Decomposition of the increase in earnings inequality in urban China: A distributional approach

This study examines changes in Chinese urban income distribution from 1987 to 1996 and 1996 to 2004 using nationwide household data and investigates the causes of these changes. The Firpo, Fortin, and Lemieux (2007, 2009) method based on unconditional quantile regressions is used to decompose changes in income distribution and income inequality measures, such as variance and a 10:90 ratio. The decomposition results show that wage structure effects, such as a widening gender earnings gap, increases in returns to college education, and increases in earnings differentials between industries, company ownership types, and regions, have been the major contributors to the overall increases in income inequality. It was also found that at different points on the income distribution (e.g., the lower or upper half), the contributing factors that increase income inequality are different.     

Potential Errors in Detecting Earnings Management: Reexamining Studies Investigating the AMT of 1986*

In this paper we seek to document errors that could affect studies of earnings management. The book income adjustment (BIA) of the alternative minimum tax (AMT) created apparently strong incentives to manage book income downward in 1987. Five earlier papers using different methodologies and samples all conclude that earnings were reduced in response to the BIA. This consensus of findings offers an opportunity to investigate our speculation that methodological biases are more likely when there appear to be clear incentives for earnings management. A reexamination of these studies uncovers potential biases related to a variety of factors, including choices of scaling variables, selection of affected and control samples, and measurement error in estimated discretionary accruals. A reexamination of the argument underlying these studies also suggests that the incentives to manage earnings are less powerful than initially predicted, and are partially mitigated by tax and non‐tax factors. As a result, we believe that the extent of earnings management that occurred in 1987 in response to the BIA remains an unresolved issue.     

Gravity Models of Interregional Migration in Indonesia

This article explores the determinants of interregional migration in Indonesia. Employing basic and modified (extended) gravity models, and using data from the 2000 and 2010 Population Censuses and the 2005 Intercensal Population Survey, we test Long’s (1985) hypothesis that in the early stages of population redistribution, economic development is positively related to a concentration of the population. Using per-capita GDP as a proxy for income and as an indicator of economic development, we find that migration in Indonesia is indeed directed towards more developed regions. This finding supports the notion that regional disparities in development are an important factor in interregional migration in Indonesia. In line with classical gravity models, our findings show that distance is negatively related to the size of migration flows. However, unlike previous studies of interprovincial migration in Indonesia, we find that the effect of distance has weakened over time.     

Informal employment and its effect on the income distribution in urban China

This paper discusses the issue of informal employment and its effect on the income distribution in China using datasets from the China Urban Labour Surveys of 2005 and 2010. Based on a new definition of informal employment, we estimated the proportion of informal employment relative to total non-agricultural employment in urban China and found it to be 49.7% in 2005 and 40.3% in 2010. Meanwhile, our study illustrated that informal employees' earnings were 67% that of formal employees, and this large earnings gap raised the Gini coefficient to 0.42 in 2005. The Blinder–Oaxaca decomposition result shows that the earnings gap explains more than half of the overall personal income inequality in urban China. These results indicate that informal employment has a significant effect on the income distribution in urban China. Consequently, regulating the labour market, eliminating job discriminations and legislating the informal employment should be considered as alternative means of reducing inequality in China.     

Inward and outward FDI and income inequality: evidence from Europe

This paper examines the effects of inward and outward FDI on income inequality in Europe using panel cointegration techniques and unbalanced panel regressions. Our main result is that both inward FDI and outward FDI have, on average, a negative long-run effect on income inequality. This result is robust to employing alternative estimation methods, controlling for potential outliers, using different measures of FDI and inequality, and changing the period and sample selection. Other findings are: (i) while the long-run effect of inward and outward FDI on income inequality is clearly negative, their short-run effect appears to be positive. (ii) Long-run causality runs in both directions, suggesting that an increase in inward and outward FDI reduces income inequality in the long run, and that, in turn, a reduction in inequality leads to an increase in inward and outward FDI. (iii) There are large cross-country differences in the long-run effects of inward and outward FDI on income inequality; for some countries the long-run effects on income inequality are positive.     

An Approach to Adjusting Analysts' Consensus Forecasts for Selection Bias*

Many recent empirical studies have concluded that analysts' earnings forecasts are optimistic on average. In this paper, we attempt to undo the effect of one potential source of optimistic bias in analysts' earnings forecasts. Assuming forecasts come from a truncated normal distribution, we estimate the “true” population mean using maximum likelihood. We find that our estimates of earnings are more accurate and less biased than standard measures of sample mean and median. However, we do not find a closer relationship between excess market returns and forecast errors from our maximum likelihood estimate than from the sample mean. This may suggest that the market does not fully incorporate analysts' incentives in generating expectations about future earnings.     

