A new look at the benefits of diversification: lessons from Central America

Recent trends of export diversification in Central America may lower foreign exchange earnings instability there. Four countries–Costa Rica, El Salvador, Honduras, and Guatemala–are analysed across a twenty-year period. The paper uses United Nations Commodity Trade Statistics to explain why Costa Rica and Honduras have enjoyed greater earnings stability in recent years, despite the fact that Honduras has not greatly diversified its export products and markets. Despite the growth of new agricultural and manufacturing goods, traditional primary products still dominate the countries' export portfolios. Specific products within each of the four broad product category groups contribute to the varied country outcomes. Summary statistics from the United Nations (panel) data suggest newer agricultural exports have not stabilized Guatemalan and Salvadoran export earnings, while Honduras has enjoyed relatively stable banana export revenues and Costa Rica has benefited from the smooth flow of microelectronic products. Further panel data regression analysis shows country size and intangible country effects also explain parts of the detrended earnings deviation in addition to product base and level of diversification.     

Earnings Instability and Tenure

We study the effect of tenure on earnings instability in Italy using the reforms of temporary employment contracts, which affected the average tenure of workers differentially across cohorts. We develop a model of earnings dynamics, and we exploit the variation of tenure and instability over time and across birth cohorts to estimate policy‐relevant parameters. Our results indicate that each year of tenure on the job reduces earnings instability by 11 percent; the drop is faster in the first three years of the match. Workers on a temporary contract have an earnings instability up to 100 percent higher than workers on a permanent contract.     

LONG‐RUN INEQUALITY AND SHORT‐RUN INSTABILITY OF MEN'S AND WOMEN'S EARNINGS IN CANADA

This paper examines the variability of workers’ earnings in Canada over the period 1982–2006. We decompose the total variance of workers’ earnings into a ‘permanent’ component between workers and a ‘transitory’ earnings instability component over time for given workers. We then investigate the statistical relationships between these components and indicators for the business cycle. The most marked change in earnings variances in Canada since 1982 is the general rise in total earnings variance, which is essentially driven by a quite dramatic rise in long‐run earnings inequality. The patterns across age categories of the two variance components are almost opposite. Long‐run earnings inequality generally rises with age, but earnings instability is seen to generally decline with age, so that earnings instability is markedly highest among entry age workers. Unemployment rate effects are positive on almost all variance measures, while higher unemployment is associated with widened long‐run earnings differentials and greater short‐run earnings instability.     

Consumption,income and earnings inequality in Britain

This paper presents an analysis of the trends in inequality across income, earnings and consumption in Britain since 1978. It documents the episodic nature of inequality growth over this period largely dominated by the inequality ‘boom’ in earnings inequality of the 1980s. It builds a consistent picture across these key measures of inequality to provide a coherent link between the microeconomic and macroeconomic analysis of the evolution of inequality.     

Quality of higher education and earnings: evidence from Finland using field-of-study-level quality measures

Using administrative data from Finland, this paper empirically examines the relationship between university graduates’ early career earnings and three measures of university quality: the number of teachers per student, the number of publications per researcher and the number of applicants per admitted student. A distinction to previous studies is made by paying special attention to field-of-study heterogeneity: the quality measures are allowed to vary by a student’s field, while the heterogeneity of earnings and individuals across fields is accounted for in the analysis. For the most part, the results indicate that the relationship between institution quality and earnings is rather weak; however, certain significant quality effects are also found. In particular, the teachers/student ratio is found to be positively associated with the earnings of women and graduates from the humanities. Overall, the results indicate considerable heterogeneity in quality effects across genders and fields.     

Analyzing occupational licensing among the states

The study provides new evidence of the influence of occupational regulations on the U.S. economy. Our analysis, unlike previous studies, was able to obtain a representative sample of the population at the state level, which allowed us to estimate the cross-sectional effects of occupational licensing for each state. The state-level analysis demonstrates considerable variation in percentage of the workforce that has attained a license, and unlike minimum wages or unionization, licensing shows no regional patterns in the distribution of occupational licensing. The analysis also shows considerable variation in the influence of licensing on earnings across the states. The national estimates suggest that occupational licensing raises wages by about 11% after controlling for human capital and other observable characteristics. Finally, our analysis shows the influence of occupational regulation on wage inequality across the income distribution.     

