Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting: Volume 24

A recent trend in the study of poverty is to consider a relative poverty line, one that is responsive to the nature of the income distribution. We develop an axiomatic approach to the determination of an amalgam poverty line. Given a reference income (e.g., the mean or the median), the amalgam poverty line becomes a weighted average of the absolute poverty line and the reference income, where the weights depend on the policy maker’s preferences for aggregating the two components. The paper ends with an empirical illustration comparing urban and rural areas in the People’s Republic of China and India.

In this paper, I examine the concept of ‘vulnerability’ within the context of income mobility of the poor. While the concept of poverty is well developed, the concept of vulnerability is less established in the economic literature. I test for the dynamics of vulnerable households in the United Kingdom using Waves 1–12 of the British Household Panel Survey and find that, of three different types of risks for which I test, household-specific shocks and economy-wide aggregate shocks have the greatest impact on consumption, in comparison to shocks to the income stream. I find vulnerable households up to at least 10 percentile points above the poverty line. Savings and earnings from a second job are not significantly associated with smoothing consumption of all vulnerable households. The results strongly indicate that income transfers and benefits assist the vulnerable in smoothing consumption. Thus, traditional poverty alleviating policies are not likely to assist the vulnerable.

This paper investigates the effect of reducing inequality in household education, health and access to credit on pro-poor growth in Cameroon using the 2001 and 2007 Cameroon household consumption surveys. Results indicate that education and access to credit registered relative pro-poor growth driven by a fall in inequality. However, health failed to record pro-poor growth due to an increase in health-inequality at the bottom of the welfare distribution. In addition, equalizing education, health and access to credit among households, would increase average growth in household spending and pro-poor growth.

In the last decade, Argentina has experienced a considerable decline in informal employment and wage dispersion. This paper extends a search model with exogenous human capital accumulation to include the informal sector. The model is parametrized to match Argentinian data between 1996 and 1998 – before the onset of the declining trend – and it is used to investigate the contribution of labor market measures to the falling informality, unemployment, and wage dispersion. The findings indicate that institutional factors did not contribute to the positive labor market trends observed; on the contrary, results show that higher severance pay and minimum wages increase informality and that the introduction of unemployment assistance contributed to the spread of informal contracts across the work force. Further, I find that compliance with minimum wage regulation strongly affects the final impact of these policies. While non perfect compliance might reduce unemployment, it reinforces the incentives of workers to move to the informal sector.

This study investigates the formal/informal employment earnings gap in Turkey. We focus on the earnings differentials that can be explained by observable characteristics and unobservable time-invariant individual heterogeneity. We first, estimate the standard Mincer earnings equations using ordinary least squares (OLS), controlling for individual, household, and job characteristics. Next we use, panel data and the quantile regression (QR) techniques in order to account for unobserved factors which might affect the earnings and the intrinsic heterogeneity within formal and informal sectors. OLS results confirm the existence of an informal sector penalty almost half of which is explained by observable variables. We find that formal-salaried workers are paid significantly higher than their informal counterparts and of the self-employed confirming the heterogeneity within the informal employment. QR results show that pay differentials are not uniform along the earnings distribution. In contrast to the mainstream literature which views informal self-employment as the upper-tier and wage-employment as the lower-tier, we find that self-employment corresponds to the lower-tier in the Turkish labor market. Finally, fixed effects estimation indicates that unobserved individual characteristics combined with controls for observable characteristics explain the pay differentials between formal and informal employment entirely in the total and the female sample. However, informal sector penalty persists in the male sample.

The objective of this study is to examine the impact that changes in minimum wage and the main income transfer programmes have had on the economic participation of the population and the informal sector in Argentina. The magnitude and importance that both policies have had in the Argentine case makes it possible carry out an in-depth analysis of these topics. In effect, minimum wage was periodically modified between 2002 and 2014 to be among the highest in the Latin American region while the mentioned income transfer programme – called the Universal Child Allowance – has benefited some 40 per cent of children residing in the country since its implementation.

The obtained evidence suggests that modifications to minimum wage did not produce adverse effects on employment or have a substantial impact on the probabilities of entering the informal sector. Regarding the income transfers, it was possible to confirm that it did not encourage adults in beneficiary households to become economically inactive.

A country’s performance in health attainment refers to both its achievement (level) and its improvement (evolution) in the health domain. Studies on performance generally measure health attainment using the average health level of the population and quantify health improvement employing the change in attainment over time. However, this approach is flawed because the change in attainment does not satisfy good properties, on the one hand, and because health attainment should not only account for the average health level but also for disparities in health in the population, on the other hand. We propose a solution to the first limitation by following the lead of Kakwani (1993), who uses achievement and improvement measures which are based on attainment measures and which satisfy important properties. For the second limitation, we extend the work of Kakwani and propose new definitions of attainment that account for the average health level but also for health inequalities in the population. Specifically, we focus on overall and social health inequalities and on the health of the poor. By including these new attainment variables into Kakwani’s indices, we generate new classes of achievement and improvement indices. Using data on 11 low- and middle-income Asian countries in the twenty-first century, we highlight that child and maternal health have generally improved in recent decades, due to both an increase in the average health level and a decrease in inequalities.

