Measuring inequality change in an economy with income growth

This paper analyzes how to measure changes in inequality in an economy with income growth. The discussion distinguishes three stylized kinds of economic growth:

• 1.(1) high income sector enrichment,
• 2.(2) low income sector enrichment,
• 3.(3) high income sector enlargement, in which the high income sector expands and absorbs persons from the low income sector.

Th e two enrichment types pose no problem for assessing inequality change in the course of economic growth: for high income sector enrichment growth, inequality might reasonably be said to increase, whereas for low income sector enrichment, inequality might be said to decrease. These adjustments are non-controversial and non-problematical. Where problems arise is in the case of high income sector enlargement growth. In that case, the two alternative approaches have been shown in this paper to yield markedly results:

• 1.(1) The traditional inequality indices generate an inverted-U pattern of inequality. That is, inequality rises in the early stages of high income sector enlargement growth and falls thereafter.
• 2.(2) The new approach suggested here, based on axioms of gap inequality and numerical inequality, generates a U pattern of inequality. That is, inequality falls in the early stages of high income sector enlargement growth and rises thereafter.

The discrepancy between the familiar indices and the alternative approach based on axioms of gap inequality and numerical inequality bears further scrutiny. Two courses of action are possible. One might try to axiomatize inequality in ways that generate an inverted-U pattern in high income sector enlargement growth, thereby rationalizing the continued use of the usual inequality indices with the inverted-U property. Alternatively, one might retain the axioms proposed here, embed them into a more formal structure, and construct a family of inequality indices consistent with them. Others might wish to pursue the first course; I am at work on the second.     

Underground Economy,Evasion and Inequality

Economic theory is paying increasing attention to a non-observed economy (NOE) and its causes. Recently, a couple of works (Rosser et al., 2000 Rosser, J. B., Rosser, M. V. and Ahmed, E. 2000. Income inequality and the informal economy in transitions economies. Journal of Comparative Economics, 28(1): 156–171.  [Google Scholar], 2003 Rosser, J. B., Rosser, M. V. and Ahmed, E. 2003. Multiple unofficial economy equilibria and income distribution dynamics in systemic transition. Journal of Post Keynesian Economics, 25(3): 425–447. [Web of Science ®] , [Google Scholar]) have claimed that there is a positive relationship between income inequality and the size of NOE. This supposed relationship is not so clear and deserves in-depth analysis. There is a crucial aspect that has been completely avoided in these studies: income inequality is mainly measured using ‘regular’ incomes and this fact could lead to some bias. The existence of a certain size of NOE implies some income evasion that can affect the inequality indexes used in the study of the relationship between NOE and inequality. Including the regional share of NOE in a wage equation, I find that, in the specific case of the Italian private sector employees, the income evasion attached to NOE tends to reduce inequality measured by regular wages statistics.     

Convergence in income inequality? evidence from panel unit root tests with structural breaks

This paper empirically tests whether there is evidence of convergence in income inequality, as predicted by several versions of the neoclassical growth model, using a large panel of annual data for the 48 contiguous states in the US over the 1916?C2005 period. By implementing the panel LM unit root test developed by Im et?al. (Oxford Bull Econ Stat 67:393?C419, 2005, Panel LM unit-root tests with trend shifts, Mimeo, 2010) that allows for the presence of structural breaks and heterogeneity in the panel, we find overwhelming evidence in support of convergence in income inequality. In addition, the results are robust to alternative inequality indicators used, different notions of stochastic convergence defined, and additional cross-sectional correlation considered.     

The Middle Class Consensus and Economic Development

A middle class consensus is defined as a high share of income for the middle class and a low degree of ethnic divisons. The paper links a middle class consensus to resource endowments, along the lines of the provocative thesis of Engerman and Sokoloff (1997 and 2000). This paper exploits this association using tropical resource endowments as instruments for inequality. A higher share of income for the middle class and lower ethnic divisions are associated with higher income and higher growth, as well as with more education, better health, better infrastructure, better economic policies, less political instability, less civil war and ethnic minorities at risk, more social modernization and more democracy.     

