nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2016‒09‒11
six papers chosen by
Maximo Rossi
Universidad de la República

  1. Inequality Aversion and Coalition Formation By David M. McEvoy; John K. Stranlund
  2. Top Incomes and the Gender Divide By A.B. Atkinson; A. Casarico; S. Voitchovsky
  3. Do Economic Inequalities Affect Long-Run Cooperation? By Gabriele Camera; Cary Deck; David Porter
  4. Violence against Rich Ethnic Minorities: A Theory of Instrumental Scapegoating By Yann Bramoullé; Pauline Morault
  5. Informal Labor and the Efficiency Cost of Social Programs: Evidence from the Brazilian Unemployment Insurance Program By Gerard, Francois; Gonzaga, Gustavo
  6. Sorting and Wage Inequality By Kory Kantenga

  1. By: David M. McEvoy; John K. Stranlund
    Abstract: We explore the formation of coalitions to provide a public good when some players are averse to payoff inequality between coalition members and non-members. A model is presented to demonstrate how inequality-averse preferences could cause players to deliberately block profitable but inequitable coalitions from forming, and how the likelihood of such blocks is affected by the magnitude of payoff inequality. We then empirically examine coalition formation rates using laboratory experiments. Our results show that profitable coalitions are less likely to form the bigger the gap in payoffs between members and freeriding non-members. The experimental design allows us to tease out potentially confounding effects between the level of inequality and the minimum number of players required to make the coalition profitable. As predicted, controlling for the size of the participation threshold, we find that coalition formation rates fall as the payoff gap between members and non-members is increased. Key Words: self-enforcing agreements; inequality aversion; coalitions; experiments; public goods
    Date: 2016
  2. By: A.B. Atkinson (Nuffield College, Oxford; London School of Economics; and INET at the Oxford Martin School); A. Casarico (Università Bocconi; CESifo; and Dondena Centre for Research on Social Dynamics and Public Policy); S. Voitchovsky (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and Graduate Institute of International and Development Studies, Geneva)
    Abstract: In the recent research on top incomes, there has been little discussion of gender. How many of the top 1 and 10 per cent are women? A great deal is known about gender differentials in earnings, but how far does this carry over to the distribution of total incomes, bringing selfemployment and capital income into the picture? We investigate the gender divide at the top of the income distribution using tax record data for a sample of eight countries with individual taxation. We show that women are under-represented at the top of the distribution. They account for between a fifth and a third of those in the top 10 per cent. Higher up the income distribution, the proportion is lower, with women constituting between 14 and 22 per cent of the top 1 per cent. The presence of women in the top income groups has generally increased over time, but the rise becomes smaller at the very top. As a result, the gradient with income has become more marked: the under-representation of women today increases more sharply. Examination of the shape of the income distribution by fitting a Pareto distribution shows that at the end of the period women disappear faster than men as one moves up the income scale in all countries. In this sense, there appears to be something of a “glass ceiling” for women. In the case of Canada, Denmark, Norway and New Zealand, there appears to have been a reversal over time, with the slope of the upper tail having been steeper for women in the past. In seeking to explain this, we highlight the role of income composition, where we show that there have been significant changes over time, underlining the fact that it is not sufficient to look only at earned income.
    Keywords: Top income groups, gender, income composition
    JEL: D31 J16
    Date: 2016–09
  3. By: Gabriele Camera (Chapman University and University of Basel); Cary Deck (University of Arkansas and Chapman University); David Porter (Chapman University)
    Abstract: Does inequality affect a group’s cohesion and ability to prosper? Participants in laboratory economies played an indefinite sequence of helping games in random, anonymous pairs. A coin flip determined donor and recipient roles in each pair. This random shock ensured equality of opportunity but not of results, because earnings depended on realized shocks. We manipulated the ability to condition choices on this uncontrollable inequality source. In all treatments, uncertain ending supports multiple Pareto-ranked equilibria, including full cooperation. Theoretically, inequalities do not alter the incentives’ structure. Empirically, inequality disclosures altered conduct, weakened norms of mutual support and reduced efficiency.
    Keywords: experiments, indefinitely repeated games, social norms, social dilemmas
    JEL: C70 C90 D03 E02
    Date: 2016
  4. By: Yann Bramoullé (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS); Pauline Morault (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: In many parts of the developing world, ethnic minorities play a central role in the economy. Examples include Chinese throughout Southeast Asia, Indians in East Africa and Lebanese in West Africa. These rich minorities are often subject to popular violence and extortion, and are treated ambiguously by local politicians. We develop a formal framework to analyze the interactions between a rent-seeking political elite, an economically dominant ethnic minority and a poor majority. We find that the local elite can always make use of the presence of the rich minority to maintain its hold on power. When the threat of violence is high, the government may change its economic policies strategically to sacrifice the minority to popular resentment. We analyze the conditions under which such instrumental scapegoating emerges, and the forms it takes. We then introduce some social integration between both elites capturing, for instance, mixed marriages and shared education. Social integration reduces violence and yields qualitative changes in economic policies. Overall, our results help explain documented patterns of violence and segregation
    Keywords: elites, popular violence, ethnic minority, scapegoat
    Date: 2016–08
  5. By: Gerard, Francois; Gonzaga, Gustavo
    Abstract: It is widely believed that the presence of a large informal sector increases the efficiency cost of social programs -- transfer and social insurance programs -- in developing countries. We evaluate such claims for policies that have been heavily studied in countries with low informality -- increases in unemployment insurance (UI) benefits. We introduce informal work opportunities into a canonical model of optimal UI that specifies the typical tradeoff between workers' need for insurance and the efficiency cost from distorting their incentives to return to a formal job. We then combine the model with evidence drawn from comprehensive administrative data to quantify the efficiency cost of increases in potential UI duration in Brazil. We find evidence of behavioral responses to UI incentives, including informality responses. However, because reemployment rates in the formal sector are low to begin with, most beneficiaries would draw the UI benefits absent behavioral responses, and only a fraction of the cost of (longer) UI benefits is due to perverse incentive effects. As a result, the efficiency cost is relatively low, and in fact lower than comparable estimates for the US. We reinforce this finding by showing that the efficiency cost is also lower in labor markets with higher informality within Brazil. This is because formal reemployment rates are even lower in those labor markets absent behavioral responses. In sum, the results go against the conventional wisdom, and indicate that efficiency concerns may even become more relevant as an economy formalizes.
    Keywords: Informality; Unemployment insurance
    JEL: H00 J65
    Date: 2016–09
  6. By: Kory Kantenga (University of Pennsylvania)
    Abstract: We measure the roles of the permanent component of worker and firm produc- tivities, complementarities between them, search frictions, and equilibrium sorting in driving German wage dispersion. We do this using a standard assortative matching model with on-the-job search. The model is identified and estimated using matched employer-employee data on wages and labor market transitions without imposing para- metric restrictions on the production technology. The model’s fit to the wage data is comparable to prominent wage regressions with additive worker and firm fixed effects that use many more degrees of freedom. Moreover, we propose a direct test that rejects the restrictions underlying the additive specification. We use the model to decompose the rise in German wage dispersion between the 1990s and the 2000s. We find that changes in the production function and the induced changes in equilibrium sorting pat- terns account for virtually all the rise in the observed wage dispersion. Search frictions are an important determinant of the level of wage dispersion but have had little impact on its rise over time.
    Date: 2016

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