
  3. By: Sandra E. Black; Paul J. Devereux; Petter Lundborg; Kaveh Majlesi
    Abstract: Wealth is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use administrative data on the net wealth of a large sample of Swedish adoptees merged with similar information for their biological and adoptive parents. Comparing the relationship between the wealth of adopted and biological parents and that of the adopted child, we find that, even prior to any inheritance, there is a substantial role for environment and a much smaller role for genetics. We also examine the role played by bequests and find that, when they are taken into account, the role of adoptive parental wealth becomes much stronger. Our findings suggest that wealth transmission is not primarily because children from wealthier families are inherently more talented or more able but that, even in relatively egalitarian Sweden, wealth begets wealth.
    JEL: G0 G11 J13 J62
    Date: 2015–07
  4. By: Martin Ravallion
    Abstract: It is sometimes argued that poorer people choose to work less, implying less welfare inequality than suggested by observed incomes. Social policies have also acknowledged that efforts differ, and that people respond to incentives. Prevailing measures of inequality (in outcomes or opportunities) do not, however, measure incomes consistently with personal choices of effort. The direction of bias is unclear given the heterogeneity in efforts and preferences. Data on the labor supplies of single American adults suggest that adjusting for effort imposing common preferences attenuates inequality, although the effect is small. Allowing for preference heterogeneity consistently with behavior suggests higher inequality.
    JEL: D31 D63 I32 J22
    Date: 2015–07
  5. By: Katja Bender (Bonn-Rhein-Sieg University of Applied Sciences, International Centre for Sustainable Development (IZNE)); Sonja Keller (Bonn-Rhein-Sieg University of Applied Sciences, International Centre for Sustainable Development (IZNE)); Holger Willing (Bonn-Rhein-Sieg University of Applied Sciences, International Centre for Sustainable Development (IZNE))
    Abstract: Over the past two decades many governments of low and middle income countries have started to introduce social protection measures or to extend the coverage and improve the functioning of public social protection systems. These reforms are a "global phenomenon" and can be observed in many African, Asian and Latin American countries. This paper focuses on international determinants for policy change within social protection by assessing the state of the art of both policy diffusion and policy transfer studies. Empirical studies of policy transfer and diffusion in the field of social protection are furthermore assessed in light of the theoretical background.
    Keywords: Development Policy; Policy Change; Policy Diffusion; Policy Learning; Policy Transfer; Political Economy; Social Protection; Transgovernmental Networks; Policy networks
    Date: 2015–02
  6. By: Giorgio Brunello; Lorenzo Rocco
    Abstract: Vocational education and training are highly valued by many. The European Ministers for Vocational Education and Training, the European Social Partners and the European Commission have issued in 2010 the Bruges Communiqué, which describes the global vision for VET in Europe 2020. In this vision, vocational skills and competencies are considered as important as academic skills and competencies. VET is expected to play an important role in achieving two Europe 2020 headline targets set in the education field: a) reduce the rate of early school leavers from education to less than 10 percent; b) increase the share of 30 to 40 years old having completed tertiary or equivalent education to at least 40 percent. However, there is limited hard evidence that VET can improve education and labour market outcomes. The few existing studies yield mixed results partly due to differences in the structure and quality of VET across countries. In this report we investigate the effects of VET on adult skills and labour market outcomes by using the PIAAC survey. Data comparability across countries, the breath of countries involved, and the almost unique presence of information on assessed skills, training, earnings and employment makes this survey especially valuable to study the different facets of VET as compared to more academic education. Our approach is to think of the possible education careers available to individuals as alternative treatments in a multivalued treatment framework. Focusing mainly but not exclusively on upper secondary, post-secondary and tertiary education, we assume that individuals are exposed to four alternative treatments: 1. vocational education at the upper secondary or post-secondary level; 2. academic education at the upper secondary or post-secondary level; 3. vocational education at the tertiary level; 4. academic education at the tertiary level. In most of this paper, comparisons between vocational and academic education are made at the same level of educational attainment, hence outcomes of treatment 1 (3) are compared to those of treatment 2 (4). Depending on the research question being investigated, other comparisons are possible and may deliver a different picture than the one presented here. Isolating the effect of VET courses is difficult in the absence of students’ ability at the time of entry. In this paper, we assume that the assignment of individuals to the treatments listed above is explained by parental education, country of birth, the number of books in the house at age 16 as well as the pupil/teacher ratio in primary school and the proportion of residents in rural areas at the age of selection. We discuss in the report how plausible this assumption is in the context of the data being used. This is important for the interpretation of our results. Only if this assumption holds we can treat our estimates of the effects of alternative treatments as causal effects. If it does not, a more modest interpretation is in order that views our findings as interesting correlations at best. In particular, if there are factors affecting selection into different curricula that we cannot control for with the data at hand, our estimates may still be affected by selection bias, which could amplify the estimate gap in labour market outcomes associated to alternative curricula. The results are encouraging in some ways while disappointing in