Could a Resource Export Boom Reduce Workers’ Earnings? The Labour-Market Channel in Indonesia

For a decade from 2000, Indonesia underwent a natural-resource export boom. Aggregate income rose, but real labour earnings stagnated. Employment rose, too, but mainly in low-skill sectors with predominantly informal employment arrangements. In this article, we reveal causal connections from the aggregate phenomenon of Dutch disease to these labour-market outcomes. We first explain broad sectoral trends, and then, integrating data from several national surveys, investigate sources of variation in boom-era labour earnings. We use instrumental variables to address issues of endogeneity and selection in earnings equations. After controlling for individual and district features, we find that the intensity of palm oil production—palm oil having been a key booming resource export—robustly predicts diminished formal employment, and that lower formality, in turn, robustly predicts lower earnings. Our findings establish causal linkages absent from prior studies, and so provide a structural dimension to ongoing debates over persistent poverty, rising inequality, and the lack of educational progress in Indonesia.     

Putting trained labour power to work: the dilemma of education and employment

Demographic factors and educational changes are producing, in many less developed countries, a "pushdown effect" in which recent graduates are forced to take jobs that would earlier have been filled by those with less education. In Indonesia, for example, 1990 senior high school graduates will have to take jobs that were filled by junior high school graduates in 1980 as a result of increases in the supply of educated manpower. While the increase in employment positions in Indonesia is under 5%/year, the number of graduates from junior high school, senior high school, and universities is exceeding this increase. Each year, there is an excess of 2.60 junior high school graduates and 3.83 senior high school graduates/1000 labor force in terms of availability of the types of jobs filled by people with these educational qualifications in 1980. The pushdown effect has further resulted in a fall in the educational differential of income. Between 1976-86, earnings for employees with less than a primary school education quintupled while those for employees with college degrees did not even triple. The presence of large numbers of disillusioned, overqualified workers in the labor force is a potential source of social unrest and there is a need for serious attention to the changing relationship of job and educational status. Possible solutions to this discrepancy include: expansion of the economy; restructuring of economic workers; reorientation of the educational system to enhance the productivity of graduates; raising the status of employment in agriculture and rural small industry; and acceptance by the labor force that the pushdown effect is an inevitable stage of the development process.     

Migrant farmworker earnings: A human capital approach

Migrant farmworkers are essential to the supply of low-cost agricultural produce. However, employment earnings of this vital labor force are approximately equal to the federal poverty income. This study examines the role of health capital investments in enhancing farmworker productivity and employment earnings. Health capital investments are found to have a larger marginal effect on earnings than other forms of human capital investments, such as education or experience.     

Twenty Years of Expenditure Inequality in Indonesia, 1993–2013

In this article, we consider the recent increase in inequality in Indonesia. We make new, consistent estimates of expenditure inequality for 1993–2013, using several measures that draw on household expenditure data from the National Socioeconomic Survey (Susenas) for 1993–2013. In doing so, we note that the central statistics agency, Badan Pusat Statistik (BPS), used grouped data for its estimates of inequality until 2009 and that this underestimated inequality up to then. Thus the rise in inequality reported since 2009 actually has a longer history. We argue that Indonesia experienced divergence and convergence at the same time: the magnitude of the rise in inequality was significant (divergence), but the rise was greatest in provinces or districts with low initial levels of inequality (convergence). We consider the literature on drivers of changes in inequality and identify a set of hypotheses, with an empirical basis, which we introduce as potential Indonesian-specific drivers of rising inequality for future exploration.     

The Contribution of Associate's Degree Holders to U.S. Earnings,Labor Quality,Productivity, and Overall Economic Growth

There is substantial evidence on the importance of education as a driver of earnings, productivity, and economic growth. However, knowledge of the specific role of associate's degrees in U.S. economic growth is limited. We analyze the sources of U.S. economic growth and identify the contribution of associate's degree holders to improvements in earnings, labor quality, productivity, and overall economic growth. We find evidence that substitution toward workers with associate's degrees has increased U.S. earnings, aggregate labor quality, and productivity, and that these effects are concentrated in the health care, trade, and government sectors. While the average educational attainment of people entering the labor force has plateaued, our results suggest that shifting workers from some college to associate degrees could improve earnings, the quality of the workforce, productivity, and growth, potentially without more time spent in school.     

Does inequality in health impede economic growth?

This paper investigates the effects of inequality in health on economic growth in low and middle income countries. The empirical part of the paper uses an original cross-national panel data set covering 62 low and middle income countries over the period 1985 to 2007. I find a substantial and relatively robust negative effect of health inequality on income levels and income growth controlling for life expectancy, country and time fixed-effects and a large number of other effects that have been shown to matter for growth. The effect also holds if health inequality is instrumented to circumvent a potential problem of reverse causality. Hence, reducing inequality in the access to health care and to health-related information can make a substantial contribution to economic growth.     

