Entrepreneurs,jobs, and trade

We propose a simple theory of endogenous firm productivity, unemployment, and top income inequality. High-talented individuals choose to become self-employed entrepreneurs and acquire more managerial (human) capital; whereas low-talented individuals become workers and face the prospect of equilibrium unemployment. In a two-country global economy, trade openness raises firm productivity, increases top income inequality, and may reduce welfare in the country exporting the good with lower relative labor-market frictions. Trade openness reduces firm productivity, lowers top income inequality, and necessarily raises welfare in the other country. The effect of trade on unemployment is ambiguous. Unilateral job-creating policies increase welfare in both countries. However, they reduce unemployment and raise top income inequality in the policy-active country; and reduce top income inequality while increasing unemployment in the policy-passive country.     

公共教育、社会保障与收入分布

本文使用一个世代交叠模型揭示了公共教育与社会保障调节收入分布的作用机制。研究发现,公共教育能够有效地缩小家庭教育投资差距,从而降低收入差异;社会保障则通过减少低收入家庭的劳动供给、增加其有效家庭教育时间来降低收入差异。本文的数值模拟结果显示,在同样的支出水平下公共教育调节收入差异的能力比社会保障更强。并且当存在财政预算约束时,从降低收入差异的角度来看,若财政预算规模较低则应当将资金优先用于公共教育;若财政预算规模较高则应当在公共教育与社会保障之间保持平衡。     

The political economy of public education

I study the relationship between income inequality and public spending in education in a voting model. Voters collectively choose the uniform quality level of public education, the amount of a public good, and the tax rate on labor income. Parents can decide to opt-out of the public education system by purchasing private education at the desired quality level, and children’s expected income is assumed to be increasing in the quality of education. I show that higher income inequality is associated with higher governmental spending in education if and only if the expected marginal returns to education are larger for the children of relatively low income parents. In turn, better public education tends to reduce future inequality. These results are consistent with most findings in the empirical literature about public investment in education. Lastly, I show that for other kind of publicly provided goods, such as health care, the relationship with income inequality exhibits an ambiguous or opposite sign.     

Managerial capital,occupational choice and inequality in a global economy

This study proposes a simple theory of trade with endogenous firm productivity, occupational choice and income inequality. Individuals with different managerial talent choose to become entrepreneurs or workers. Entrepreneurs enhance firm productivity by investing in managerial capital. The model generates three income classes: low‐income workers facing the prospect of unemployment, middle‐income entrepreneurs managing domestic firms and high‐income entrepreneurs managing global firms. Trade liberalization policies raise unemployment and improve welfare. A reduction in per‐unit trade costs raises top incomes and generates labour‐market polarization. A reduction in fixed exporting costs has an ambiguous effect on top incomes and personal income distribution. Policies reducing labour‐market frictions or the costs of managerial‐capital acquisition create more jobs and improve welfare. The income distributional effects of labour‐market policies depend on which policy is implemented.     

A natural experiment of the effect of advertising on sales: the SASOL case

China's so-called ‘reform and opening up’ policy (Gai Ge Kai Fang), implemented nearly 30 years ago, has led to tremendous economic development. China's nominal Gross Domestic Product (GDP) was 3.25 trillion US dollars in 2007, making it the fourth largest economy in the world. At the same time, income inequality has become quite skewed in China, inviting considerable criticism. Moreover, the trend towards greater income inequality persists. Of particular public policy relevance is the effect of income inequality on health disparities in China, particularly for low-income households. This study addresses this issue using a longitudinal dataset from the China Health and Nutrition Survey (CHNS) over the period 1997 to 2006. Our central finding is that income inequality affects health differently by socioeconomic status: income inequality harms individual health among low income households by more than it does among high income households. More specifically, health is more adversely affected by greater income inequality for households with low incomes. China's central government is committed to making further investments in the health care system. As part of that effort, attention should be directed at low income households to reduce health inequality, possibly providing them with a health insurance safety net similar to Medicaid in USA.     

