Inequality and mobility

Acknowledging that wage inequality and intergenerational mobility are strongly interrelated, this paper presents a model in which both are jointly determined. The model enables us to study how inequality and mobility are affected by exogenous changes and what determines their correlation. A main implication of the model is that differences in the amount of public subsidies to education and educational quality produce cross-country patterns with a negative correlation between inequality and mobility. Differences in the labor market, like differences in skill-biased technology or wage compression instead produce a positive correlation. The predictions of the model are found to be consistent with various empirical observations on mobility and inequality.     

Robust determinants of intergenerational mobility in the land of opportunity

This paper revisits the influential work by Chetty et al. (2014) who attempt to explain the variation in intergenerational mobility across commuter zones in the US (i.e., spatial mobility) using nine classes of variables. We employ Bayesian model averaging methods that allow for model uncertainty to identify robust predictors of spatial mobility. In doing so we pay special attention to the specification of model and parameter priors. We also investigate the heterogeneous effects of these predictors on spatial mobility across commuter zones in different average income quintiles. Our findings suggest a more nuance and complex characterization of the spatial mobility process than that proposed by Chetty, Hendren, Kline, and Saez.     

School tracking and intergenerational income mobility: Evidence from the Finnish comprehensive school reform

This paper estimates the effect of a major education reform on intergenerational income mobility. The Finnish comprehensive school reform of 1972–1977 replaced the old two-track school system with a uniform nine-year comprehensive school and shifted the selection of students to vocational and academic tracks from age 11 to age 16. We estimate the effect of this reform on the intergenerational income elasticity using a representative sample of males born between 1960 and 1966. The identification strategy relies on a differences-in-differences approach and exploits the fact that the reform was implemented gradually across the country during a six-year period. The results indicate that the reform reduced the intergenerational income elasticity by 23% from the pre-reform elasticity of 0.30 to post-reform elasticity of 0.23.     

The impact of higher education expansion on intergenerational mobility

The persistent correlations between parents and children's outcomes have long been investigated. From a policy perspective, it is important to understand the underlying causes of those correlations. Educational policy changes may have significant impacts on intergenerational mobility. The last several decades have witnessed a remarkable expansion of higher education around the world. In this paper, we examine the effect of higher education expansion on intergenerational mobility in China. We find that the higher education expansion in China has weakened the advantage of cadres’ children in higher education participation, and has strengthened the intergenerational educational correlation. One explanation for these results might be that, along with the process of economic reform started in 1979, the cadre selection mechanism has placed more and more weight on candidate's education and abilities.     

Endogenous capital market imperfections, human capital, and intergenerational mobility

In this paper, capital market imperfections are endogenized considering an adverse selection problem between banks and borrowers. We develop a growth model with linear OLG wealth dynamics, where agents are heterogeneous in terms of observable wealth and ability, which is private information. We show that banks react to this informational asymmetry by granting higher loans to talented borrowers. This, in turn, helps poor and talented agents to become educated and catch up with the rich agents. Furthermore, the credit market friction leads to greater human capital accumulation.     

Capital adjustment cost and inconsistency in income‐based dynamic panel models with fixed effects

After the seminal work of Nickell (1981), a vast literature demonstrates the inconsistency of ‘conditional convergence’ estimator in income‐based dynamic panel models with fixed effects when the time horizon (T) is short but the sample of countries (N) is large. Less attention is given to the economic root of inconsistency of the fixed effects estimator when T is also large. Using a variant of the Ramsey growth model with long‐run adjustment cost of capital, we demonstrate that the fixed effects estimator of such models could be inconsistent when T is large. This inconsistency arises because of the long‐run adjustment cost of capital which gives rise to a negative moving average coefficient in the error term. Income convergence will be thus overestimated. We theoretically characterize the order of this inconsistency. Our Monte Carlo simulation demonstrates that the size of the bias is substantial and it is greater in economies with higher capital adjustment costs. We show that the use of instrumental variables that take into account the presence of the negative moving average term in the error will overcome this bias.     

The cost of labor adjustment: Inferences from the gap

This paper studies the aggregate implications of micro-level labor adjustment costs. Caballero and Engel [Caballero, R., Engel, E., 1993. Microeconomic adjustment hazards and aggregate dynamics. Quarterly Journal of Economics 108, 313–358] find a dependence of aggregate employment growth on the cross sectional distribution of “employment gaps.” This paper uses those results as moments in an indirect inference procedure to infer the underlying labor adjustment costs. We specify a dynamic optimization problem at the plant level, allowing for both convex and non-convex adjustment costs. Consistent with evidence at the micro level, our findings indicate that non-convex adjustment costs are necessary to match these aggregate moments.     

