Gender Wage Gaps and Risky vs. Secure Employment: An Experimental Analysis

August 30, 2016


By: Jung, Seeun (Inha University) ; Choe, Chung (Hanyang University) ; Oaxaca, Ronald L. (University of Arizona)
In addition to discrimination, market power, and human capital, gender differences in risk preferences might also contribute to observed gender wage gaps. We conduct laboratory experiments in which subjects choose between a risky (in terms of exposure to unemployment) and a secure job after being assigned in early rounds to both types of jobs. Both jobs involve the same typing task. The risky job adds the element of a known probability that the typing opportunity will not be available in any given period. Subjects were informed of the exogenous risk premium being offered for the risky job. Women were more likely than men to select the secure job, and these job choices accounted for between 40% and 77% of the gender wage gap in the experiments. That women were more risk averse than men was also manifest in the Pratt-Arrow Constant Absolute Risk Aversion parameters estimated from a random utility model adaptation of the mean-variance portfolio model.
Keywords: occupational choice, gender wage differentials, risk aversion, lab experiment
JEL: J16 J24 J31 C91 D81

Wages and Labor Market Slack: Making the Dual Mandate Operational

August 30, 2016


By: David G. Blanchflower (Peterson Institute for International Economics) ; Adam S. Posen (Peterson Institute for International Economics)
In this paper we examine the impact of rises in inactivity on wages in the US economy and find evidence of a statistically significant negative effect. These nonparticipants exert additional downward pressure on wages over and above the impact of the unemployment rate itself. This pattern holds across recent decades in the US data, and the relationship strengthens in recent years when variation in participation increases. We also examine the impact of long-term unemployment on wages and find it has no different effect from that of short-term unemployment. Our analysis provides strong empirical support, we argue, for the assessment that continuing labor market slack is a key reason for the persistent shortfall in inflation relative to the Federal Open Market Committee’s (FOMC) 2 percent inflation goal. Further, we suggest our results point towards using wage inflation as an additional intermediate target for monetary policy by the FOMC.
Keywords: unemployment, wages, inactivity, monetary policy, spare capacity, labor market
JEL: J01 J11 J21 J23 J38 J64

Pareto models, top incomes, and recent trends in UK income inequality

August 30, 2016


By: Jenkins, Stephen P.

Statistical agencies and other researchers typically estimate income inequality levels and trends from either household survey data or tax return data, but rarely combine the information in the two types of data source. The result is that very different impressions about how inequality is changing over time may arise. Estimates from tax return data show a substantial rise in inequality over the last two decades in both the UK and USA, whereas survey-based estimates of inequality show much less change. For the UK, for example, the share of total income held by the richest 1% increased by 29% between fiscal years 1996/97 and 2007/08 whereas the Gini coefficient for household income increased by 7%. For the USA, the corresponding increases over the same period are 30% and 2%. Research users may reasonably ask what the ‘true’ picture of inequality trends is. There is a good case for providing them with answers using methods that combine information from survey and tax data in order to take advantage of the strengths of each source, and this is what I do. Tax return data provide better coverage of top incomes than do survey data, and survey data provide the ability to create income variables with the same definitions, so that combination is done on a like-for-like basis. I analyse income inequality levels and trends for the UK by combining inequality estimates from survey and tax data. As part of this analysis, I also provided new findings about survey under-coverage of top incomes in UK survey data: the problem becomes apparent at around the 99th percentile in the 1990s but at around the 95th percentile in the 2000s. In addition, I provide new results about how to summarise the distribution of top incomes using Pareto models, arguing in favour of a Pareto II model rather than the Pareto I and for using modelling thresholds rather higher than often employed. My conclusions about aggregate UK inequality trends since the mid-1990s are broadly robust to the way in which I employ the information about top incomes in the tax data. For example, the Gini coefficient for gross individual income rose by around 7% to 8% between 1996/97 and 2007/08, with most of the increase occurring after 2003/04. When I use only survey data, with tax data not exploited at all, the Gini coefficient is estimated to decrease by around 5% over the same period.

