Trends in Individual Income Growth: Measurement Methods and British Evidence

February 28, 2011

  By:Jenkins, Stephen P. (London School of Economics) Van Kerm, Philippe (CEPS/INSTEAD)


Assessments of whose income growth is the greatest and whose is the smallest are typically based on comparisons of income changes for income groups (e.g. rich versus poor) or income values (e.g. quantiles). However, income group and quantile composition changes over time because of income mobility. To summarize patterns of income growth while also tracking the fortunes of the same individuals, a longitudinal perspective is required. For this case, we develop dominance conditions and summary indices for comparisons of distributions of individual income growth, together with associated methods of estimation and inference. Using these methods and data from the British Household Panel Survey, we study individual income growth for periods between 1991 and 2005. We show that income growth was significantly more pro-poor in the early years of the Labour government than in earlier Conservative years.

Keywords:individual income growth, pro-poor growth, progressive income growth, income mobility, mobility profile, British Household Panel

Survey JEL:D31


Inequality and Poverty under Latin America’s New Left Regimes

February 21, 2011
By: Darryl McLeod (Fordham University, Department of Economics)
Nora Lustig (Tulane University, Department of Economics)




During the last decade, inequality and poverty fell sharply in many Latin American countries; a period in which voters chose left-leaning leaders in ten countries including about half the region’s population. Are these two developments related? Using data for 18 Latin American countries and political regime classification of Arnson and Perales (2007), this paper presents some econometric evidence that the social democratic regimes in Brazil, Chile and to a lesser extent Uruguay were more successful at reducing inequality and poverty than the so-called left populist regimes of Argentina, Bolivia and Venezuela. Both groups implemented policies to redistribute income, but the social democratic regimes redistributive efforts were more effective. Argentina and Venezuela started the 1990-2008 sample window with lower levels of inequality, so to some extent recent reductions in inequality are a return to “normal” levels (as estimated by fixed effects). Inequality and poverty in Brazil and Chile, on the other hand, fell to historic lows during this period. Second, overall terms of trade shocks were more favorable for Argentina and Venezuela, so part of the drop in inequality in those countries can be attributed to typically transient commodity price booms.
JEL: O15


Do Positional Concerns Destroy Social Capital: Evidence from 26 Countries

February 14, 2011
By: Fischer, Justina A.V.
Torgler, Benno
Research on the effects of positional concerns on individuals’ attitudes and behavior is sorely lacking. To address this deficiency, we use the International Social Survey Programme 1998 data on 25’000 individuals from 26 countries to investigate the impact of relative income position on three facets of social capital, covering horizontal and vertical trust as well as norm compliance. Testing relative deprivation theory, we identify a deleterious positional income effect for persons below the reference income, particularly for their social trust and confidence in secular institutions. Also often a social capital-lowering effect of relative income advantage occurs, while a rise in absolute income almost always contributes positively. These results indicate that a rise in income inequality in society too large is rather detrimental to the formation of social capital.
Keywords: Relative income; positional concerns; social capital; social norms; deprivation theory
JEL: I30


Using Pseudo-Panels to Measure Income Mobility in Latin America

February 7, 2011
By: Cuesta, Jose (Inter-American Development Bank)
Nopo, Hugo (Inter-American Development Bank)
Pizzolitto, Georgina (World Bank)

This paper presents a comparative overview of mobility patterns in 14 Latin American countries between 1992 and 2003. Using three alternative econometric techniques on constructed pseudo-panels, the paper provides a set of estimators for the traditional notion of income mobility as well as for mobility around extreme and moderate poverty lines. The estimates suggest very high levels of time-dependent unconditional immobility for the Region. However, the introduction of socioeconomic and personal factors reduces the estimate of income immobility by around 30 percent. There are also large variations in country-specific income mobility (estimated to explain some additional 10 percent of inter-temporal income variation). Analyzing the determinants of changes in poverty incidence within cohorts revealed statistically significant roles for age, gender and education of the household head, the latter subject to distinctive effects across levels of attainment and transition in and out of poverty.


Keywords: income mobility, poverty, pseudo-panels, Latin America


Partially Identified Poverty Status: A New Approach to Measuring Poverty and the Progress of the Poor

February 1, 2011
By: Gordon Anderson
Maria Grazia Pittau
Roberto Zelli
Poverty measurement and the analysis of the progress (or otherwise) of the poor is beset with difficulties and controversies surrounding the definition of a poverty line or frontier. Here, using ideas from the partial identification literature and mixture models, a new approach to poverty measurement is proposed which avoids specifying a frontier, the price is that an agent\’s poverty status is only partially identified. Invoking variants of Gibrat\’s law to give structure to the distribution of outcomes for homogeneous subgroups of a population within the context of a finite mixture model of societal outcomes facilitates calculation of the probability of an agent\’s poverty status. From this it is straightforward to calculate all the usual poverty measures as well as other characteristics of the poor and non poor subgroups in a society. These ideas are exemplified in a study of 47 countries in Africa over the recent quarter century which reveals among other things a growing poverty rate and a growing disparity between poor and non poor groups not identified by conventional methods.
Keywords: Poverty Frontiers, Mixture Models, Gibrat\’s law, Partial Identification
JEL: C14