Economic Well-Being and Inequality: Papers from the Fifth ECINEQ Meeting: Volume 22

Subject:

Table of contents

(23 chapters)
Abstract

I find that median wealth plummeted over the years 2007–2010, and by 2010 was at its lowest level since 1969. The inequality of net worth, after almost two decades of little movement, was up sharply from 2007 to 2010. Relative indebtedness continued to expand from 2007 to 2010, particularly for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. In fact, the average debt of the middle class actually fell in real terms by 25 percent. The sharp fall in median wealth and the rise in inequality in the late 2000s are traceable to the high leverage of middle-class families in 2007 and the high share of homes in their portfolio. The racial and ethnic disparity in wealth holdings, after remaining more or less stable from 1983 to 2007, widened considerably between 2007 and 2010. Hispanics, in particular, got hammered by the Great Recession in terms of net worth and net equity in their homes. Households under age 45 also got pummeled by the Great Recession, as their relative and absolute wealth declined sharply from 2007 to 2010.

Abstract

Using harmonized wealth data and a novel decomposition approach in this literature, we show that cohort effects exist in the income profiles of asset and debt portfolios for a sample of European countries, the United States, and Canada. We find that the association between household wealth portfolios at the intensive margin (the level of assets) and household characteristics is different from that found at the extensive margin (the decision to own). Characteristics explain most of the cross-country differences in asset and debt levels, except for housing wealth, which displays large unexplained differences for both the under-50 and over-50 populations. However, there are cohort differences in the drivers of wealth levels. We observe that younger households’ levels of wealth, given participation, may be more responsive to the institutional setting than mature households. Our findings have important implications, indicating a scope for policies which can promote or redirect investment in housing for both cohorts and which promote optimal portfolio allocation for mature households.

Abstract

In the wake of the Stiglitz Commission, we assess German economic well-being by considering income, wealth and consumption. A decomposition approach is used to test for corresponding inequality differences of these well-being dimensions. Total inequality is decomposed into within- and between-group inequality (via a normalised coefficient of variation). The decompositions are categorised into those that refer to socio-demographic characteristics (place of residence, age, household type) and those belonging to different well-being (sub-)categories (potential and net income, expenditure and wealth categories). The empirical analyses are performed for Germany using the 2008 German Sample Survey of Income and Expenditure. By decomposing German well-being inequality in great detail, we shed light on its dimensions. Our analyses illustrate that it is necessary to consider all well-being dimensions to make statements about the material well-being of private households or individuals.

Abstract

This paper aims to estimate the global income distribution during the nineties using limited information. In a first stage, we obtain national income distributions considering a model with two parameters. In particular, we propose to use the so-called Lamé distributions, which are curved versions of the Sigh-Maddala and Dagum distributions. The main feature of this family is that they represent parsimonious models which can fit income data adequately with just two parameters and whose Lorenz curves are characterized by only one parameter. In a second stage, global and regional distributions are derived from a finite mixture of these families using population shares. We test the validity of the model, comparing it with other two-parameter families. Our estimates of different inequality measures suggest that global inequality presents a decreasing pattern mainly driven by the fall of the differences across countries during the course of the study period that offsets the increase in disparities within countries.

Abstract

This paper deals with poverty decompositions into subgroups defined with respect to intervals of income and the robustness of comparisons of the absolute contribution of such groups to poverty. For instance, world poverty estimates by the World Bank often distinguish between the extreme poor whose incomes are lower than $1.25 a day (in PPP terms) and the other poor with incomes between $1.25 and $2.5 a day. Existing dominance conditions can tell whether overall poverty and extreme poverty have declined in a robust manner when comparing countries at two points of time, but they cannot say anything for the contribution of the non-extreme poor to overall poverty. In the present paper we propose stochastic generalized dominance criteria to perform robust poverty ordering when the focus is placed on some interval of the poverty domain. Using generated data based on grouped data from World Bank’s PovcalNet tool, the paper finally investigates whether the robust decline of extreme poverty around the world during the last decades was also accompanied by a decline of the contribution of non-extreme poverty.