Understanding the Dynamics of Labor Income Inequality in Latin America

August 30, 2016


By: Carlos Rodríguez-Castelán (Poverty and Equity Global Practice, World Bank) ; Luis F. López-Calva (Poverty and Equity Global Practice, World Bank) ; Nora Lustig (Department of Economics, Tulane University) ; Daniel Valderrama (Poverty and Equity Global Practice, World Bank)
Since the early 2000s, after a long period of wide and persistent gaps, Latin America has experienced a steady decline in income inequality. This paper presents evidence of a trend reversal in labor income inequality, which is considered the main factor behind such a decline in income inequality across the region. Our analysis shows that, while labor income inequality increased during the 1990s, with heterogeneous experiences across countries, it fell in a synchronized way across countries beginning in the early 2000s. This systematic decline was supported by an expansion in real hourly earnings among the bottom of the wage distribution and, to a lesser extent, the middle part of the earnings distribution, thus reducing both upper and lower tail inequality. This trend reversal is explained by a lower dispersion of earnings among workers with observable different attributes and by a much less extensive dispersion of residual labor inequality. Regarding the earnings differentials among workers with observable different attributes, our analysis concludes that the decline in labor inequality in Latin America has been closely associated with a reduction in the college/primary education premium and in the urban-rural earnings gap, coupled with a steady drop in the high school/primary education premium, which accelerated markedly since the 2000s, as well as a reduction in the experience premium across all age-groups.
Keywords: Inequality, Labor Incomes, Education Premium, Experience Premium, Latin America.
JEL: D63 E24 J21 J31 O54

Ethnic Inequality

August 10, 2016
By: Alesina, Alberto Francesco ; Michalopoulos, Stelios ; Papaioannou, Ellias
This study explores the consequences and origins of between-ethnicity economic inequality across countries. First, combining satellite images of nighttime luminosity with the historical homelands of ethnolinguistic groups we construct measures of ethnic inequality for a large sample of countries. We also compile proxies of overall spatial inequality and regional inequality across administrative units. Second, we uncover a strong negative association between ethnic inequality and contemporary comparative development; the correlation is also present when we condition on regional inequality, which is itself related to under-development. Third, we investigate the roots of ethnic inequality and establish that differences in geographic endowments across ethnic homelands explain a sizable fraction of the observed variation in economic disparities across groups. Fourth, we show that ethnic-specific inequality in geographic endowments is also linked to under-development.

“Tongue Tide”: The Economics of Language Offers Important Lessons for How Europe Can Best Integrate Migrants

August 10, 2016
By: Chiswick, Barry R. (George Washington University)
This policy analysis discusses issues regarding the migration to Europe of large numbers of immigrants and refugees who, on arrival, do not know their host country’s language. It reviews problems of economic integration into the labor market, the consequences of the formation of immigrant enclaves divorced from the host country labor market, and considers public policies to facilitate their linguistic and economic integration.
Keywords: immigrants, refugees, language, enclaves, Europe, discrimination
JEL: F22 J15 J24 J31 J61

Exposure to Poverty and Productivity

August 10, 2016
By: Dalton, Patricio (Tilburg University, Center For Economic Research) ; Gonzalez Jimenez, Victor (Tilburg University, Center For Economic Research) ; Noussair, Charles (Tilburg University, Center For Economic Research)
We study whether poverty can induce affective states that decrease productivity. In a controlled laboratory setting, we find that subjects randomly assigned to a treatment, in which they view a video featuring individuals that live in extreme poverty, exhibit lower subsequent productivity compared to subjects assigned to a control treatment. Questionnaire responses, as well as facial recognition software, provide quantitative measures of the affective state evoked by the two treatments. Subjects exposed to images of poverty experience a more negative affective state than those in the control treatment. Further analyses show that individuals in a more positive emotional state exhibit less of a treatment effect. Also, those who exhibit greater attentiveness upon viewing the poverty video are less productive. The results are consistent with the notion that exposure to poverty can induce a psychological state in individuals that adversely affects productivity.
Keywords: poverty; productivity; mood; emotions; limited attention; experiments
JEL: D03 J24 C91

Family, Community and Long-Term Earnings Inequality

August 10, 2016
By: Bingley, Paul (Danish National Centre for Social Research (SFI)) ; Cappellari, Lorenzo (Università Cattolica del Sacro Cuore) ;Tatsiramos, Konstantinos (University of Nottingham)
This paper studies the influence of family, schools and neighborhoods on life-cycle earnings inequality. We develop an earnings dynamics model linking brothers, schoolmates and teenage parish neighbors using population register data for Denmark. We exploit differences in the timing of family mobility and the partial overlap of schools and neighborhoods to separately identify sorting from community and family effects. We find that family is far more important than community in influencing earnings inequality over the life cycle. Neighborhoods and schools influence earnings only early in the working life and this influence falls rapidly and becomes negligible after age 30.
Keywords: sibling correlations, neighborhoods, schools, life-cycle earnings, inequality
JEL: D31 J62