Factor Components of Inequality: A Cross‐Country Study

This paper uses data from the Luxembourg Income Study to examine some of the forces that have driven changes in household income inequality over the last three decades of the twentieth century. We decompose inequality for six countries (Canada, Germany, Norway, Sweden, the U.K., and the U.S.) into the three sources of market income (earnings, property income, and income from self‐employment) and taxes and transfers. Our findings indicate that although changes in the distribution of earnings are an important force behind recent trends, they are not the only one. Greater earnings dispersion has in some cases been accompanied by a reduction in the share of earnings which dampened its impact on overall household income inequality. In some countries the contribution of self‐employment income to inequality has been on the rise, while in others, increases in inequality in capital income account for a substantial fraction of the observed distributional changes.     

EARNJNGS INEQUALITY IN PORTUGAL: HIGH AND RISING?

The level of earnings inequality and its change during the 1980s in Portugal are analyzed, relying on several inequality measures and on international comparisons to generate insight into their patterns. A high level of inequality at the beginning of the eighties is detected, together with a pronounced rise in wage dispersion, brought about by growing inequality at the top. Changes taking place within economic activities, possibly technical progress, are the main forces driving these changes in the wage pattern, while demographic forces, as well as international trade, which could have generated shifts in the demand for labor across economic activities, should be dismissed as explanations for the rise in labor market inequality in Portugal from 1983 to 1992.     

The macroeconomics of the quiet revolution: Understanding the implications of the rise in women’s participation for economic growth and inequality

We study the impact of the rise in female labor supply on the economic performance of the United States over the period 1967–2002 through the lens of a calibrated structural model. The model features all the key forces behind the increase in female participation (the “Quiet Revolution”): (1) the decline in marriage rates, (2) the narrowing gender wage gap, (3) the preference (or cultural) shift towards market work, and (4) the change in women’s bargaining power within the household. We find that preference shifts and the rise in relative wages of women were the most important driving forces behind rising women’s participation, while changes in marriage patterns have also had a sizeable effect. We conclude that half of the growth in US earnings per capita over this period can be traced to growth in female labor supply. We also find that the rise in female labor supply has had offsetting effects on income inequality and, therefore, its overall role has been negligible relative to skill-biased demand shifts and rising residual wage volatility.     

Expected work experience and the gender wage gap: A new human capital measure

Work experience is a key variable in earnings function estimates and wage gap decompositions. Because data on actual work experience are rare, studies commonly use proxies, such as potential experience. But potential experience is identical for all individuals of the same age and level of education, so it ignores labor market intermittency because of childbirth and child rearing—a critical omission when analyzing gender differences in earnings. This paper constructs a better proxy: expected work experience, which is the sum of the annual probabilities that an individual worked in the past. This measure can be generated using commonly available data on labor force participation rates by age and gender to gauge the probability of past work. Applying the measure to labor force survey data from the Philippines shows that conventional proxies underestimate the contribution of gender differences in work experience in explaining the gender wage gap.     

Sources of earnings inequality: Estimates from an on-the-job search model of the US labor market

Since the early 1980s the labor market in the United States has seen a substantial increase in earnings dispersion. We study the issue by developing an on-the-job search model of the US labor market that allows for wage and employment mobility as a result of optimal individual behavior. We estimate its structural parameters on PSID data at different points in time to clarify the sources of the evolution of earnings inequality and instability between 1987 and 1996. This procedure allows to: compute lifetime measure of inequality on top of the usual cross-sectional measure of inequality and provide counterfactual experiments that evaluate the contribution of different parameters to changes over time by taking into account some equilibrium effects. We find that the increase in lifetime inequality and in cross-sectional inequality have been generated by different sources and that these sources are different by skills: changes in the wage offer distribution are the main determinant of the increase in inequality for skilled workers while both mobility changes and wage offer distribution changes are needed to explain changes for the unskilled.     

Changes in Wages,Wage Inequality and the Return to Human Capital Skills in Kenya: 1977–2005

The conventional literature on wage inequality in Kenya has two drawbacks: first, by focusing on manufacturing sector wages, overlooking wages in other sectors, the results may be biased. Second, previous studies emphasize wage determination solely at the conditional mean rather than resort to wage determination across the entire earnings distribution. We remedy these weaknesses and add a new layer of research previously unexamined. Particularly, we consider wage changes during periods of wide GDP fluctuations from 1977 to 1986, 1986 to 1999, and 1999 to 2005 and explore if prices of measured human capital skills moved in tandem with changes in the dispersion of unmeasured human capital skills as is postulated by human capital theory. Our results support human capital theory: we find higher wages and higher residual wage dispersion during periods of rising GDP (1999–2005) but find lower wages and lower residual wage dispersion during periods of falling GDP (1977–86 and 1986–99).     