Generalized entropy measures of long-run inequality and stability among male headed households

This paper provides measures of short and long-run inequalities as well as income stability among households with male heads using the panel study of income dynamics for the period 1969–1981. It is found that short-run inequalities have been increasing over the time period examined. Moreover, some fluctuations around this increasing trend are of a transitory nature and appear to be smooth over time. Long-run measures are less subject to fluctuations and provide a better measure of inequality. They show a decrease in inequality in the early periods but increases after the mid-1970's. Several aggregator functions are used to compute permanent income variables for the long-run measures of inequality and stability. The measures are decomposed to reflect differences in age, education, and race. They are decomposed also into groups which are free of such group characteristics. Education has the most important influence on inequality. Stability profiles indicate, furthermore, most of the reduction in inequality in the early periods has been within particular groups. Reductions across groups are minimal.Helpful comments from Esfandiar Maasoumi, Joseph Craycraft, Kenneth Koford and two referees are acknowledged. The usual caveat as to remaining errors applies.     

The Consequences of Zakat for Capital Accumulation

The payment of zakat by the owners of wealth is one of the five pillars of Islam. Many countries operate with no enforcement of the obligation to pay, making zakat a form of voluntary redistribution. We analyze how zakat affects capital accumulation in a model that explicitly recognizes the voluntary nature of zakat. The voluntary payment is modeled using both warm glow and social custom frameworks. These are embedded within an overlapping generations model with heterogenous consumers and endogenous population growth. The results show that zakat can raise the capital–labor ratio when it is motivated by the warm glow but welfare can be nonmonotonic in the strength of the warm glow. In the social custom model, reduced participation can lead to a reduced capital–labor ratio as the rate of zakat is increased.     

"NOMINAL" AND "REAL" INTERSTATE INCOME INEQUALITY IN THE UNITED STATES: SOME ADDITIONAL EVIDENCE

Using a good inequality index, and data on personal income and cost-of-living estimates for the period 1981–90, interstate inequality in "nominal" and "real" personal income per capita is compared. Four points are noted. First, inequality in real income is smaller than that in nominal income. Second, while the nominal-income inequality shows the well-known increase over the 1980s, real-income inequality declined during the period. Third, inequality patterns in the wage and the non-wage components of income are somewhat different. Last, even the nominal-income inequality indicates a decline in the early 1990s.     

Decomposing World Income Distribution: Does The World Have A Middle Class?

Using the national income/expenditure distribution data from 111 countries, we decompose total inequality between the individuals in the world, by continents and regions. We use Yitzhaki's Gini decomposition which allows for an exact breakdown of the Gini. We find that Asia is the most heterogeneous continent; between-country inequality is much more important than inequality in incomes within countries. At the other extreme is Latin America where differences between the countries are small, but inequalities within the countries are large. Western Europe/North America is fairly homogeneous both in terms of countries' mean incomes and income differences between individuals. If we divide the world population into three groups: the rich (those with incomes greater than Italy's mean income), the poor (those with incomes less than Western countries' poverty line), and the middle class, we find that there are only 11 percent of people who are "world middle class"; 78 percent are poor, and 11 percent are rich.     

Why did rich families increase their fertility? Inequality and marketization of child care

A negative relationship between income and fertility has persisted for so long that its existence is often taken for granted. One economic theory builds on this relationship and argues that rising inequality leads to greater differential fertility between rich and poor. We show that the relationship between income and fertility has flattened between 1980 and 2010 in the US, a time of increasing inequality, as high income families increased their fertility. These facts challenge the standard theory. We propose that marketization of parental time costs can explain the changing relationship between income and fertility. We show this result both theoretically and quantitatively, after disciplining the model on US data. We explore implications of changing differential fertility for aggregate human capital. Additionally, policies, such as the minimum wage, that affect the cost of marketization, have a negative effect on the fertility and labor supply of high income women. We end by discussing the insights of this theory to the economics of marital sorting.     