Cash Transfers to the Poor and the Labor Market: An Equilibrium Analysis

This paper studies the effects of cash transfers to the poor on the labor market. This is investigated in a matching model with endogenous labor market participation and job destruction. Depending on their productivity, workers might want to stay in the job, become unemployed, or leave the labor market; in addition, workers out of the labor force might decide to search for a job. Cash transfers are introduced to all agents with income below a given level. Two qualitative results are found: (i) The size of cash transfers has a negative effect on the employment rate, but an ambiguous effect on the unemployment rate; and (ii) the coverage of this welfare program has a positive effect on the employment rate, and an ambiguous effect on the unemployment rate. The numerical simulations also show that: (i) if the government target is to reduce inequality and poverty, the more efficient policy is to increase the level of benefits instead of increasing the eligibility of the program; (ii) compared with a welfare program that condition eligibility to labor market participation, the “unconditional” cash transfer program has a stronger impact on inequality and poverty, but with a reduction in labor market participation and output.     

A second chance at success: A political economy perspective

This paper characterizes a stationary Markov-perfect political equilibrium where agents vote over income taxation that distorts educational investment. Agents become rich or poor through educational investment, and the poor have a second chance at success. The results show the following concerning the cost of a second chance. First, when the cost is low, the economy is characterized by high levels of upward mobility and inequality, and a low tax burden supported by the poor with prospects for upward mobility. Second, when the cost is high, there are multiple equilibria with various patterns of upward mobility, inequality and redistribution. Numerical examples show that the shift from a high-cost economy to a low-cost economy may reduce social welfare.     

Income, income inequality, and health: Evidence from China

This paper tests using survey data from China whether individual health is associated with income and community-level income inequality. Although poor health and high inequality are key features of many developing countries, most of the earlier literature has drawn on data from developed countries in studying the association between the two. We find that self-reported health status increases with per capita income, but at a decreasing rate. Controlling for per capita income, we find an inverted-U association between self-reported health status and income inequality, which suggests that high inequality in a community poses threats to health. We also find that high inequality increases the probability of health-compromising behavior such as smoking and alcohol consumption. Most of our findings are robust to different measures of health status and income inequality. Journal of Comparative Economics 34 (4) (2006) 668–693.     

Monetary policy in search of macroeconomic stability and inclusive growth

The question of the implication of the macroeconomic policy environment for welfare may be an empirical one, and the answer may well differ amongst economies. In this paper, we evaluate the role of monetary policy toward inclusive growth. The evidence from a large sample of countries shows that in both the short and long terms, low inflation and stable economic growth are associated with lower income inequality, improved well-being of the poor and greater inclusion. Both short-term and long-run effects are statistically significant and show that monetary policy that aims at low inflation and stable economic growth is most likely to improve permanently growth inclusiveness and the conditions of the poor. However, in advanced economies where inflation rates are considerably lower, disinflation hurts the poor and equity, ignites greater unemployment cost, and worsens growth inclusiveness. In any case, price and output stability is necessary for greater growth inclusiveness. Thus, the twin objectives of macroeconomic stability and inclusive growth offer no trade-offs.     

Redistributive choices and increasing income inequality: experimental evidence for income as a signal of deservingness

We explore the relation between redistribution choices, source of income, and pre-redistribution inequality. Previous studies find that when income is earned through work there is less support for redistribution than when income is determined by luck. Using a lab experiment, we vary both the income-generating process (luck vs. performance) and the level of inequality (low vs. high). We find that an increase in inequality has less impact on redistribution choices when income is earned through performance than when income results from luck. This result is likely explained by individuals using income differences as a heuristic to infer relative deservingness. If people believe income inequality increases as a result of performance rather than luck, then they are likely to believe the poor deserve to stay poor and the rich deserve to stay rich.     

Does public‐sector employment fully crowd out private‐sector employment?