An Anatomy Of Racial and Ethnic Trends in Male Earnings in the U.S

Progress in narrowing black–white earnings differences has been far from continuous, with some of the apparent progress resulting from labor force withdrawal among lower‐skilled African Americans. This paper documents racial and ethnic differences in male earnings from 1950 through 2010 using data from the decennial census and American Community Surveys. Emphasis is given to annual rather than weekly or hourly earnings. We take a quantile approach, providing evidence on medians and other percentiles of the distribution. Treatment of imputed earnings greatly affects measured outcomes. Hispanic men have exhibited earnings growth similar to white men over several decades. Black men have been left behind economically due in large part to increased joblessness, a process exacerbated by weak labor market conditions. By 2010, joblessness had risen to over 40 percent and the median black–white earnings gap was the largest in at least 60 years.     

Inequality trends in Sweden 1978–2004

We document a clear increase in Swedish earnings inequality in the early 1990s, and that much of this increase was generated by movements in and out of the labor market. Inequality in disposable income and earnings net of taxes and transfers also increased, but much less than the increased inequality in pre-government earnings. These different developments are most likely explained by the generous Swedish welfare system. Consistent with these observations, we see no clear trend in consumption inequality.We also estimate stochastic processes for household earnings. A simple random-walk process captures much of the life-cycle dynamics. But we find clear evidence that the true earnings process is not a random walk. We demonstrate that some estimation methods result in severe upward bias in the estimated volatility of permanent shocks if serial correlation in temporary shocks is ignored.Our estimation results show that the increase in earnings inequality is almost entirely driven by an increase in residual earnings inequality. Moreover, this increase was mostly generated by an increased volatility of persistent shocks.     

The Labour Market and Inequality

Newspoll reported in 2000 that by a margin of 70 to 28 per cent, Australians would prefer the gap between rich and poor to get smaller rather than have the nation's overall wealth grow as quickly as possible. This article examines the reasons for the increase in the dispersion of earnings, and changes in unemployment and workforce participation, which are central to this concern about inequality. The major finding is that the widening dispersion of earnings and changes in labour force status are principally due to changes in the structure of labour demand in favour of more skilled jobs. The article then considers what this changing job mix implies for policy directed to maintaining income inequality.     

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.     

EARNINGS INEQUALITY, LABOUR SUPPLY AND SCHOOLING IN HUSBAND–WIFE FAMILIES

This paper describes the association between market work and earnings inequality across families over the life cycle and over calendar time with special attention to the different experiences of college‐educated and high‐school‐educated people. A concise and effective accounting framework is developed that allows for an assessment of the effect of the growing market employment of married women on family earnings inequality. Applying this framework to pseudo‐panel data from successive Current Population Surveys indicates that the increase in wives' employment has diminished the growth in family earnings inequality especially for well‐educated couples. Inferences about the level and change in earnings inequality depend on the degree of labor market attachment of the people studied especially in the case of wives.     

Economic Growth and Wage Stagnation in Peru: 1998–2012

From 1998 to 2012, the Peruvian economy exhibited rapid growth. Moreover, the composition of the labor force improved in terms of education and experience, two variables that are typically associated to higher human capital. The average worker in 2012 had a higher level of education and was one and a half years older than in 1998, reflecting the impact of the demographic transition. However, the average real wage was roughly constant. We show that a decline in the wage premium for education, and to a minor extent for experience, is responsible for the lack of growth in the average real wage. Had these two premia remained constant throughout the period of analysis, average labor earnings would have increased by about 2.6% per year, of which 0.7 percentage points are accounted for by the changes in the composition of the labor force in terms of age and education. We explore the role of the relative supply of workers with different levels of human capital as an explanation for the decline in the wage premium for education. Finally, we analyze the implications of these findings for some macroeconomic variables, as earnings and wage inequality, the labor share and total factor productivity.     

Changing income inequality: A distributional paradigm for Canada

This paper examines the major changes in income inequality in Canada since the 1970s and collects them as a distributional paradigm for Canada. It focuses on labour market changes in terms of shares of workers and earnings shares for lower earners, middle‐class workers and higher earners in a flexible general framework. Polarization of full‐time workers, loss of middle‐class earnings share and increase in a higher earnings gap are highlighted. Changing returns to human capital, role of demographics and cohort effects and declining labour share are examined. The paper also reviews evidence of changing economic mobility and estimating the role of inequality of opportunity.     

Review Essay on Economics for the Common Good

The initial stage of labor market activity for young adults influences their labor market engagement and earnings profiles over their life cycle. I examine earnings inequality among young adults in a dynamic setting. Education, marital status, race are contributors to the observed earnings inequality. Earnings equalization is observed in the long run, and the proportion of earnings inequality attributed to education, marital status, and race is found to be significant.     

