nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2016‒04‒16
five papers chosen by
Maximo Rossi
Universidad de la República

  1. Higher education and the fall and rise of inequality By Klaus Prettner; Andreas Schaefer
  2. Global Poverty Lines: An Introduction By Nora Lustig; Jacques Silber
  3. Education as a Tool for the Economic Integration of Migrants By De Paola, Maria; Brunello, Giorgio
  4. Reservation Wages and the Wage Flexibility Puzzle By Felix Koenig; Alan Manning; Barbara Petrongolo
  5. Labor Market Networks and Recovery from Mass Layoffs Before, During, and After the Great Recession By Hellerstein, Judith K.; Kutzbach, Mark J.; Neumark, David

  1. By: Klaus Prettner (University of Hohenheim, Germany); Andreas Schaefer (ETH Zurich, Switzerland)
    Abstract: We investigate the effect of higher education on the evolution of inequality. In so doing we propose a novel overlapping generations model with three social classes: the rich, the middle class, and the poor. We show that there is an initial phase in which no social class invests in higher education of their children, such that the evolution of inequality is entirely driven by the level of bequests. Once a certain income threshold is surpassed, the rich start to invest in higher education of their children, which partially crowds out bequests and thereby reduces inequality in the short run. The better educated children of the rich, however, enjoy higher incomes and inequality starts to rise again. As time goes by, the middle class and eventually also the poor start to invest in higher education, but now the increase in inequality is driven by different levels of education. As the economy proceeds toward a balanced growth path, educational differences between social groups and thus inequality decline again. We argue that (1) the proposed mechanism has the potential to explain the Ushaped evolution of inequality in rich countries in the second half of the 20th Century and the first decade of the 21st Century and (2) the currently observed increase in inequality is rather a transitory phenomenon.
    Keywords: Higher education, inequality, growth regime switch, middle income trap, Piketty curve
    JEL: I23 I24 I25 O11 O41
    Date: 2016–03
  2. By: Nora Lustig (Department of Economics, Tulane University); Jacques Silber (Department of Economics, Bar-Ilan University)
    Abstract: Monitoring progress and determining whether the goal of ending poverty by 2030 is met crucially depends on how poverty is measured. In particular, it crucially depends on the global poverty line and how the line is adjusted over time. A special issue of the Journal of Economic Inequality, which this paper introduces, is dedicated to present alternative approaches to determine the global poverty line (or, more precisely, poverty lines) in order to measure the extent and evolution of extreme poverty in the developing world. In this special issue, the authors also carefully assess the merits and shortcomings of each of these approaches.
    Keywords: Poverty lines, poverty comparisons, global poverty, purchasing power parity
    JEL: I32 D63
    Date: 2016–04
  3. By: De Paola, Maria (University of Calabria); Brunello, Giorgio (University of Padova)
    Abstract: We examine the role of education in fostering the economic integration of immigrants. Although immigrants in Europe are – on average – slightly less educated than native individuals, there is a large heterogeneity across countries. We discuss evidence on student performance in international tests showing that children with an immigrant background display worse results than natives. While in some countries, such as Denmark and France, this gap is almost entirely explained by differences in socio-economic background, in others (Finland, Austria, Belgium and Portugal) the factors driving the gap are more complex and have roots also outside socio-economic conditions. We investigate how educational policies in the host count can affect the educational outcomes of immigrants. We focus our attention on pre-school attendance, school tracking, the combination of students and teacher characteristics, and class composition.
    Keywords: education, immigration, European migration policies, school tracking, class composition
    JEL: I20 I21 I28 J24 J61
    Date: 2016–03
  4. By: Felix Koenig (London School of Economics and CEP-LSE); Alan Manning (London School of Economics and CEP-LSE); Barbara Petrongolo (Queen Mary University of London and CEP-LSE)
    Abstract: Wages are only mildly cyclical, implying that shocks to labour demand have a larger short-run impact on unemployment rather than wages, at odds with the quantitative predictions of the canonical search model - even if wages are only occasionally renegotiated. We argue that one source of the wage flexibility puzzles is plausibly the model for the determination of reservation wages, and consider an alternative reservation wage model based on reference dependence in job search. This extension generates less cyclical reservation wages than the canonical model, as long as reference points are less cyclical than forward-looking components of reservation wages such as the arrival rate of job offers. We provide evidence that reservation wages significantly respond to backward-looking reference points, as proxied by rents earned in previous jobs. In a model calibration we show that backward-looking reference dependence markedly reduces the predicted cyclicality of both wages and reservation wages and can reconcile theoretical predictions of the canonical model with the observed cyclicality of wages and reservation wages.
    Keywords: Job search, Reservation wages, Wage cyclicality, Reference dependence
    JEL: E24 J63 J64
    Date: 2016–03
  5. By: Hellerstein, Judith K. (University of Maryland); Kutzbach, Mark J. (U.S. Census Bureau); Neumark, David (University of California, Irvine)
    Abstract: We measure the impact of labor market referral networks defined by residential neighborhoods on re-employment following mass layoffs. Because networks can only be effective when hiring is occurring, we focus on a measure of the strength of the labor market network that includes not only the number of employed neighbors of a laid off worker, but also the gross hiring rate at that person's neighbors' workplaces. We provide additional evidence from two alternative measures of network strength that try to disentangle the mechanism by which networks operate – either by conveying information to job seekers about vacancies or conveying information to hiring employers about potential hires. Our evidence indicates that stronger local labor market networks are linked not just to more rapid re-employment following mass layoffs but to re-employment specifically at neighbors' employers. We also find evidence suggesting that this effect is stronger via network connections that convey information to job seekers about vacancies. Finally, we find evidence that the effects of networks for displaced workers declined during the Great Recession relative to prior or subsequent years.
    Keywords: networks, displacement, re-employment
    JEL: J63 J64
    Date: 2016–03

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