others. Overall, at the ISCED 3 and 4 level, we find that VET performs about as well as academic education as far as earnings are concerned and a bit better in terms of employment outcomes. VET at the ISCED 3-4 level is also associated with higher training incidence. Finally, our findings support the view that the presence of vocational tracks helps keeping students with limited academic attitudes in school. On the other hand and despite the emphasis put on creating and/or expanding VET opportunities at the ISCED 5 level, we find a clear advantage of academic education at this level across all outcomes considered. Unsurprisingly, there are large cross-country differences in the estimates reported above, most likely explained by differences in the quality of VET instructions. For instance, there is evidence that the wage and employment returns to VET are higher in countries where the relative supply of VET graduates is lower. In these countries, skill performance by VET graduates is also better. However, in spite of the growing interest attracted by dual systems, which alternate school and work, we do not find systematic evidence that returns to VET are higher in the countries where vocational education systematically combines school and work. More specifically, at the ISCED 3-4 level, a vocational curriculum is associated to only slightly lower hourly earnings but a higher probability of being currently employed, and a higher share of the completed working life spent in paid employment. The estimated differences are small: for earnings, the negative gap ranges between -1.3 percent for males and -4.8 percent for females; for the probability of employment and the share of time spent in paid employment, the estimated positive gaps are 2.2 and 3.3 percentage points for males and 1.9 and 0.6 percentage points for females. On the other hand, the comparison between vocational and academic education is much more disappointing when we consider tertiary education (ISCED 5). In this case, the earnings gap between vocational and academic education at the time of the interview is as big as -19 percent for males and -21.7 percent for females. There is also a small negative gap in the probability of being currently employed. This gap should however be contrasted with the positive gap in the share of the working life spent in paid jobs, estimated at 6.9 percentage points in the case of males and at 3.7 percentage points in the case of females. Overall, the evidence we have on different ISCED levels suggests that vocational education does not perform as well as academic education when earnings are concerned, and performs slightly better than academic education when employability measures are considered. VET also performs less well than academic education on a number of other non-monetary outcomes. Independently of the ISCED level, we find that individuals with vocational education have a higher likelihood of being NEET (not employed and with no education or training in the past 12 months), report poorer health and have poorer civic behaviour than comparable individuals with academic education. There is also evidence that vocational education is associated to poorer labour market returns among older than younger cohorts. Whether these differences simply reflect cohort effects or also indicate the presence of age effects is impossible to tell with the data at hand, which are a cross section of individuals. This issue is important but must be left to better data and further research. When we consider the proficiency in foundation skills we find individuals with vocational education to be less proficient than those with academic education, for any ISCED level. This is true for both genders and, in spite of some heterogeneity, for all countries. The negative gap is larger for those with tertiary education and increases with the country-specific share of vocational students. In particular, we estimate that the negative percentage gap associated to vocational education at the secondary or post-secondary level ranges from -2.0 to -2.2 percent for literacy, from -1.9 to -2.9 percent for numeracy and from -1.8 to -2.3 for problem solving skills. In the case of tertiary education, the negative gap is larger and ranges from -5.7 to -5.9 for literacy, from -6.7 to -7 percent for numeracy and from -4.4 to -4.7 percent for problem solving skills. We also find that the relationship between initial vocational education and training and continuing vocational education and training varies with the level of education. When we consider upper secondary or post-secondary education, there is evidence that VET is associated with higher training incidence. The estimated positive gap with respect to academic education ranges from 2.4 percentage points for females to 4.0 percentage points for males. When we focus instead on tertiary education, the evidence suggests that those who have completed vocational curricula have on average a much lower investment in further training than those with an academic curriculum. In this case, the estimated negative gap is close to 10 percentage points. These results hold for both genders, even when we distinguish between on-the-job and off-the-job training. Interestingly, the negative effect of a vocational curriculum is larger in absolute value in countries with higher employment protection. Finally, we compare the labour market outcomes and the current skills of individuals who have completed upper secondary or post-secondary vocational education and individuals who have completed at most lower secondary education (ISCED 2). It is often said that the presence of vocational tracks helps keeping students with limited academic attitudes in school. Our empirical evidence shows that upper secondary VET is associated to substantially higher hourly earnings, employability and skills with respect to lower education. For males, we estimate an hourly earnings premium of 10.3 percent and an employment premium of 11.9 percentage points. VET graduates also enjoy close to 11 percent higher level of measured numeracy skills with respect to comparable individuals with at most lower secondary education. In spite of spending more time at school than the latter, the former also end up spending a higher percentage of time in paid employment.
    JEL: I21 I28 J01 J08 J24
    Date: 2015–07–29

This nep-ltv issue is ©2015 by Maximo Rossi. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.