Inequality for Wage Earners and Self‐Employed: Evidence from Panel Data*

In this paper we highlight the importance of analysing the evolution of income inequality separately for employees and self‐employed workers. Using Spanish panel data on income and consumption for the period 1987–96, we find noticeable differences across these groups in the evolution of income inequality, and in the relative importance of the transitory and permanent components of income variance. The evolution of inequality is mainly explained by movements in the transitory component for the self‐employed and by the permanent component for the employees. Our results suggest that different policies should be implemented for each group.     

Correlated income shocks and excess smoothness of consumption

In the literature, econometricians typically assume that household income is the sum of a random walk permanent component and a transitory component, with uncorrelated permanent and transitory shocks. Using data on realized individual incomes and individual expectations of future incomes from the Survey of Italian Households׳ Income and Wealth, I find that permanent and transitory shocks are negatively correlated. Relaxing the assumption of no correlation between the shocks, I explore the effects of correlated income shocks on the estimated consumption insurance against permanent and transitory shocks, and consumption smoothness using a life-cycle model with self-insurance calibrated to U.S. data. Negatively correlated income shocks result in smoother consumption, and upward-biased estimates of the insurance against transitory (and permanent when borrowing constraints are not tight) income shocks. While the life-cycle model with negatively correlated shocks fits well the sensitivity of consumption to current income shocks observed in U.S. data, it falls short of explaining the sensitivity of consumption to income shocks cumulated over a longer horizon.     

The Effects of Household Income Volatility on Divorce

We extend the literature on the effects of earnings shocks on divorce by identifying separately the effects of transitory and permanent household income shocks and by allowing the shocks to have asymmetric effects across education and racial groups. The econometric evidence suggests negative (positive) transitory household income shocks increase (decrease) the probability of divorce, while there is only weak evidence that positive (negative) permanent household income shocks raise (lower) the probability of divorce. Some differences in the effects of household income shocks on divorce propensities arise for subsamples selected by education and race.     

Estimation of a model containing unobservable variables using grouped observations: An application to the permanent income hypothesis

The method of estimating relationships in a model containing unobservable variables is combined with the technique of estimation from a sample of grouped observations to analyse the permanent income hypothesis. From a sample of group means the paper measures the relative importance of such factors as wealth, occupation, age and family-size as determinants of permanent income in the United Kingdom, and also considers the mechanism by which transitory receipts influence total consumption expenditure.     

State and County Incarceration Rates:

ABSTRACT This study examines the direct and indirect effects of race and income inequality on imprisonment rates across states. The analysis is designed to: 1) investigate whether race and income inequality are significantly related to imprisonment when controlling for crime , 2) assess the relative magnitudes of the direct and indirect effects; and 3) assess the relative magnitudes of race and income inequality. Crime is found to be the strongest predictor of incarceration rates in five of the six equations estimated. Income inequality is significantly related to incarceration rates in two of the six equations. There was no clear evidence of a direct race effect. The indirect effect of race was greater than the direct effect in four of the six equations.     

Permanent and transitory wages of British men, 1975–2001: year,age and cohort effects

We examine the mean and variance–covariance structure of log-wages over calendar time and the life cycle of British men, hereby controlling for birth cohort effects. We attribute the strong increase in mean log-wage during the 1980s and 1990s to a rise in mean log-wage with the year of birth. This rise is diminishing with the year of birth, which implies lower wage inequality between cohorts with the year of birth. Wage inequality has increased during the 1980s and early 1990s and remained fairly stable in the second half of the 1990s. The year effects, however, show increasing wage inequality up to 2001, mainly due to a strong rise in transitory wage inequality. Transitory wages are strongly correlated over time and an increase in transitory wage inequality therefore has highly persistent inequality consequences. The stable wage inequality in the second half of the 1990s is attributed to lower within-cohort wage inequality for the younger cohorts. The age effects show that permanent wage inequality increases with age, in particular up to age 30 and over age 50. Copyright © 2007 John Wiley & Sons, Ltd.     

The correlation of spouses' permanent and transitory earnings and family earnings inequality in Canada

I develop a very flexible error-component model of family earnings dynamics to examine recent Canadian trends in the variance of family earnings and its components using the ‘permanent-transitory’ analytical framework. In contrast to most studies of family earnings inequality, the main focus of this paper is on the trends in the correlation between spouses' permanent and transitory earnings. I find strong evidence of an increase in the correlation of spouses' permanent earnings before 1993 and no evidence of such an increase after 1993. However, the correlation of spouses' transitory earnings steadily increased throughout the 1990s and well into the 2000s.     