Job and worker flows in high adjustment cost settings

This paper analyses the relationship between the size of adjustment costs and the intensity of labor market flows. I argue that high adjustment costs inhibit adjustment to temporary shocks, leaving adjustment to long-lived shocks unchanged. Worker turnover is also reduced because of the negative impact that adjustment costs have on churning.Received: January 2002, Accepted: November 2002, JEL Classification: J23, J63I am grateful to the FCT for funding this research (research grant Praxis/PCSH/C/CEG/13/96), and to Pedro Portugal, Daniel Hamermesh and two anonymous referees for helpful comments on earlier versions of this paper. I thank the Department of Statistics at the Ministry of Labor for providing the data. CETE is supported by the FCT.     

The structure of income mobility: empirical evidence from five UE countries

In this paper we use the European Community Household Panel (ECHP) to assess differences in the level and structure of income mobility in a selected sample of European countries. We adopt recent theoretical proposals for the decomposition of axiomatic and welfare measurements of mobility in exchange, structural and growth components. Decomposition exercises which take into account some type of division of the population and income sources are also performed. We find that cross-country income mobility comparisons largely depend on the type of indices used. The relative positions of the countries considered change when the analysis is based on ethical instead of objective measures of income mobility. Results also show that in most countries income growth has a very limited effect upon aggregate mobility, being the most important determinant the rerankings of individuals, with a little weight for inequality changes. Although some common results exist concerning the delimitation of groups experiencing the greatest income fluctuations, such as individuals belonging to single-parent households or young household heads, the intensity of these results varies greatly across countries. The authors would like to acknowledge financial support from the Ministry of Science and Technology (grant SEJ2004-07373-c03-03) and the Instituto de Estudios Fiscales. We would also like to acknowledge the help given by the European Centre for Analysis in Social Sciences of the University of Essex.     

Modelling economic hysteresis losses caused by sunk adjustment costs

Transition from one economic equilibrium to another as a consequence of shocks is often associated with sunk adjustment costs. Firm-specific sunk market entry investments (or sunk market exit costs) in case of a reaction to price shocks are an example. These adjustment costs lead to a dynamic supply pattern similar to hysteresis. In analogy to “hysteresis losses” in ferromagnetism, the authors explicitly model dynamic adjustment losses in the course of market entry and exit cycles. They start from the micro level of a single firm and use explicit aggregation tools from hysteresis theory in mathematics and physics to calculate dynamic losses. The authors show that strong market fluctuations generate disproportionately large hysteresis losses for producers. This could give a reason for the implementation of stabilizing measures and policies to prevent strong (price) variations or, alternatively, to reduce the sunk entry and exit costs.     

How unemployable are displaced manufacturing workers?: An analysis of adjustment costs and supplemental adjustment assistance benefits in France

There are government programs which provide supplemental adjustment assistance benefits to displaced workers in designated industries. Appealing to the ‘gains from trade’ with income redistribution theory, this paper analyzes the link between the adjustment costs of displaced workers and their former sector of employment. These costs are measured by French data on the mean duration of joblessness of laid-off workers. Empirical evidence is found which confirms the hypothesis that workers displaced from traditional manufacturing and resource industries suffer particularly high losses stemming from unemployment. These effects may be tied to workings of internal labour markets.     

Evolutionary dynamics of social tolerance in the economic interaction model with local social cost functions

The evolutionary dynamics of social tolerance in a society with local social cost functions have been discussed. We show that, very different from the global function case studied previously, dynamics of social tolerance in a society with local social cost functions is integrable in phase space. The exact solution of the evolutionary dynamics in phase space is obtained, and the evolutionary trajectories are discussed by using the Kolmogorov–Arnold–Moser theorem. We show that the property of steady states is closely related to the group populations. We also discuss the necessary condition of the full tolerance steady state, and it is demonstrated that both global and local social cost functions have the same necessary condition of achieving full tolerance.     

Post‐socialist transition and intergenerational educational mobility in Kyrgyzstan

We investigate long‐term trends in intergenerational educational mobility in a lower middle‐income transition economy. We draw on evidence from Kyrgyzstan using data from three household surveys collected in 1993, 1998 and 2011. We find that Kyrgyzstan, like Eastern European middle‐income transition economies, maintained high educational mobility, comparable to levels during the Soviet era. However, we find that the younger cohorts, exposed to the transition during their school years, experienced a rapid decline in educational mobility. We also document that gender differences in schooling and educational mobility, found among older‐aged individuals, disappeared in the younger cohorts.     