Employment matters for development because it can raise household income, lower inequality, promote economic growth, and contribute to political stability. Many countries have high rates of public employment, but what effect does this have on overall employment and unemployment rates? This paper investigates if and to what extent public‐sector employment crowds out (reduces) private‐sector employment. In particular, we estimate regressions of unemployment or private‐sector employment on two measures of public‐sector employment. The study uses an especially assembled dataset, which is novel for its coverage of a large sample of developing countries as part of a panel of rich and poor countries. Our results point to full or just about full crowding‐out for the entire sample. Unlike previous cross‐country studies, which were restricted to advanced economies, we are able to show that these results also apply to developing countries, although crowding‐out may not be quite as high as in advanced economies. The results mean that high rates of public employment have an offsetting large negative impact on private employment rates and do not reduce overall unemployment rates. With the qualifier that government activities may help the economy in other ways, our results imply that, rather than creating public‐sector jobs, scarce fiscal resources could be better spent on other developmental needs.     

Income distribution, borrowing constraints and redistributive policies

This paper sheds light on the relationship between income inequality and redistributive policies and provides possible guidance in the specification of empirical tests of such a relationship. We model a two-period economy where capital markets are imperfect and agents vote over the level of taxation to finance redistributive policies that enhance future productivity. In this context, we show that the pivotal voter is not necessarily the agent (class) with median income. In particular, the poor, who are more likely to be liquidity constrained, may form a coalition with the rich and vote for low redistribution. The effects of an increase in income inequality on the level of redistribution turn out to depend on whether the increase in inequality is concentrated among the poor or the middle class. Empirical results from a panel of 22 OECD countries provide preliminary evidence consistent with our main theoretical implications.     

Income inequality,unemployment, and poverty in Nigeria: a vector autoregressive approach

The main features of poverty are low levels of consumption and income, a fact‐of‐life in most African countries. This paper analyzes the fundamental trends of per capita income, government capital expenditure, the human development index, and the rate of unemployment in the Nigeria. A vector autoregressive model finds that: A reduced unemployment rate improves human development and consequently reduces poverty. As growth in public capital expenditure rises, unemployment falls and the human development index improves. Therefore, infrastructure‐based policies, which initially reduce unemployment, will also improve the living conditions of Nigerians in the end.     

Does microfinance affect income inequality?

This study addresses the question whether participation of the poor in microfinance contributes to reducing a country’s level of income inequality. Using data from 70 developing countries, we show that higher levels of microfinance participation are indeed associated with a reduction of the income gap between rich and poor people. We also show, however, that the effects of microfinance on reducing income inequality are relatively small. The results of this study add to the discussion on the impact of microfinance on poverty by showing that, although access to microfinance does seem to improve the relative income position of the poor, this improvement is modest, which is probably because the use of microfinance is generally small as compared to the size of the economy of the countries in our sample. Microfinance should, therefore, not be seen as a panacea for bringing down income inequality in a significant way.     

Decomposing differences in health and inequality using quasi-objective health indices

People in Canada and the United States often make claims regarding whose country has a better health system. Several researchers have attempted to address this question by analysing subjective health measures in the two countries, thus assuming a common definition of ‘good’ health. Using data from the Joint Canada/US Survey of Health, which provides rich and comparable health information for the two countries, I generate two quasi-objective health indices and show that Canadians and Americans define ‘good’ health differently. After controlling for cross-country reporting heterogeneity, health differences between Americans and Canadians are eliminated for intermediate health statuses, while health differences at the tails of the health distribution lead to slightly better average population health in Canada. With respect to health inequality, my results show that income and education gradients increase steeply with poor health in both countries. Hence, considering differences along the health distribution is crucial when assessing population health or health inequality.     