Crime in urban areas: New evidence and results

Crime supply functions are reestimated in this paper using data corrected for victim underreporting. It is found in both a mean-variance specification and a conventional crime supply function, which includes measures of the offender's gains and losses involved in property crimes, that certainty and severity of punishment still deter. When correction for underreporting is made, the effects on the rates of robbery, burglary, larceny, and auto theft of increases in prison admission rates and prison sentence lengths remain negative. This seeming support for the “deterrence hypothesis” must be balanced against the strong evidence that improved legitimate opportunities have a negative effect on crime. Use of improved crime data and a more intuitive economic specification of the offense supply function leads to the conclusion that higher income is a better deterrent to some crimes than increased punishment.     

DOES GOVERNMENT SPENDING AFFECT INCOME INEQUALITY? A META-REGRESSION ANALYSIS

In this paper findings of a meta-regression analysis are presented exploring the effects of government spending on income inequality, with a particular focus on low- and middle-income countries. We identify a total of 84 separate studies containing over 900 estimates of the effect of one or more measures of spending on one or more measures of income inequality. The results show some evidence of a moderate negative relationship between government spending and income inequality, which is strongest for social welfare and other social spending, and when using the Gini coefficient or the top income share as the measure of inequality. However, both the size and direction of the estimated relationship between government spending and income inequality is affected by a range of other factors, including the control variables and estimation method used. We also find evidence of publication bias, in that negative estimates of the relationship appear to be under-reported in the literature.     

Growth and inequality: Dependence on the time path of productivity increases (and other structural changes)

This paper examines the significance of the time path of a given productivity increase on growth and inequality. Whereas the time path impacts only the transitional paths of aggregate quantities, it has both transitional and permanent consequences for wealth and income distribution. Hence, the growth-inequality tradeoff generated by a given discrete increase in productivity contrasts sharply with that obtained when the same productivity increase occurs gradually. The latter can generate a Kuznets-type relationship between inequality and per-capita income. Our results suggest that economies with similar aggregate structural characteristics may have different outcomes for income and wealth inequality, depending on the nature of the productivity growth path.     

Urban crime and the price of heroin

This paper investigates the relationship between a price index for retail heroin and monthly crimes reported to police. A time series model is presented and estimated whose estimable parameters include the price elasticity of demand for heroin and the elasticity of crime with respect to price. Based on data for Detroit, it is estimated that a 50% increase in the price would result in a 14% increase in the total property crime and a 13% decrease in the quantity of heroin consumed. The largest effects would be on burglaries and robberies in poor nonwhite neighborhoods.     

Understanding the determinants of crime

In this paper, we use an overlapping generations model where individuals are allowed to engage in both legitimate market activities and criminal behavior in order to assess the role of certain factors on the property crime rate. In particular, we investigate if differences in the unemployment rate, fraction of low human capital individuals in an economy, apprehension probability, duration of a jail sentence, and income inequality could be capable of generating large differences in crime rates that are observed across countries. We find that small differences in the apprehension probability and income inequality can generate quantitatively significant differences in the crime rates across similar environments.     

Do foreclosures cause crime?

The mortgage foreclosure crisis has generated increasing concerns about the effects of foreclosed properties on their surrounding neighborhoods, and on criminal activity in particular. There are a number of potential ways in which a foreclosed property might increase the payoffs to committing crime and decrease the likelihood of being caught, including reduced maintenance, residential turnover, and vacancy. Using point-specific, longitudinal crime, foreclosure, and other property data from New York City, this paper determines whether foreclosed properties affect criminal activity on the surrounding blockface – an individual street segment including properties on both sides of the street. We find that additional foreclosures on a blockface lead to additional total crimes, violent crimes and public order crimes. These effects appear to be largest when foreclosure activity is measured by the number of foreclosed properties that are on their way to an auction or have reverted to bank ownership. We find that effects are largest in neighborhoods with moderate or high levels of crime, and on blockfaces with concentrated foreclosure activity.     