间接税归宿对城乡居民收入分配影响研究

使用全国城乡家庭消费和收入微观数据考察间接税对于城乡收入差距和收入分配的影响发现:平均来看,全国居民负担的税收占收入的比例是10.6%;不论在全国范围来看还是分别在城乡内部来看,间接税负担都呈现累退:低收入的负担率高于高收入的负担率。在城乡之间,城镇居民的税收负担率高于农村居民的税收负担率。间接税增加了城乡内部不平等,降低了城乡之间的不平等。间接税主要对低收入群体影响较大,略微恶化了整体收入不平等。     

间接税归宿对城乡居民收入分配影响研究

使用全国城乡家庭消费和收入微观数据考察间接税对于城乡收入差距和收入分配的影响发现:平均来看,全国居民负担的税收占收入的比例是10.6%;不论在全国范围来看还是分别在城乡内部来看,间接税负担都呈现累退:低收入的负担率高于高收入的负担率。在城乡之间,城镇居民的税收负担率高于农村居民的税收负担率。间接税增加了城乡内部不平等,降低了城乡之间的不平等。间接税主要对低收入群体影响较大,略微恶化了整体收入不平等。     

Earnings dynamics of men and women in Finland: permanent inequality versus earnings instability

I decompose the earnings variance of Finnish male and female workers into its permanent and transitory components using the approach of Baker (J Labor Econ,15:338–375, 1997) and Haider (J Labor Econ, 19:799–836, 2001) in the spirit of scientific replication. I find that the increasing earnings inequality of men and women is driven by both the transitory and permanent components of earnings. In addition, I find considerable differences in the earnings dynamics of men and women, that have been largely neglected in previous studies of earnings dynamics. The inequality among men is dominated by the permanent component. Conversely, permanent and transitory components are of comparable magnitudes to women. As a corollary, men experience more stable income paths but display larger permanent earnings differences. Women, on the other hand, face more unstable earnings profiles but show smaller permanent differences in earnings.     

INCOME INEQUALITY IN URBAN COLOMBIA: A DECOMPOSITION ANALYSIS

The persistence of poverty and income inequality in less developed countries (LDCs) is a source of serious concern to development economists. To understand the structure of inequality, several researchers using a variety of methodologies have measured the importance of various contributory factors to overall income variability. The available literature—which now includes studies of Brazil, Mexico, Iran, the Philippines, Taiwan, Thailand, Pakistan, and Colombia-has been reviewed elsewhere (Fields, forthcoming). This paper presents additional evidence for urban Colombia, in the process raising some important methodological issues which bear on the design of future research studies.
The data set used in this paper is described in Section I. The decomposition of Colombian inequality by functional income source is presented in Section 11 for micro data. Section I11 examines the robustness of source decomposition procedures to data aggregation. Section IV presents inequality decompositions by city, and Section V by other income-determining characteristics. Conclusions appear in Section VI.     

Religiosity,Economics and Life Satisfaction

This paper uses a large individual data set from the Euro Barometer Survey (ICPSR 1993 Interuniversity Consortium for Political and Economic Research (ICPSR) 1993 Euro-Barometer Surveys Ann Arbor: University of Michigan  ) to estimate the influence of religious phenomena on self-perceived satisfaction of an individual, controlling for macroeconomic conditions, effects of his political stance, and other socio-economic variables. Our estimated ordered logit model results show that an individual's life satisfaction is positively related to measures of strong religious attachment in the sense of being willing to commit to attending religious services frequently. Our other findings include that no strong evidence exists for the hypothesis that leftists suffer more from income inequality.     

Wealth inequality and financial inclusion: Evidence from South African tax and survey records

Theoretical models show that financial inclusion reduces wealth inequality. Existing empirical models are restricted to estimates using income inequality because of a lack of cross country wealth inequality data. We used 2010-11 and 2014-5 waves of the National Income Dynamics Study combined with South African tax records to estimate wealth and income inequality. Using Re-centered Influence Function regressions on the micro-level records, we confirmed the negative cross-country relationship between financial inclusion and income inequality. Wealth inequality is different. Financial inclusion improved wealth shares of only the middle class. Because of predatory lending, expansion of credit reduced the wealth share of the poor. Improved savings by the middle class, providing better oversight over financial services targeted at the poor and removing impediments to the small business sector are pre-conditions for financial inclusion to reduce wealth inequality.     