Abstract

This paper examines associations of mass media and information and communications technologies (ICTs) with inequality and poverty. It has been found that newspaper circulation has a robust negative association with inequality. Radios and TVs also have a negative association with poverty. ICT expenditures (as a percentage of GDP) have a negative association with poverty. An ICT index is constructed which also has a negative association with poverty. An instrumental variable analysis confirms the robust negative association between newspaper circulation and inequality.

Abstract

This paper applies a recently developed method of ranking socioeconomic inequality in health to ranking U.S. happiness from 1994 to 2012 using the GSS data. We also compare happiness between subgroups as decomposed by gender, race, and age. We establish and test a monotone condition of happiness – a richer person is likely to be happier. Under the monotone condition, standard tools of welfare and inequality ranking can be applied straightforwardly.

Abstract

Countries with greater income inequality also tend to have less intergenerational mobility. This relationship, as referred by Krueger (2012), is called “The Great Gatsby Curve.” Criticisms on this curve have brought to notice several limitations of previous studies: a few number of observations; short gap of time between measured inequality and immobility; heterogeneous databases; and model-based estimates of immobility. To correct for some of these limitations, we test for the impact of past income inequality on intergenerational social status persistence using the International Social Survey Program (2009). In accordance with previous studies, we find a positive relationship between these two variables, though the relatively poor model fit suggests the presence of other factors. In this respect, we find that past economic freedom has a negative and significant impact on social status persistence, while previous growth is not significant.

Abstract

Existing research shows that popular income inequality measures fail to reflect their respondents’ perceptions of income inequality. However, most of the current literature focuses on what is negative, telling us what individuals do not perceive. This paper presents an alternative methodology to help uncover actual perceptions of inequality, how people perceive inequality instead of how they don’t. Multidimensional scaling, a statistical tool for visualizing dissimilarity data as a low-dimensional map, is used on results of a simple grouping task with a given distribution set. The outcome is a perception map that presents respondents’ answers spatially, which enables additional insight into respondents’ thinking. The map created by the respondents’ replies, presented in this paper, indicates that their decisions are driven by two factors: what the biggest gap in incomes of a given distribution is and whether some groups have equal incomes. The result additionally validates multidimensional scaling as a tool for measuring income inequality perception and opens new ways of improving inequality perception questionnaires.

Abstract

A growing polarization of society accompanied by an erosion of the middle class is receiving increasing attention in recent German economic and social policy discussion. Our study contributes to this discussion in two ways: First, on a theoretical level we propose extended multidimensional polarization indices based on a constant elasticity of substitution (CES)-type well-being function and present a new measure to multidimensional polarization, the mean minimum polarization gap, 2DGAP. This polarization intensity measure provides transparency with regard to each single attribute, which is important for targeted policies, while at the same time respecting their interdependent relations. Second, in an empirical application, time is incorporated, in addition to the traditional income measure, as a fundamental resource for any activity. In particular, genuine personal leisure time will account for social participation in the sense of social inclusion/exclusion and Amartya Sen’s capability approach.

Instead of arbitrarily choosing the attribute parameters in the CES well-being function, the interdependent relations of time and income are evaluated by the German population. With the German Socio-Economic Panel (GSOEP) and detailed time use diary data from the German Time Use Surveys (GTUSs) 1991/1992 and 2001/2002, we quantify available and extended multidimensional polarization measures as well as our new approach to measuring the polarization of the working poor and affluent in Germany.

There are three prominent empirical results: Genuine personal leisure time in addition to income is an important and significant polarization attribute. Compensation is of economic and statistical significance. The new minimum 2DGAP approach reveals that multidimensional polarization increased in the 1990s in Germany.