Creative Destruction and the Rise of Inequality

Common wisdom interprets the rise in inequality of the last two decades as the result of a skill-biased labor demand shift. This explanation does not account for two important observations: (i) within-group inequality has also markedly risen, and (ii) the rise of inequality has been accompanied by a rise of the volatility of earnings. This paper argues that a dual labor market structure, where some workers are paid efficiency-wages can account for the empirical regularities, in the absence of skilled biased technological change. The analysis demonstrates that an unbiased innovation, as well as North–South trade, can contribute to the efficiency wage premium, and thus to wage inequality, by increasing labor turnover.     

Changes in Employment and Hours,and Family Income Inequality in the United.States, 1969–1989

This paper estimates how much changes in employment and hours worked for family heads and spouses contributed to the rise in the family income inequality between 1969 and 1989. Change in labor market activity of family heads accounts for half of the increase in the income gap between the top and bottom 10th families. The effect of change in work effort on the income inequality is considerably weaker where four-fifths of families in the middle of income distribution are considered. This result is robust to changes in the selection of the population. The rise in the inequality of labor market activity occurred largely within families headed by prime-age men. The rise in the percentage of families headed by female and the decline in employment rate for older family heads are relatively minor factors. [J2, E2, N3]     

Movin' On Up: Interpreting The Earnings–Experience Profile

Human capital theory provides the generally accepted interpretation of the relationship between earnings and labour market experience, namely that general human capital tends to increase with experience. However, there are other plausible interpretations. Search models, for example, generally predict that more time in the labour market increases the chance of finding a better match and hence tends to be associated with higher earnings. This paper shows how a simple search model can be used to predict the amount of earnings growth that can be assigned to search with the residual being assigned to the human capital model. A substantial if not the larger part of the rise in earnings over the life-cycle in Britain can be explained by a simple search model, and virtually all the earnings gap between men and women can be explained in this way. Overall, the evidence suggests that we do need to reinterpret the returns to experience in earnings functions.     

Taxes and female labor supply

The Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986 changed the U.S. income tax structure in a dramatic fashion. In particular, these two reforms reduced the marginal tax rates for married households. In this paper I investigate what part of the rise in labor force participation of married women between 1980 to 1990 (a rise of 13 percentage points) can be accounted by the changes in taxes. I build an heterogeneous agent model populated by married households. Households differ by age and educational attainment levels of their members and decide whether the second earner, the wife, should participate in the labor market. I select parameter values so that the model economy is consistent with the 1980 U.S. economy in terms of income tax structure, wages (skill premium and gender gap), marital sorting (who is married with whom), and female labor force participation. Using counterfactual experiments I find that 20–24 percent of the rise in married female labor force participation is accounted for by the changes in the income tax structure. Changes in wages account for 62–64 percent, and changes in marital sorting account for 14–16 percent of the rise in the participation rate of married women.     

Increasing wage dispersion and the changes in relative employment and wages in Mexico's urban informal sector: 1987-1993

This study analyses the role of changes in informal/formal relative employment, wage levels and wage inequality in explaining increasing wage dispersion in Mexico during the 1987–1993 period. From 1987 to 1993, the variance of the log of hourly wages for Mexican workers increased by more than 50 per cent. Using data from the Encuesta nacional de empleo urbano we find that this increase in the overall wage dispersion was mainly driven by increasing wage dispersion in the formal sector coupled with a faster growth in formal sector employment as a percentage of total employment. However, compression in the distribution of wages within the informal sector contributed to substantially slowdown the increasing overall wage inequality. About 60 per cent of the 1987–1993 4.65 percentage point reduction in the informal sector share of total employment is explained by changes in the structure that determines sectoral employment; the rest is explained by changes in the composition of the labour force, particularly increases in the sectoral education gap and a change in the regional relative share of sectoral employment. Also, from 1987 to 1993 the sectoral wage ratio increased from 0.59 to 0.63. It seems that a relative improvement in unobserved skills in the informal sector helped to close the wage differential but this effect was partially offset by an increase in the relative prices of both observed and unobserved skills, as well as increases in relative observed skills in the formal sector, particularly education.     

农村劳动力迁移与中国工资收入不平等的地区差异:来自2005年全国人口抽样调查的证据

利用2005年全国1%人口抽样调查数据研究中国各地区农村劳动力流动和地区(县/区)内部工资性收入不平等的关系。中国地区间的差异是个人工资收入不平等最突出的决定因素,而地区内不平等程度也存在着很大的差别。农村劳动力人口的迁入有助于降低区内的收入不平等,而迁出则起相反的作用,而且这两种作用在县、县级市和市辖区间存在着显著差别。在研究中国劳动力流动与地区内和地区间的不平等关系时,应该从迁入、迁出两个角度分析其影响,并将城乡分割的二元劳动力市场状况考虑进来。