INTERNATIONAL COMPARISONS OF WEALTH INEQUALITY

This study presents reasonably comparable estimates of the size distribution of household or personal wealth for eight OECD countries—Australia, Canada, France, Germany, Japan, Sweden, the United Kingdom, and the United States. In the mid-1980s, the U.S. ranked as the most unequal and Japan the least, while the other six countries had roughly comparable levels of wealth inequality. Moreover, while wealth inequality rose sharply in the U.S. during the 1980s, it increased modestly in Sweden and showed little change or a slight decline in Canada, France, and the U.K. A comparison of time trends for the U.K. and the U.S. suggests that the relatively high wealth inequality in the U.S. in the 1980s represents a marked turnaround from the 1950s, when the U.S. was considerably more equal in terms of wealth ownership than the U.K. Comparative results for the two countries hold for both conventional (marketable) wealth and for augmented wealth, which includes a valuation of public and private pension wealth.     

THE WELFARE STATE AND POVERTY IN FINLAND AND SWEDEN FROM THE MID-1960s TO THE MID-1980s

Using poverty lines representing the fixed basket of goods and services, the development over time of poverty in Finland and Sweden are compared. In both countries, poverty decreased rapidly between the mid-1960s and the mid-1970s, after which changes have been less dramatic. During the first part of the 1980s poverty continued to decrease in Finland, but increased in Sweden. Comparisons for age-groups showed large reductions in poverty rates among the aged in both countries. Poverty has shifted from the permanent old age poverty towards a more temporary poverty in young adulthood.
International comparisons show that in the early 1980s both Finland and Sweden had poverty rates below the average of the affluent Western nations. Furthermore, these comparisons suggest that cross-national variations in poverty rates are partly explained by the size of the welfare state. Also, time series analysis shows that income transfers have taken an increasing number of people out of poverty in both countries.     

Can Supply‐Side Policies Reduce Unemployment? Lessons from North America

North America offers lessons about policies that help sustain low unemployment. This article examines the effects of 'supply-side' policies, which boost the skills of the workforce and improve microeconomic incentives facing workers and employers.
Two supply-side policies were expanded after the mid-1980s. First, the United States increased earnings supplements, payable to low-income workers, to encourage adults to find and keep jobs. Second, social assistance programs limited the duration of transfer payments and linked support benefits to workers' participation in job search, occupational training, and community work experience programs. These measures increased job holding among economically disadvantaged adults. In the 1980s and 1990s the United States also maintained strong incentives for employers to create jobs for the hard-to-employ. Payroll tax and regulatory burdens on employers were kept low, and the modest legal minimum wage was allowed to fall in real terms. US experience suggests that selective supply-side policies can boost the employment rates of the hard-to-employ and help maintain a low rate of structural unemployment.     

A note on Canadian migration to the United States during the 1980s and 1990s

Considerable media attention had been directed towards the flow of highly talented Canadians to the United States in the 1990s. There are firm theoretical reasons, however, to believe that qualitative differences in migration began as early as the 1980s, owing to the widening distribution of earnings and the related increased returns to education in the United States relative to Canada, both of which could result in qualitative improvements in the migration flow. US immigration policy remained essentially unchanged during the 1980s, but changed markedly in the 1990s owing to the implementation of the Canada–US Free Trade Agreement (CUFTA) and its successor, the North American Free Trade Agreement (NAFTA). We use a flexible empirical approach to document these changes in immigrant quality using 1980, 1990 and 2000 US census data. Our results suggest that improvements in Canadian immigrant quality occurred during the 1990s, but these also happened earlier, casting doubt on the hypothesis of improving Canadian immigrant quality in the 1990s. Quantile regressions also show that improvement in the entry quality of immigrants was not limited to the upper tail of the earnings distribution.     

A NEW PICTURE OF SWEDISH EARNINGS INEQUALITY: PERSISTENT AND TRANSITORY COMPONENTS, 1960–1990

Using a large individual longitudinal database, I decompose the cross-sectional variance of male annual earnings in Sweden between 1960 and 1990 into persistent and transitory components. The persistent variance displays a downward trend during the whole sample period, but with the rate of decline more rapid up until the early 1980s than afterwards. The transitory variance has increased from 1960 until the early 1970s, decreased slightly until the late 1970s, and then risen again during the second half of the 1980s. An important lesson from these results concern the interpretation of the rise in cross-sectional inequality observed after the 1983 breakdown of centralized bargaining in Sweden. While it has often been presumed that this growth reflected increased returns to skills, this study shows that it was in fact due to increased transitory earnings fluctuations.     