A transitions model for sustainable mobility

This paper reports on the development of a model for assessing transitions to sustainable mobility. The model uses the concepts of transition theory as a framework for assessing possible pathways by which a transition to a sustainable mobility society might happen. The modelling approach combines agent-based modelling techniques with a system dynamics structure. It is original in that there are two levels of agent. There are a small number of complex agents, which have an internal structure and are therefore subsystems within society, and a larger number of simple agents. Based on the UK data, the results show that Hydrogen Fuel Cell Vehicles (FCVs) come to dominate, but only in the very long run (after 2030), while biofuels and ICE (Internal Combustion Engine)-electric hybrids are the main alternatives to the regime in the next 10–30 years, because a) they are already developed and b) they fit better into current infrastructures. The model shows that technological transitions are most likely. Lifestyle change transitions require sustained pressure from the environment on society and behavioural change from consumers.     

A group-specific measure of intergenerational persistence

I describe a method for comparing intergenerational mobility for different groups, taking account of both within- and between-group effects. When group means differ, this method yields results that are more informative than is the comparison of within-group estimates alone.     

Training and employee mobility in the British private and public sectors

The realization of the value of training for employees can take time as the training contributes dynamically to an extended development process. This research examines the empirical returns to training in three post-training situations: when the employee remains in the same job and with the same employer; when the employee transfers to a different job but remains with the same employer (internal mobility); and when the employee moves to a different employer (external mobility). Panel data and fixed effects (FE) methodology are used to quantify the joint effects of in-job training and mobility, while minimizing the potentially biasing effect of unobserved ability. In a period when public sector employment in Britain was contracting sharply, the short-term returns to training are nonetheless greater in the public sector, while the medium-term returns for both public sector and private sector employees depend on remaining within sector. The general/specific training mix, institutional influences, adverse selection, and the concept of ‘transferable’ training, all contribute to interpretation.     

A reassessment of the Feldstein-Horioka hypothesis of perfect capital mobility: evidence from historical data

This short paper explores the relationship between investment and saving rates in a sample of 13 OECD countries over the period 1885–1992. To this end, I employ panel cointegration tests based on the maximum likelihood approach developed by Johansen (J Economic Dynamics Control 12:231–254, 1988) instead of conventional panel cointegration residual based tests, in order to draw sharper conclusions. Using estimation techniques appropriate for heterogeneous panels I find a low degree of capital mobility for the sub-periods 1921–1992 and 1950–1992. The findings overwhelmingly support the hypothesis of perfect capital mobility in the short run.

The cost of capital,finance and high‐tech investment

Investment is the most volatile component of aggregate demand and it is often considered central to business cycles fluctuations. The responsiveness of business investment to changes in its price is thus crucial to our understanding of economic activity. In spite of the key role played by the user cost of capital in economic analysis, there is little empirical support for the existence of substantial user cost elasticity. However, most of the evidence to date is based on aggregate user cost data, which may have introduced downward biases in the estimated user cost. This paper contributes to the literature by constructing a disaggregated, industry‐specific micro user cost variable and focusing on a special class of firms – the high‐tech firms. To provide a benchmark for the results, the user cost estimates for the high‐tech sector are compared with those for the rest of the manufacturing sector. The results suggest that there is little response of investment to variations in its user cost. The findings also suggest that high‐tech firms’ investment behavior is not, after all, that different from the rest of the manufacturing sector.     

Distribution of human capital and income: An empirical study on Indian States

Recently, an emphasis has been put on education as a key determinant for economic development. But when increasing the mean level of education of their population, developing countries face a trade-off: should they focus on increasing the level of already educated children or try to put more children into school and diminish illiteracy rates? In other words, should countries favor a more unequal or a more equal distribution of human capital? This paper empirically explores this question by analyzing the relation between distribution of education and income per capita with panel data from 29 Indian States. Using two different measures of the distribution of education and dealing with the high correlation between the mean education level and its distribution, this paper provides evidence that there is a negative relation between equality of education and income per capita. This result is robust to the use of the system GMM estimator. However, the relation is non-linear and depends on the level of development. This paper also gives a first insight into the channels which are at stake and shows that several mechanisms explain the impact of the distribution of education.     

Law and social capital: Evidence from the Code Napoleon in Germany

I test whether legal institutions crowd-in social cooperation in the long-run, using the introduction of the Code Napoleon in parts of 19th century Germany as a historical experiment. I find that the application of the Code Napoleon is associated with higher levels of trust and cooperation today. This finding is robust to an identification strategy that uses only individuals located around a discontinuity in the number of years the Code Civil was used. Results from a falsification test that moves this discontinuity artificially, as well as the comparison of pre-treatment characteristics support the interpretation of a causal effect. In addition, regions around the discontinuity are similar in post-treatment economic development and inequality. On the contrary, the positive social consequences of the Code Civil manifest themselves in less political fraud in elections from 1871 to 1900, and in more “bridging” social capital in the 1920s.