Transient Crowding and Crime:

A bstract . The effects on crime rates of the intrusion of large numbers of strangers into an area are investigated. The sensitivity of six different crime types ( murder, rape, assault, robbery, burglary , and larceny ) to density of strangers is estimated using a standard model of criminal behavior. The variables which reflect this density are measures of tourists, college students, shoppers from other areas, opportunities to consume alcohol , and the presence of interstate highway exits. The results suggest that an increase in the number of strangers into an area has a positive effect on the crimes of burglary, larceny, and robbery, but very little effect on assault, murder and rape. A significant finding is that "wet" counties have a higher incidence of each crime type than do "dry" counties. From a policy standpoint, officials who support economic growth in urban areas should keep in mind that an increase in the opportunity for illegal activity accompanies such growth and plan accordingly.     

Permanent income,hedonic prices,and demand for housing: New evidence

Housing demand is examined by looking quite specifically at the income and price variables based on individual household data. Permanent and transitory incomes are computed through instrumental variables related to human and nonhuman wealth. A price is constructed by spatially varying hedonic techniques. Separation of measured income into permanent and transitory components substantially improves the predictive power of the housing demand estimation and leads to demand elasticities of +1 and ?1 with respect to permanent income and price. The permanent income elasticity is roughly twice the measured income elasticity.     

Bancarization and violent attacks from guerrilla and other illegal groups in Colombia

Income shocks affect violence through the opportunity cost and rapacity effects. Existing studies focus on the impact of transitory shocks, especially commodity price innovations. This paper builds on this literature and studies the causal effect of permanent income shocks on armed conflict in Colombia. Using a rich dataset reporting all guerrilla and other armed groups' attacks by municipality between 2009 and 2014 and information on the provision of banking services, it shows that increasing bancarization leads to reductions in violence. These results have important implications for public policy in countries with a long history of violence. They suggest that promoting financial inclusion is useful for reducing conflict.     

Permanent and transitory income in models of housing demand

Permanent income has for some time been recognized as the appropriate income variable for models of housing demand. This paper examines a recently developed model wherein permanent and transitory income are considered to be the fitted and residual components, respectively, of a regression of actual income on several household characteristics. An important caveat for these models is pointed out. One logical remedial strategy is shown to result in underidentification for the coefficient on permanent income. However, the technique uncovers a tangential result which summarizes why an alternative class of models can be expected to underestimate income elasticities.     

An evaluation of the Federal Legal Services Program: Evidence from crime rates and property values

This paper uses the city-level roll-out of legal service grants to evaluate their effects on crime. Using Uniform Crime Reports from 1960 to 1985, the results show that there is a short-run increase of 7% in crimes reported and a 16% increase in crimes cleared by arrest. Results show an increase in the staffing of police officers in cities that received legal services. These cities are also associated with having higher median property values 10 years later. This supports the narrative that legal services changed police behavior through litigation or threats of litigation.     

DOES FDI ACTUALLY AFFECT INCOME INEQUALITY? INSIGHTS FROM 25 YEARS OF RESEARCH

While there are 25 years of empirical research on how FDI may affect income inequality, there is surprisingly no consensus on this issue. In this paper, we conduct a meta-analysis on the effect of FDI on inequality using 543 empirical studies from 1995 to 2019. Among various factors, we find that the development level of the study country has the strongest influence on the direction in which FDI affects income inequality. When the primary studies are sorted into three groups based on the GDP per capita of their sample areas, the within-group estimates on the effect of FDI on income inequality become strongly consistent with each other. Particularly, we find that FDI is associated with higher inequality for the low-income group, has no statistically significant effect for the middle-income group, and is associated with lower inequality for the high-income group. This observation suggests that FDI may increase income inequality as a country initially develops, but reduce inequality as development deepens.     

Within Occupation Wage Dispersion and the Task Content of Jobs

Most analyses linking task content of jobs to income inequality focus on the effects between occupations, e.g. the growing dispersion between lousy and lovely jobs. The theory, meanwhile, provides insights on links between task content of jobs and inequality also within occupations: models predict compression of wages in more routine jobs, that is those where capital is a direct substitute for labour, and an increase in dispersion in jobs where capital and labour are complements. I document that within occupations dispersion of wages is empirically relevant, as it represents around half of total wage inequality across Europe. I then link wage inequality to the task content of jobs. Using matched employee–employer data from Europe for the period 2002–14, I show that occupations where tasks complement newer technologies exhibit higher wage dispersion. This relationship is robust to adjusting for a variety of confounding and mitigating channels.