Accounting for United States Household Income Inequality Trends: The Changing Importance of Household Structure and Male and Female Labor Earnings Inequality

Using a shift‐share analysis on March CPS data, this paper estimates the degree to which changes in labor earnings, employment, and marriage patterns account for household income inequality growth in the United States since 1979. The factors contributing to the rapid rise in income inequality in the 1980s differ substantially from those contributing to its slower increase since that time. Unlike findings for the 1980s when changes in the correlation of spouses' earnings accounted for income inequality growth, this factor is no longer a major contributor toward its continued increase. Additionally, the 2000s business cycle is the first full business cycle in at least 30 years where changes in earnings of male household heads accounted for declines in income inequality. Instead, the continued growth in income inequality in the 2000s was accounted for primarily by increases in female earnings inequality and declines in both male and female employment.     

Unemployment Shocks and Income Distribution: How did the Nordic Countries Fare during their Crises?

We study the inequality of disposable income in Denmark, Finland, Norway and Sweden during the late 1980s and early 1990s when unemployment rose dramatically in all four countries. A standard measure of inequality — the Gini coefficient – was surprisingly stable in all countries during this period. By decomposing the Gini into income components, we test hypotheses about the reasons for this stable income distribution. Our most straightforward hypothesis, that rising unemployment benefits counteracted the impact of more unequally distributed earnings, receives only limited support. More complex mechanisms seem to have been at work.
JEL classification: D 30; D 31; J 60     

The effect of commute time on racial earnings inequality: a case study of the Houston metropolitan statistical area

Data from the United States Census confirm a substantial increase in the racial earnings gap between 1980 and 1990. This paper examines data on whites and non-white wage and salary incomes in Houston TX for 1980 and 1990. Data on time travelled to work is used to simulate what would be the impact of shorter commute times on earnings inequality. The central finding is that a reduction in travel time from residence to work would cause a very small reduction in racial earnings and income inequality. This suggests that advances in urban transportation policy alone are not sufficient to solve the problem of racial earnings inequality.     

Quantifying globalization

Globalization is much debated, but is it possible to make reliable ranks of which countries are the most integrated internationally? Traditionally resort is taken to trade measures, but even considering only economic integration this measure disregards a number of aspects. This paper proposes a single measure or index of globalization based on several indicators of economic integration combined by use of the multivariate technique of factor analysis. The index is calculated for 23 OECD countries, and among the findings are that Ireland is ranked as the most globalized country during the 1990s, while the UK was at the top during the 1980s. Some of the most notable changes in the rankings are the decline of the USA, Canada, and to a lesser extent Japan and Norway. There are notable improvements in the ranking for Finland, Italy, Portugal, Spain and Sweden. For Portugal and Spain the changes seem to follow EU membership in the mid-1980s.     

THE EXPORT PERFORMANCE OF U.S. AND SWEDISH MULTINATIONALS

While the U.S. and Sweden both lost more than 20 percent of their shares of world and developed countries' exports of manufactures between the mid-1960s and mid-1980s, the export shares of their multinational firms stayed fairly stable or even increased. The multinationals raised the proportion of their worldwide exports that they supplied from their overseas affiliates. These developments suggest that the declines in the trade shares of the US. and Sweden were not due mainly to deterioration in the innovativeness or inventiveness of American and Swedish firms, their management ability or their technological capabilities, but rather to economic developments in the firms' home countries.
The finding that firms have done better as exporters than their home countries is strengthened when we look at different industry groups. In both the U.S. and Sweden, and in all industry groups, with one exception, the multinationals' export shares increased relative to those of their home countries. The margins were often wide, and were mostly larger for Swedish firms than for U.S. firms.
Part of the explanation for the growth of each country's exports and those of its multinationals is the initial composition of exports, or the comparative advantages of the countries and their firms. These were skewed, in the mid-1960s, to industries that were to enjoy rapid growth in the next decade or so. Despite these initial comparative advantages, the exports of both countries fell far behind world export growth.
The comparative advantages of both countries' multinationals were even more biased toward fast-growth industries than those of the countries. That fact partly accounted for the better export performance of the multinationals relative to their home countries, but the multinationals outperformed their countries within each industry as well as for manufacturing as a whole.     

Rising Earnings Inequality in Sweden: The Role of Composition and Prices

The rise in cross‐sectional earnings inequality in Sweden between 1990 and 2002 is decomposed into changes in market prices of observable characteristics, changes in the composition of the labor force across demographic groups and industries, and changes in unobservables. The Swedish experience is then compared with that in the United States. In both countries, the rise in earnings inequality is a consequence of rising upper‐tail dispersion. Contrary to the U.S. experience, where the rise is largely driven by changing market prices of observables and increased residual dispersion, shifts in the Swedish labor‐force composition have contributed positively to the rise in the p90–p50 gap. The rise in the Swedish p99–p90 gap, however, is entirely accounted for by changes in prices and residual dispersion.     

Income Inequality and Income Mobility in the Scandinavian Countries Compared to the United States

This paper compares income inequality and income mobility in the Scandinavian countries and the United States during 1980–90. The results suggest that inequality is greater in the United States than in the Scandinavian countries and that this inequality ranking of countries remains unchanged when the accounting period of income is extended from one to eleven years. The pattern of mobility turns out to be remarkably similar, in the sense that the proportionate reduction in inequality from extending the accounting period of income is much the same. But we do find evidence of greater dispersion of first differences of relative earnings and income in the United States. Relative income changes are associated with changes in labor market and marital status in all four countries, but the magnitude of such changes are largest in the United States.     