Demographic Transition, Income Distribution, and Economic Growth

This article investigates the dynamic interactions among demographic transition, income distribution, and economic growth. Consistent with empirical evidence we show that fertility and income distribution follow an inverted U-shaped dynamics in the process of economic development. In the first stage fertility increases and income inequality widens, whereas in the second stage fertility declines, income becomes more equally distributed, human capital becomes more abundant, and growth of income per capita takes off. The model therefore generates the documented facts about epochs of demographic transition, relying neither on arguments based on near rationality nor on noneconomic objectives.     

Equality of opportunity and educational achievement in Portugal

Portugal has one of the highest levels of income inequality in Europe, and low wages and unemployment are concentrated among low skill individuals. Education is an important determinant of inequality. However, there are large differences in the educational attainment of different individuals in the population, and the sources of these differences emerge early in the life-cycle when families play a central role in individual development. We estimate that most of the variance of school achievement at age 15 is explained by family characteristics. Observed school inputs explain very little of adolescent performance. Children from highly educated parents benefit of rich cultural environments in the home and become highly educated adults. Education policy needs to be innovative: (1) it needs to explicitly recognize the fundamental long run role of families on child development; (2) it needs to acknowledge the failure of traditional input based policies.

INEQUALITY MEASUREMENT USING ‘NORM INCOMES’: WERE GARVY AND PAGLIN ONTO SOMETHING AFTER ALL?

The "norm income" approach to inequality measurement is based on a comparison of the observed income distribution with a reference distribution consistent with the socially desired minimum degree of inequality (and not the equal shares distribution). Garvy and Paglin suggested such an approach, and we show that their methods, suitably modified, are closely related to the multivariate methods recently proposed by Atkinson and Bourguignon. The advantage and disadvantages of a norm income approach are analyzed in detail.     

Unionization and absenteeism

Until recently any labour economist doing empirical work on unionization was concerned almost exclusively with the effect of unionization on wages. But beginning with Freeman's 1976 analysis of the rich institutional structure of unions, economists have been considering the role of unions in, for example, increasing productivity, lowering quit rates, enhancing fringe benefits, reducing income inequality, improving working conditions, and affecting a variety of other attributes at the workplace. ^{1 1}It is not the purpose of this paper to provide an exhaustive bibliography on the ‘new view’ of unionization. Nevertheless, the interested reader may want to see Freeman (1976, 1978, 1980) and Brown and Medoff (1978). To date, however, no study has directly addressed a question that appears ripe for empirical analysis: Does unionization affect absenteeism?

This paper presents results from a study designed to answer that question. The first section presents a simple model of absenteeism. The second section discusses the five mechanisms through which unionization influences absenteeism. The third section describes the data and variable selection. Results from logit regressions are presented in the fourth section and the paper closes with a summary of the arguments and evidence.     

Life During Growth

A remarkable diversity of indicators shows quality of life across nations to be positively associated with per capita income. At the same time, the changes in quality of life as income grows are surprisingly uneven. Either in levels or changes, moreover, the effect of exogenous shifts over time is surprisingly strong compared to growth effects. This article reaches this conclusion with a panel dataset of 81 indicators covering up to four time periods (1960, 1970, 1980, and 1990). The indicators cover seven subjects: (1) individual rights and democracy, (2) political instability and war, (3) education, (4) health, (5) transport and communications, (6) inequality across class and gender, and (7) bads. With a SUR estimator in levels, income per capita has an impact on the quality of life that is significant, positive, and more important than exogenous shifts for 32 out of 81 indicators. With a fixed-effects estimator, growth has an impact on the quality of life that is significant, positive, and more important than exogenous shifts for 10 out of 81 indicators. With a first-differences IV estimator, growth has a causal impact on the quality of life that is significant, positive, and more important than exogenous shifts for six out of 69 quality of life indicators. The conclusion speculates about such explanations for the pattern of results as (1) the long and variable lags that may come between growth and changes in the quality of life and (2) the possibility that global socioeconomic progress is more important that home-country growth for many quality-of-life indicators.