代际流动约束下生育率与收入不平等关系的国际检验

收入不平等问题和人口生育率过低问题是当下中国面临的两大难题,但目前理论界关于人口因素与收入不平等关系的研究,很少从生育率视角来考察以及考虑代际收入流动在其中的作用.文章从理论与经验两个方面来考察生育率对收入不平等的影响,理论模型表明:在关于代际收入流动的假设下,一个经济体中生育率的提高会使穷人比重提高,进而拉大收入不平等.进一步地,文章利用1970-2011年76个国家(地区)面板数据的经验研究发现:(1)总和生育率的提高会拉大收入不平等,如果每个妇女平均多生育一个孩子,将会使基尼系数增加0.025;(2)以出生率作为总和生育率替代指标的实证结果与基准结果基本一致,这说明不同生育率测算指标高度相关且可相互替代;(3)对于代际收入流动弹性越高、收入水平越低或生育率越高的国家(地区),其生育率提高对收入不平等的拉大作用越大.文章关于生育率对收入不平等影响的作用机制和异质性特征的考察,对于我国如何在实施"全面二孩"政策下寻求应对严峻的收入分配问题之策提供了国际经验和启示.     

Understanding Rising Income Inequality in Germany, 1999/2000–2005/2006

We examine the factors behind rising income inequality in Europe's most populous economy. From 1999/2000 to 2005/2006, Germany experienced an unprecedented rise in net equivalized income inequality and poverty. At the same time, unemployment rose to record levels, part‐time and marginal part‐time work grew, and there was evidence for a widening distribution of labor incomes. Other factors that possibly contributed to the rise in income inequality were changes in the tax and transfer system, changes in the household structure (in particular the rising share of single parent households), and changes in other socio‐economic characteristics (e.g., age or education). We address the question of which factors were the main drivers of the observed inequality increase. Our results suggest that the largest part of the increase was due to increasing inequality in labor incomes, but that changes in employment outcomes and changes in the tax system also contributed considerable shares. By contrast, changes in household structures and household characteristics, as well as changes in the transfer system only seem to have played a minor role.     

Skilled-unskilled wage inequality and unemployment: A general equilibrium analysis

The paper develops a static three sector competitive general equilibrium model of a small open economy in which skilled labor is mobile between a traded good sector and the non-traded good sector and unskilled labor is specific to another traded good sector. Capital is perfectly mobile among all these three sectors. We introduce involuntary unemployment equilibrium in both the labor markets and explain unemployment using efficiency wage hypothesis. We examine the effects of change in different factor endowments and prices of traded goods on the unemployment rates and on the skilled-unskilled relative wage. Also, we introduce Gini-Coefficient of wage income distribution as a measure of wage income inequality; and show that a comparative static effect may force the skilled-unskilled relative wage and the Gini-Coefficient of wage income distribution to move in opposite directions in the presence of unemployment.     

Inequality and business cycles in the U.S. and European Union countries

This paper derives the business cycle properties of some aggregate and disaggregate inequality indices for the U.S. and three European Union countries (United Kingdom, Italy, and Greece). The findings suggest that inequality indices move countercyclically with output in the U.S. and the United Kingdom, a procyclical behavior prevailed in Greece, and a mixed cycle influenced Italy. A common countercyclical pattern of inequality indices with inflation and unemployment characterizes the three large economies (U.S., United Kingdom, and Italy). Also, in most countries, the top income group seems to lose at the benefit of the rest during inflationary periods while, in all four countries, the poor will gain from inflation and suffer from unemployment.     

收入、收入不均与健康:城乡差异和职业地位的影响

本文使用来自中国9个省的微观面板数据,检验了居民自评健康与家庭人均收入和社区内收入不均之间的相关关系。考虑到中国城乡分割的二元经济社会特征,本文将农村样本和城镇样本分开处理;考虑到中国的社会分层结构,计量方程中引入了代表职业地位的变量及其与收入和收入不均的交互项。在实证结果的基础上,本文讨论了收入、收入不均与健康关系的作用机制。主要结论是:收入与健康的关系、收入不均与健康的关系都存在城乡差异和职业差异,这说明在收入、收入不均与健康的关系中,社会经济地位的影响十分重要。要解决健康不平等问题,关键在于加强对社会经济地位较低者,主要是农村居民和生活在城镇的农民的医疗保障,同时要设法改善农村的基础设施和社会资本,并逐步取消各种造成城乡分割的制度。