Top Incomes and Human Well-being Around the World

February 18, 2016
By: Burkhauser, Richard V. (Cornell University) ; De Neve, Jan-Emmanuel (University of Oxford) ; Powdthavee, Nattavudh (London School of Economics)
The share of income held by the top 1 percent in many countries around the world has been rising persistently over the last 30 years. But we continue to know little about how the rising top income shares affect human well-being. This study combines the latest data to examine the relationship between top income share and different dimensions of subjective well-being. We find top income shares to be significantly correlated with lower life evaluation and higher levels of negative emotional well-being, but not positive emotional well-being. The results are robust to household income, individual’s socio-economic status, and macroeconomic environment controls.
Keywords: top income, life evaluation, well-being, income inequality, World Top Income Database, Gallup World Poll
JEL: D63 I3

The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade

February 12, 2016
By: Autor, David ; Dorn, David ; Hanson, Gordon
Abstract China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists.
Keywords: China; International Trade; Labor Markets
JEL: F16 H55 J23 J31 J63

Job Search, Locus of Control, and Internal Migration

February 12, 2016
By: Marco Caliendo ; Deborah A. Cobb-Clark ; Juliane Hennecke ; Arne Uhlendorff
Internal migration can substantially improve labor market e ciency. Consequently, policy is often targeted towards reducing the barriers workers face in moving to new labor markets. In this paper we explicitly model internal migration as the result of a job search process and demonstrate that assumptions about the timing of job search have fundamental implications for the pattern of internal migration that results. Unlike standard search models, we assume that job seekers do not know the true job o er arrival rate, but instead form subjective beliefs { related to their locus of control { about the impact of their search e ort on the probability of receiving a job o er. Those with an internal locus of control are predicted to search more intensively (i.e. across larger geographic areas) because they expect higher returns to their search e ort. However, they are predicted to migrate more frequently only if job search occurs before migration. We then test the empirical implications of this model. We nd that individuals with an internal locus of control not only express a greater willingness to move, but also undertake internal migration more frequently.
Keywords: Locus of Control, Internal Migration, Mobility, Job Search
JEL: J61

The Dynamics of Inequality

February 12, 2016
By: Gabaix, Xavier ; Lasry, Jean-Michel ; Lions, Pierre-Louis ; Moll, Benjamin
The past forty years have seen a rapid rise in top income inequality in the United States. While there is a large number of existing theories of the Pareto tail of the long-run income distributions, almost none of these address the fast rise in top inequality observed in the data. We show that standard theories, which build on a random growth mechanism, generate transition dynamics that are an order of magnitude too slow relative to those observed in the data. We then suggest two parsimonious deviations from the canonical model that can explain such changes: “scale dependence” that may arise from changes in skill prices, and “type dependence,” i.e. the presence of some “high-growth types.” These deviations are consistent with theories in which the increase in top income inequality is driven by the rise of “superstar” entrepreneurs or managers.
Keywords: inequality; operator methods; Pareto distribution; speed of transition; superstars
JEL: D31 E24

The impact of immigration on occupational wages: evidence from Britain

February 12, 2016
By: Nickell, Stephen (Nuffield College, University of Oxford) ; Saleheen, Jumana (Bank of England)
This paper asks whether immigration to Britain has had any impact on average wages. There seems to be a broad consensus among academics that the share of immigrants in the workforce has little or no effect on native wages. These studies typically have not refined their analysis by breaking it down into different occupational groups. Our contribution is to extend the existing literature on immigration to include occupations as well. We find that the immigrant to native ratio has a small negative impact on average British wages. This finding is important for monetary policy makers, who are interested in the impact that supply shocks, such as immigration, have on average wages and overall inflation. Our results also reveal that the biggest impact of immigration on wages is within the semi/unskilled services occupational group. We also investigate if there is any differential impact between immigration from the EU and non-EU, and find that there is no additional impact on aggregate UK wages as a result of migrants arriving specifically from EU countries. These findings accord well with intuition and anecdotal evidence, but have not been recorded previously in the empirical literature.
Keywords: Immigration; occupation; wages

Immigrants and Gender Roles: Assimilation vs. Culture

February 12, 2016
By: Francine D. Blau
This paper examines evidence on the role of assimilation versus source country culture in influencing immigrant women’s behavior in the United States—looking both over time with immigrants’ residence in the United States and across immigrant generations. It focuses particularly on labor supply but, for the second generation, also examines fertility and education. We find considerable evidence that immigrant source country gender roles influence immigrant and second generation women’s behavior in the United States. This conclusion is robust to various efforts to rule out the effect of other unobservables and to distinguish the effect of culture from that of social capital. These results support a growing literature that suggests that culture matters for economic behavior. At the same time, the results suggest considerable evidence of assimilation of immigrants. Immigrant women narrow the labor supply gap with native-born women with time in the United States, and, while our results suggest an important role for intergenerational transmission, they also indicate considerable convergence of immigrants to native levels of schooling, fertility, and labor supply across generations.
JEL: J13 J16 J22 J24 J61

Urban Networks: Connecting Markets, People, and Ideas

February 12, 2016
By: Edward L. Glaeser ; Giacomo A. M. Ponzetto ; Yimei Zou
Should China build mega-cities or a network of linked middle-sized metropolises? Can Europe’s mid-sized cities compete with global agglomeration by forging stronger inter-urban links? This paper examines these questions within a model of recombinant growth and endogenous local amenities. Three primary factors determine the trade-off between networks and big cities: local returns to scale in innovation, the elasticity of housing supply, and the importance of local amenities. Even if there are global increasing returns, the returns to local scale in innovation may be decreasing, and that makes networks more appealing than mega-cities. Inelastic housing supply makes it harder to supply more space in dense confines, which perhaps explains why networks are more popular in regulated Europe than in the American Sunbelt. Larger cities can dominate networks because of amenities, as long as the benefits of scale overwhelm the downsides of density. In our framework, the skilled are more likely to prefer mega-cities than the less skilled, and the long-run benefits of either mega-cities or networks may be quite different from the short-run benefits.
JEL: F15 O18 R10 R58