Two‐sample nonparametric estimation of intergenerational income mobility in the United States and Sweden

We estimate intergenerational income mobility in the US and Sweden, using a new nonparametric approach. The approach addresses several empirical issues raised in the literature and applies when other estimators are infeasible. We argue that previous estimates of income mobility conceal the heterogeneous nature of the transmission mechanism by keeping mobility constant across families. The striking differences we find between mobility patterns across family backgrounds, captured by father's education, lead us to question the conventional result that intergenerational transmission of earnings is weaker in Sweden than in the United States, for important parts of the population.     

CORPORATE LEVERAGE AND THE BUSINESS CYCLE

This paper examines the pattern of corporate leverage in the United States during the 1980s. Firms in other countries increased their debt during this period. However, the United States was the only major industrialized country in which firms experienced increases in both leverage and interest burden. Previous studies analyzing the distribution of corporate debt across sectors in the United States concluded that to the extent a pattern is discernible, highly indebted firms are concentrated in the stable sectors. This study confirms this earlier finding but shows that the U.S. firms that have been increasing their leverage most rapidly have been concentrated in cyclical sectors.     

Stock market booms and real economic activity: Is this time different?

Since World War II, the United States has experienced two large booms on the stock market. During the first boom, which lasted from the late 1940s to the mid-1960s, stock returns were clearly leading real activity. Moreover, the evidence also suggests the existence of predictable return variations in the discount rate through time as a response to changing business conditions. Therefore, the first boom does not stand out as unusual because previous studies, such as Fama (1990) or Chen (1991), confirm these results for the whole period from the 1950s to the 1980s. But during the current boom, which started in the early 1980s, these results do not hold up any more. Stock returns do not seem to lead real activity and predictable return variations as a response to business conditions cannot be detected.     

The Cairns Group and the Uruguay Round of International Trade Negotiations

The Cairns Group was formed out of frustration among comparatively efficient agricultural exporting countries about a series of changes in the conduct of world agricultural trade over which they, as individual countries, could have no influence. They are collectively significant as producers of agricultural products, with more value added in agriculture than either the EC or the United States, and as agricultural exporters, with more such exports than the EC and the United States combined. Their cohesion, stemming from the reduction in their net agricultural export earnings by more than half as a consequence of protection in industrial countries, and their unique combination of industrial and developing countries has given them an extraordinary influence over the conduct of the Uruguay Round. This article quantifies their collective interest in agricultural trade reform, reviews their contributions to the Round and examines their interest in the reforms which are most likely to emerge from it.     

Trends in time allocation: A cross-country analysis

Using detailed time-use data for seven industrialized countries from the 1970s until today we document general decreases in men's market work coupled with increases in men's unpaid work and child care, and increases in women's paid work and child care coupled with decreases in unpaid work. We also find almost universal increases in the time devoted to watching television over this period, and uncover a widespread increase in leisure inequality in favor of lower educated adults. Trends in leisure inequality mirror the general increase in income and earnings inequality experienced in most countries over this period, especially after the mid-1980s. All these findings are consistent with previous results for the US. However, in contrast to the increases in leisure found for the US, we fail to find common trends in leisure time across countries over the period analyzed.     

The recent rise of profits in the United States

Profitability in the United States has been rising since the early 1980s, and by 1997 was nearing its postwar peak in the mid-1960s. The profit share has also recovered from its postwar low in the early 1970s. In this paper, I examine the role of the change in the profit share and capital intensity on movements in the rate of profit between 1947 and 1997. Its recent recovery is traced to a rise in the profit share in national income and a decline in the capital-output ratio.     

AIDing contraception: HIV and recent trends in abortion

Using a difference-in-differences estimation framework and state-level data, we investigate the potential role of HIV/AIDS in contributing to declining abortion utilization in the United States. Our results suggest that the perceived risk of HIV contraction negatively affected unwanted pregnancies. Specifically, a 10% increase in HIV incidence is associated with 0.34–1.1% fewer abortions per live births, an effect that can account for at least one-tenth of the sharp decline in abortions observed from the early 1980s to mid-1990s.     

Was the Burden of the Deep Swedish Recession Equally Shared?

The development of income inequality in Sweden up to 1998 is described and analyzed using yearly data focusing on the 1990s when average income fell rapidly and unemployment sky rocketed. Inequality in equivalent disposable income increased during the 1990s as during most of the 1980s. Decomposing total inequality by population groups and studying the earnings of full–time workers shows that while many groups experienced drops in income during the 1990s, some large groups did not. Examples of the latter are pensioners and full–time workers. Young adults and recent immigrants are examples of the former. Decomposing the Gini–coefficient by income source indicates that forces leading to increased inequality during the 1990s differed from those at play during the 1980s.