Research suggests social exclusion is linked to violence. To expand what is known about risk factors for violence, this study investigates links between having a parent with a history of incarceration and experiencing social exclusion. Data from waves 1 and 4 of the National Longitudinal Study of Adolescent Health were used to conduct regression analyses to assess associations between parental incarceration and social exclusion adjusting for child, parent, and family factors. Results indicate that compared to individuals whose parents had never been incarcerated, those who reported a parent had been incarcerated were at greater risk of experiencing material exclusion, incarceration, and multiple forms of exclusion. When assessing differences by parent gender, results indicate that those who reported their mother had been incarcerated compared to those who reported their father had been incarcerated had higher risk of being incarcerated themselves and experiencing multiple forms of exclusion. Since research suggests social exclusion increases violence risk, studies are needed (1) to identify mechanisms linking parental incarceration to offspring social exclusion and (2) to increase understanding around differential impact by parent gender. Such studies can inform development of interventions to promote better outcomes in this vulnerable sub-population of children.

Let there be two individuals: “rich,” and “poor.” Due to inefficiency of the income redistribution policy, if a social planner were to tax the rich in order to transfer to the poor, only a fraction of the taxed income would be given to the poor. Under such inefficiency and a standard utility specification, a Rawlsian social planner who seeks to maximize the utility of the worst-off individual will select a different allocation of incomes than a utilitarian social planner who seeks to maximize the sum of the individuals’ utilities. However, when individuals prefer not only to have more income but also not to have low status conceptualized as low relative income, and when this distaste is incorporated in the individuals’ utility functions with a weight that is greater than a specified critical level, then a utilitarian social planner will select the very same income distribution as a Rawlsian social planner.

Using original mass public surveys in nine East European, European Union (EU) member countries (2007), I develop a micro-level approach linking individuals’ perceptions of inequality and corruption. Merging an instrumental variables approach with an emerging body of comparative scholarship, I demonstrate that individuals’ perceptions of inequality can be seen to contribute to their perceptions of corruption based on individuals’ normative concerns of the failure of democratic institutions to address issues related to inequality. Thus, for these countries, this region, the EU, as well as other new democracies, we can better understand these potential threats to the development of stable, sustainable democracy.

The tax evasion phenomenon affects the economic systems of European countries in different ways. The literature shows that individuals provide biased information both to administrative agencies and household surveys. The effects of tax evasion could thus influence the income inequality computed in official statistics.

In this paper, I investigate whether tax evasion generates a bias when inequality indices are computed using household survey data. To achieve this, I apply a parametric model of the Dagum type (three parameters) on the gross personal income of 27 European countries, distinguishing between the self-employed and employees. Subsequently, the parameters computed in the model are used as dependent variables in seemingly unrelated regressions.

I find that for the self-employed, tax evasion tends to reduce inequality as measured by regular wage statistics. Thus, the results reveal that tax evasion distorts inequality indices, generating an underground inequality.

Conventional wisdom predicts that changes in macroeconomic conditions significantly affect income inequality. In this paper, we hypothesize that the way in which macroeconomic conditions affect inequality depends on how these conditions influence the constituents of total inequality: inequality of opportunity (IO) and inequality of effort (IE). Using the PSID database for the United States (1970–2009), we first decompose total inequality into these components. Then, we specify a dynamic model that relates each inequality component to a set of macroeconomic factors. Apart from real GDP and inflation rates, the most widely used factors in the literature, we also consider outstanding consumer credits and public welfare and health care expenditures. We find that real GDP and outstanding credits have a negative and significant effect upon IO and IE, while inflation has a positive and significant effect only on IE, and welfare expenditures have a negative and significant effect only on IO.

Based on representative longitudinal data (CNEF 1980–2013) the paper analyzes gender differences of the level and the determinants of earnings dynamics in the work life of different cohorts of employees in Germany, Great Britain, and the United States. Notwithstanding country differences concerning the existing welfare state regime constituting the institutional settings of the labor market, the educational system, and family role models, the empirical results show decreasing earnings mobility in the work history. The earnings level, educational attainment, family size, the occupational choice, the career stage, the birth cohort, and the macroeconomic fluctuations significantly influence earnings mobility. In the United States, earnings mobility is significantly lower and gender differences are less pronounced than in Germany and Great Britain. The gender gap of earnings mobility is less expressed for younger cohorts of German employees. The increase of the gender gap of earnings dynamics in the course of the work career indicates continuing heterogeneity of labor market behavior and outcome of women and men which contribute to persistent economic and social stratification.

The relationship between income inequality and polarization is an empirical fact: a change in equality might occur together with a change in polarization. At the same time, polarization might emerge while inequality remains constant. The outcome of this process entails relevant information on the evolution of the income distribution. We exploit the LIS database to perform a relative distribution analysis for six European countries. Our aim is describing how disposable income distributions evolved over time. The results indicate that polarization increased in all the considered countries, being the largest in the United Kingdom and the smallest in Italy. Nonetheless, in all the countries downgrading prevails over upgrading: the relevance of the middle class getting poorer is larger than the one of the middle class getting richer.