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.
Poor Little Rich Kids? The Determinants of the Intergenerational Transmission of Wealth By: Sandra E. Black ; Paul J. Devereux ; Petter Lundborg ; Kaveh MajlesiAugust 4, 2015
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
The Political Economy of Public Income Volatility: With an Application to the Resource Curse By: Robinson, James A ; Torvik, Ragnar ; Verdier, ThierryAugust 4, 2015
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
It is commonly-believed that education is a good thing for individuals. Yet its correlation with subjective well-being is most often only weakly positive, or even negative, despite the many associated better individual-level outcomes We here square the circle using novel Japanese data on happiness aspirations. If reported happiness comes from a comparison of outcomes to aspirations, then any phenomenon raising both at the same time will have only a muted effect on reported well-being. We find that around half of the happiness effect of education is cancelled out by higher aspirations, and suggest a similar dampening effect for income.
Keywords: education; satisfaction; aspirations; income
Family Values and the Regulation of Labor By: Alberto Alesina (2441/4ia9erre4r9nva2eh5b5sac29o) ; Yann Algan (Département d’économie) ; Pierre Cahuc (Department of Economics) ; null null (Anderson School of Management – Global Economics and Management)July 30, 2015
To be efficient, flexible labor markets require geographically mobile workers. Otherwise firms can take advantage of workers’ immobility and extract rents at their expense. In cultures with strong family ties, moving away from home is costly. Thus, to limit the rents of firms and to avoid moving, individuals with strong family ties rationally choose regulated labor markets, even though regulation generates higher unemployment and lower incomes. Empirically, we find that individuals who inherit stronger family ties are less mobile, have lower wages and higher unemployment, and support more stringent labor market regulations. We find a positive association between labor market rigidities at the beginning of the 21st century and family values prevailing before World War II, and between family structures in the Middle Ages and current desire for labor market regulation. Both results suggest that labor market regulations have deep cultural roots.
Keywords: Regulation of labor; Family values; Labor market; Market regulation
JEL: J2 K2 Z0
Do more of those in misery suffer from poverty, unemployment or mental illness? By: Sarah Flèche ; Richard LayardJuly 30, 2015
Studies of deprivation usually ignore mental illness. This paper uses household panel data from the USA, Australia, Britain and Germany to broaden the analysis. We ask first how many of those in the lowest levels of life-satisfaction suffer from unemployment, poverty, physical ill health, and mental illness. The largest proportion suffer from mental illness. Multiple regression shows that mental illness is not highly correlated with poverty or unemployment, and that it contributes more to explaining the presence of misery than is explained by either poverty or unemployment. This holds both with and without fixed effects.
Keywords: Mental health; life-satisfaction; wellbeing; poverty; unemployment
JEL: I31 I32
Adaptation to Poverty in Long-Run Panel Data By: Clark, Andrew E. ; D’Ambrosio, Conchita ; Ghislandi, SimoneJuly 30, 2015
We consider the link between poverty and subjective well-being, and focus in particular on potential adaptation to poverty. We use panel data on almost 54,000 individuals living in Germany from 1985 to 2012 to show first that life satisfaction falls with both the incidence and intensity of contemporaneous poverty. We then reveal that there is little evidence of adaptation within a poverty spell: poverty starts bad and stays bad in terms of subjective well-being. We cannot identify any cause of poverty entry which explains the overall lack of poverty adaptation.
Keywords: income, poverty, subjective well-being, adaptation, SOEP
When Experienced and Decision Utility Concur: The Case of Income Comparisons By: Clark, Andrew E. (Paris School of Economics) ; Senik, Claudia (Paris School of Economics) ; Yamada, Katsunori (Kindai University)July 30, 2015
While there is now something of a consensus in the literature on the economics of happiness that income comparisons to others help determine subjective wellbeing, debate continues over the relative importance of own and reference-group income, in particular in research on the Easterlin paradox. The variety of results in this domain have produced some scepticism regarding happiness analysis, and in particular with respect to the measurement of reference-group income. We here use data from an original Internet survey in Japan to compare the results from happiness regressions to those from hypothetical-choice experiments. The trade-off between own and others’ income (showing the importance of absolute and relative income) is similar in these two sets of results. This kind of validation of experienced utility via direct comparison with decision utility remains rare in this literature.
Keywords: satisfaction, income comparisons, reference-group income, discrete-choice experiments
JEL: D31 D63 I3 J31