CROSS‐MARKET TRADING IN CHINA'S LARGE STATE‐OWNED COMMERCIAL BANKS, 2006–2011

This paper examines the differential between the share prices of China's large state‐owned commercial banks traded in Shanghai versus prices observed in Hong Kong. We find a significant role for investor sentiment, as reflected in relative price‐earnings ratios, in explaining these price differentials for all four banks. The share price in Shanghai tends to move ahead of the share price in Hong Kong when more positive sentiment in Shanghai makes local investors willing to pay more for the same predicted earnings. We also identify common trends in relative bank price‐earnings ratios and price differentials across the two markets. (JEL G14, G15)     

Returns to skills around the world: Evidence from PIAAC

Existing estimates of the labor-market returns to human capital give a distorted picture of the role of skills across different economies. International comparisons of earnings analyses rely almost exclusively on school attainment measures of human capital, and evidence incorporating direct measures of cognitive skills is mostly restricted to early-career workers in the United States. Analysis of the new PIAAC survey of adult skills over the full lifecycle in 23 countries shows that the focus on early-career earnings leads to underestimating the lifetime returns to skills by about one quarter. On average, a one-standard-deviation increase in numeracy skills is associated with an 18 percent wage increase among prime-age workers. But this masks considerable heterogeneity across countries. Eight countries, including all Nordic countries, have returns between 12 and 15 percent, while six are above 21 percent with the largest return being 28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures, additional controls, and various subgroups. Instrumental-variable models that use skill variation stemming from school attainment, parental education, or compulsory-schooling laws provide even higher estimates. Intriguingly, returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.     

Do volatile firms pay volatile earnings? Evidence from linked worker-firm data

Despite the importance of earnings instability, little is known about its correlates or causes. This article seeks to better understand earnings instability by studying whether volatile firms pay volatile earnings and is the first to directly test the relationship using US linked employer–employee data. The article finds a positive and statistically significant relationship using within-firm variation. In addition, this article finds that lower earning workers are passed significantly more volatility from their employing firms than are higher earning workers.     

THE STRUCTURE OF THE EARNINGS DISTRIBUTION: HOW ARE HOUSEHOLDS AND INDIVIDUALS RELATED?*

This paper investigates the links between individual and household distributions of earnings. Using a sample of 1991 data from the UK, considerable complexity is uncovered in the structure of the household earnings distribution. This is due to heterogeneity of earners and positive ‘clustering’ of earners within households. The structure of the clustering behaviour of earners for different household types is estimated, and the contribution of clustering to overall earnings inequality is evaluated. Perhaps surprisingly in view of the observed clustering behaviour, it is found that clustering has reduced overall inequality, although the mean-adjusted distribution of individual earnings is insignificantly different from the distribution of household earnings.     

Credit unions and risk

The structure of the credit union industry has been transformed by regulatory changes and the subsequent switch by many credit unions to community and multiple-bond fields of membership. This study explores the impact of these trends by testing for differences in risk across credit unions with different field-of-membership types. In tests for differences in risk of bankruptcy and of breaching regulatory standards, risk is found to be greater for credit unions with broader field-of-membership types. These differences in risk appear to derive from greater earnings volatility and lower ROA and net-worth ratios at community and multiple-bond credit unions. These differences in risk decline with greater asset size. Evidence is also presented that credit unions that switched from single-bond institutions to broader field-of-membership types now operate with greater risk.     

INCOME INSTABILITY AND THE RESPONSE OF THE SAFETY NET

This paper examines the response of safety net transfer and tax programs to earnings and income shocks across recessions since the early 1980s. Safety net programs in the United States are designed to dampen economic instability and maintain basic needs for families. Such programs, including TANF, SNAP (food stamps), and the Earned Income Tax Credit (EITC), have been tested during and between recessions of the past 30 years, including the recent 2007–2009 Great Recession. I use matched data in the March Current Population Survey (CPS) from 1980 to 2012 to estimate pre‐ and post‐transfer income instability over the 1980s, 1990s, and 2000s, as well as across recessions. The results are disaggregated by family structure, race, income, and education. Transfer programs are associated with lowered instability levels and flatter trend growth from 1980 to 2012 among socioeconomically disadvantaged subgroups, while the tax system reduces income instability for families in the top 40th percentile of the income distribution. Although the largest instability reductions occur among the poor, since 1980 the safety net appears less responsive to instability for the bottom income quintile, female‐headed families, and black families. (JEL I38, J63)     

CAN HOUSEHOLDS AND WELFARE STATES MITIGATE RISING EARNINGS INSTABILITY?

We compare the evolution of earnings instability in Germany and the United Kingdom, two countries which stand for different types of welfare states. Deploying data from the German Socio‐Economic Panel (SOEP) and the British Household Panel Survey (BHPS), we estimate permanent and transitory variances of male income over the period 1984–2009 and 1991–2006, respectively. Studies in this literature generally use individual labor earnings. To uncover the role of welfare state and households in smoothening earnings shocks, we compute different income concepts ranging from gross earnings to net equivalent household income. We find evidence that the overall inequality of earnings in Germany and the United Kingdom has been rising throughout the period due to both higher permanent earnings inequality and higher earnings volatility. However, taking institutions of the welfare state and risk‐sharing households into account, we find that the volatility of net household income has remained fairly stable. Furthermore, redistribution and risk insurance provided by the welfare state is more pronounced in Germany than in the United Kingdom.     