Abstract

This paper extends a methodology proposed by Nissanov and Silber (2009) who decomposed the coefficient β used in convergence analysis into three components checking respectively whether there was σ-convergence, whether ‘pure mobility’ (upward or downward income mobility) was lower among the poor and what the extent of ‘residual mobility’ (the third component) was.

The present paper extends this analysis by applying it to the analysis of regional per capita income levels but also to that of within regions inequality and regional welfare levels. The empirical illustration uses Portuguese data on average earnings at the level of NUTS3.

Abstract

Does the standard of living vary from region to region in Portugal and are spatial units in Portugal converging in income? We observe spatial error dependence between municipalities and estimate spatial econometric models to test convergence. For conditional convergence we conclude that primary sector employment, activity rate, and percentage of active population with higher education are important to distinguish the “steady state” of the regional economies, reflecting the labor market at regional level.

Abstract

In this paper, we use the distributions of order statistics to define functions with the appropriate properties to represent social preferences regarding income distributions. Following the approach of Yaari (1987, 1988), this allows constructing a set of social welfare functions from which the corresponding inequality indices are derived. The obtained measures incorporate diverse normative criteria, with different degrees of preference for equality. The generalized Gini coefficients and the family of indices proposed by Aaberge (2000) are obtained as particular cases. This approach allows interpreting each inequality measure in terms of the statistics computed from a randomly selected sample and the identification of unbiased estimators of the Social Welfare Functions. It also shows that each of the families of inequality indices are obtained from the moments of the order statistics and, therefore, each of the families characterizes any income distribution with finite mean. This characterization is very useful in the case of distributions with heavy tail and pronounced positive skew that shows only a few potential moments.

Abstract

This paper introduces a unit-consistent Lorenz dominance criterion that allows ranking income distributions according to centrist measures à la Seidl and Pfingsten (1997). In doing so, it defines α-Lorenz curves that generalize the absolute Lorenz curve. These curves allow implementing unanimous rankings for a broad set of centrist inequality notions, whereas they become closer and closer to the absolute curve when α approaches equity. In addition, this paper provides an empirical illustration of these tools using Australian income data. The results suggest that despite the reduction of relative inequality for Australian-born people between 1999 and 2003, their inequality increased for most centrist value judgments.

Abstract

When individual or household incomes are collected for administrative or scientific surveys, the accounting period is sometimes a month, sometimes a quarter, and sometimes a year. The accounting period likely affects the shape of the income distribution and the level of measured inequality. The present study systematically explores the sensitivity of inter-temporal and inter-regional inequality comparisons to the length of the accounting period.

Abstract

We provide a Bayesian inference for a mixture of two Pareto distributions which is then used to approximate the upper tail of a wage distribution. The model is applied to the data from the CPS Outgoing Rotation Group to analyze the recent structure of top wages in the United States from 1992 through 2009. We find an enormous earnings inequality between the very highest wage earners (the “superstars”), and the other high wage earners. These findings are largely in accordance with the alternative explanations combining the model of superstars and the model of tournaments in hierarchical organization structure. The approach can be used to analyze the recent pay gaps among top executives in large firms so as to exhibit the “superstar” effect.

Abstract

Inequality is an essential factor for the alleviation of poverty. In Cameroon, most of the households derive their livelihoods from non-wage income and a better understanding of how different variables affect income inequality is a way to reduce those inequalities and improve social welfare. Studies carried out so far barely make out the determinants among non-wage earners. This study sets out to identify these determinants, using the regression-based decomposition technique and data obtained from the 2005 Employment and Informal Sector Survey (EISS) undertaken by the National Statistic Institute (INS) in Cameroon. Results show that the total inequality of an hourly active income ensues from the ratio of age/experience and unobserved individual heterogeneity among non-wage earners.

DOI
10.1108/S1049-2585201422
Publication date
2014-09-30
Book series
Research on Economic Inequality
Editors
Series copyright holder
Emerald Publishing Limited
ISBN
978-1-78350-567-8
eISBN
978-1-78350-556-2
Book series ISSN
1049-2585