The NEP-LTV Blog

September 27, 2010

This blog is an experiment to explore the feasibility of scientific discussion on an Economics blog. NEP-LTV disseminates every week new working papers in the field of Unemployment, Inequality & Poverty. Among them, the NEP-LTV editor selects one to be discussed. Everyone is invited to comment. Try to stay civil, or your comments will be removed. And encourage others to read or join in the discussion.

Informal Labor and the Efficiency Cost of Social Programs: Evidence from the Brazilian Unemployment Insurance Program

September 12, 2016


By: Gerard, Francois ; Gonzaga, Gustavo
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

Violence against Rich Ethnic Minorities: A Theory of Instrumental Scapegoating

September 12, 2016

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)
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


Top Incomes and the Gender Divide

September 12, 2016


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)
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

Inequality Aversion and Coalition Formation

September 12, 2016


By: David M. McEvoy ; John K. Stranlund
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

Supply and Demand for Discrimination: An Experiment Using Photos

September 7, 2016


By: Anthony Heyes ; John List

There is a large and diverse body of evidence that people condition their behavior on the characteristics of others. If type is visible then one agent seeing another with whom they are interacting, or observing some other close proxy for type, can affect outcomes. Goldin and Rouse (2000) showed that the adoption of “blind” auditions—with a screen concealing each candidate’s identity from the jury—increased significantly the likelihood of a female being hired at five major American orchestras. Oreopoulos (2011) found that CVs sent in response to online job postings in Toronto were much more likely to elicit a response if they carried an English rather than Indian, Pakistani, Chinese, or Greek name. In recent work on behavior in the “sharing economy,” Pope and Sydnor (2011) showed that loan listings on the  peer-to-peer lending site were 25 to 35 percent less likely to receive funding if the borrower profile contained a black profile, while in their field experiment Edelman, Luca, and Svirsky (2015) found that room requests on Airbnb from guests with distinctively African American names were 16 percent less likely to be accepted than those from other requestors. When the characteristic in question is a  legally-protected one, as in these examples, we call prejudicial behavior toward a particular  subgroup discrimination. But the conditioning
of behavior on characteristics of others is more ubiquitous than our focus on race and gender would suggest. For example, Hamermesh and Biddle (1994) show that labor market outcomes for both men and women are increasing in how  good-looking they are rated as being in photographs (this behavior extends to even the charitable giving market; see Landry et al. 2006). There is a broader literature on how people make inferences from faces. For example, Oosterhof and Todorov (2009) find that perceptions of the trustworthiness of an individual in a photo can vary systematically with facial expressions and characteristics. DeBruine (2002) found evidence that facial resemblance enhanced trust. Van Leeuwen et al. (2014) find facial cues that predict propensity to anger. In Scharlemann et al. (2001) experimental subjects are more likely to regard as  cooperative a partner smiling in a photograph rather than of neutral expression. The desire to discriminate may provide a rationale for wanting to know about the identity of someone with whom you are interacting. Much more generally, however, in strategic settings we tend to think that there are certain advantages to knowing the features of the other agent. We might be able to learn something from their appearance that allows us to turn negotiations and other interactions in our favor. Consistent with this line of thought, a clever study due to Eckel and Petrie (2011) demonstrates that players in a trust game often have a positive willingness to pay (WTP) to see a picture of their partner. That is, there is a perceived private value to the information that such a  picture contains. Our research question is in this spirit, but different in that we explore whether individuals perceive a benefit to revealing a picture of themselves to partners in a strategic interaction (a trust game). If they do, then it implies that players believe that they can use their own characteristics to shape the actions of others.
Our pilot results reported in this study should be viewed with care, as they are preliminary and based on small samples. Yet, we find a substantial (and significant) portion of players have a positive WTP for revelation of own characteristics. Indeed, the strategic revelation follows economic theory well—there is an associated demand curve that is downward sloping.

Does Mass Deworming Affect Child Nutrition? Meta-analysis, Cost-Effectiveness, and Statistical Power

September 7, 2016


By: Croke, Kevin ; Hicks, Joan Hamory ; Hsu, Eric ; Kremer, Michael ; Miguel, Edward
The WHO has recently debated whether to reaffirm its long-standing recommendation of mass drug administration (MDA) in areas with more than 20% prevalence of soil-transmitted helminths (hookworm, whipworm, and roundworm). There is consensus that the relevant deworming drugs are safe and effective, so the key question facing policymakers is whether the expected benefits of MDA exceed the roughly $0.30 per treatment cost. The literature on long run educational and economic impacts of deworming suggests that this is the case. However, a recent meta-analysis by Taylor-Robinson et al. (2015) (hereafter TMSDG), disputes these findings. The authors conclude that while treatment of children known to be infected increases weight by 0.75 kg (95% CI: 0.24, 1.26; p=0.0038), there is substantial evidence that MDA has no impact on weight or other child outcomes. We update the TMSDG analysis by including studies omitted from that analysis and extracting additional data from included studies, such as deriving standard errors from p-values when the standard errors are not reported in the original article. The updated sample includes twice as many trials as analyzed by TMSDG, substantially improving statistical power. We find that the TMSDG analysis is underpowered: it would conclude that MDA has no effect even if the true effect were (1) large enough to be cost-effective relative to other interventions in similar populations, or (2) of a size that is consistent with results from studies of children known to be infected. The hypothesis of a common zero effect of multiple-dose MDA deworming on child weight at longest follow-up is rejected at the 10% level using the TMSDG dataset, and with a p-value
Keywords: meta-analysis; weight gain; worms
JEL: C49 I15 I18 O15

World income inequality databases: an assessment of WIID and SWIID

September 7, 2016


By: Stephen P. Jenkins
This article assesses two secondary data compilations about income inequality – the World Income Inequality Database (WIIDv2c), and the Standardized World Income Inequality Database (SWIIDv4.0) which is based on WIID but with all observations multiply-imputed. WIID and SWIID are convenient and accessible sources for researchers seeking cross-national data with global coverage for relatively long time periods. Against these undoubted benefits must be set costs arising from lack of data comparability and quality and also, in the case of SWIID, questions about its imputation model. WIID and SWIID users need to recognize this benefit-cost trade-off and ensure their substantive conclusions are robust to potential data problems. I provide detailed description of the nature and contents of both sources plus illustrative regression analysis. From a data issues perspective, I recommend WIID over SWIID, though my support for use of WIID is conditional.
Keywords: global inequality; inequality; Gini; imputation; WIID; SWIID
JEL: C81 C82 D31