Earnings inequality and informal employment in Russia

In this paper, we explore the relationship between informality and earnings inequality using the data from the Russia Longitudinal Monitoring Survey (RLMS-HSE) for 2000–2010. We determine that during the entire period, earnings inequality was substantially higher in the informal sector. Informality increases earnings polarization, widening both tails of the earnings distribution. Nonetheless, inequality has declined in both formal and informal sectors. In the formal sector, changes in the distribution of monthly earnings between 2000 and 2010 were primarily generated by changes in the distribution of hourly earnings. In the informal sector, reduction of variation in monthly earnings went through two channels: declining differences in hourly rates and considerable compositional shifts within the informal sector. The results point to the importance of distributional analysis of earnings gaps and explicit accounting for the sector choice.     

The asymmetric relationship between executive earnings management and compensation: a panel threshold regression approach

Prior research shows that chief executive officers (CEOs) are rewarded for their earnings management. We re-examine this issue using a panel threshold regression approach, which allows the effect of earnings management on the CEO compensation to change across the level of earnings management and CEO compensation. Our results show that the effect of CEOs’ discretionary accounting choices on their compensation is not homogeneous across various degrees of earnings management and compensation. In particular, for firms with moderate (inordinate) levels of earnings management and CEO compensation, earnings management is rewarded (penalized).     

The changing role of education in the distribution of earnings and household income

This article draws on income surveys from the last two decades to report on trends in earnings disparities and household income inequality in the Czech Republic. Education has been the main axis of change in this area, having acquired a much greater role in the entire process of collecting and distributing income. First, an increasing influence of education is evident in the personal earnings of employees, returns to education having doubled. Second, in couples, education has an important impact on both women’s employment and their earnings. Third, the importance of marital partners’ education levels on household income grew even more than its effect on earnings.     

Capital structure and value of reported earnings: evidence from an emerging market

This article documents a nonlinear impact of capital structure on the value of reported earnings in India during the period between 2009 and 2015. Our results show that earnings reported by firms with moderate level of debt are more valuable than earnings reported by firms with low or high level of debt. Our results are robust across various proxies of capital structure and across various sub-samples. This article argues that moderate level of debt is associated with low-agency problems, while low and high level of debt is synonymous to high-agency problems. Differences in agency problems result in reported earnings that have very different levels of relevance.     

Border Enforcement and Selection of Mexican Immigrants in the United States

Abstract

Since 1986, the United States has made considerable efforts to curb undocumented immigration across the US–Mexico border, resulting in an increase in migration costs for undocumented immigrants from Mexico and placing a particularly heavy burden on undocumented immigrant women. Using data from the 1990, 2000 Decennial Census and the 2006–8 American Community Survey, this study finds three effects of rising migration costs for immigrants from Mexico: (1) A decrease in the relative flow of older and highly educated undocumented immigrant women relative to men; (2) An increase in the skill composition of immigrant women relative to men; and (3) An increase, due to stronger positive selection, in the average earnings of those groups most affected by increased migration costs, particularly women. This research has important implications in light of the barriers and increasing dangers that women across the globe may face when migrating.     

Earnings inequality and the business cycle

Economists have long viewed recessions as contributing to increasing inequality. However, this conclusion is largely based on data from a period in which inequality was increasing over time. This paper examines the connection between long-run trends and cyclical variation in earnings inequality. We develop a model in which cyclical and trend inequality are related, and find that in our model, recessions tend to amplify long-run trends, i.e. they involve more rapidly increasing inequality when long-run inequality is increasing, and more rapidly decreasing inequality when long-run inequality is decreasing. In support of this prediction, we present evidence that during the first half of the 20th century, when earnings inequality was generally declining, earnings disparities indeed appeared to fall more rapidly in downturns, at least among workers at the top of the earnings distribution.     

中国城镇不同所有制企业职工收入差距的变化趋势

本文利用最新发布的CHIP-2007和CHIP-2002分析了2002年到2007年中国城镇不同所有制企业职工收入差距的变化趋势。我们发现这段时期不同所有制企业的收入差距正在减小,且这种收敛的趋势更有利于非国有企业职工,这与1995年到2002年的变化趋势形成鲜明对比。当我们分解收入差距时,发现个体的特征或能力的差别对于解释收入差距的重要性在显著提高。此外,市场分割对于不同所有制的企业仍然存在,特别对于高收入群体,但有逐步缩小的趋势。