Monetary and Nonmonetary Returns to Education in Indonesia

Some important aspects of returns to education in Indonesia have been neglected. This paper draws on the Indonesia Family Life Survey, a longitudinal survey, to shed some light on these aspects. This paper finds in a Mincerian specification that a more recent rate of return is in line with the rates found in previous research. A quantile regression is applied to show that the rate varies little in the conditional distribution of earnings, which stands in stark contrast to findings from some developed countries. In addition, the rate of return in self‐employment is estimated to be lower than that in paid employment for person‐ and sector‐specific reasons. In addition to monetary returns to education, happiness returns to education are considered. This paper advances evidence that education has important and robust implications for happiness above and beyond absolute and relative levels of income.     

The impact of circular migration on a village economy

The author examines the economy of a rural village in Indonesia in which a high proportion of households rely on remittances from urban informal sector earnings. Household income and per capita income are analyzed according to whether or not households have at least one temporary migrant, and by the sex and age of the household head. Findings indicate that "remittances from short-term circular migration push many households into the middle and upper income ranges. However, the wealthiest households continue to rely on traditional high earning activities and do not depend on remittances. The poorest households are scattered among those who rely on remittances and those still totally dependent upon traditional low earning village activities, regardless of the sex and age of the household head."     

Does family planning help the employment of women? The case of India

This paper gives some insight into the existence of a positive effect of family planning programmes on women's employment in developing countries. We study married women aged 15–49 living throughout India using a sample drawn from the National Health Family Survey (NFHS-2) for 1998–1999. We focus on a programme of doorstep services delivered by health or family planning (FP) workers who are sent to visit women in their assigned areas. Results derived from the estimation of fixed effect linear probability and conditional logit models show a positive and significant correlation of the share of women living in a local area (village, town or city) that has been visited by FP workers with the probability of women's employment. A multinomial analysis also shows that the largest positive effect of FP in rural India is to be found on paid work, as opposed to unpaid work, suggesting a potential empowering feedback of demographic measures through labour earnings.     

A machine learning approach to improving occupational income scores

Historical studies of labor markets frequently lack data on individual income. The occupational income score (OCCSCORE) is often used as an alternative measure of labor market outcomes. We consider the consequences of using OCCSCORE when researchers are interested in earnings regressions. We estimate race and gender earnings gaps in modern decennial Censuses as well as the 1915 Iowa State Census. Using OCCSCORE biases results towards zero and can result in estimated gaps of the wrong sign. We use a machine learning approach to construct a new adjusted score based on industry, occupation, and demographics. The new income score provides estimates closer to earnings regressions. Lastly, we consider the consequences for estimates of intergenerational mobility elasticities.     

A review of earnings management in China and its implications

This paper discusses the motivations behind the earnings management of listed firms in China and provides evidence on earnings management using various accounting measures. The literature shows that earnings management occurs most often before the issue of securities or when a firm is facing the risk of being delisted. While non‐core income was widely used to measure earnings management in China, as it is easily detected, researchers are now focusing on accrual‐based models. We explore the underlying causes of earnings management in China, and conclude that the two main causes are the concentrated ownership structure and the strong political and economic connections between government and the listed companies. We review the impact of corporate governance mechanisms and government supervision on earnings management in China.     

A causal model of the size distribution of family income: Some overlooked determinants and policy implications

Summary The causes and interaction of variables affecting income inequality are complex and very little empirical research has been attempted to explain or measure these interactions. This paper employs an eclectic approach to construct a causal multiequation model that specifies a system of interrelationships to examine both the direct and indirect effects which selected socioeconomic and demographic variables have upon the size distribution of family income. This procedure has advantages over single equation models in explaining the processes through which variables affect income inequality, allowing greater accuracy in estimating the impact that variables have upon inequality by measuring both their direct and indirect effects, and facilitating the identification of policy variables and how they may be expected to work through the system of interrelationships to narrow the differentials in family earnings.In particular, our model reveals that the birth rate is the single most important factor exacerbating family income inequality, and selective policies were identified which may interact with many variables within the system to reduce family income inequality. The model further demonstrates a high predictive power with a coefficient of determination of 0.82. Our results demonstrate that causal multiequation models using an eclectic methodology to examine the interactions of variables and processes through which they affect the size distribution of income can be useful in quantifying the relative effects of a wide variety of socioeconomic and demographic determinants and constructing policies in future research efforts in this important area.     

Towards a better measure of income inequality in Indonesia

Indonesia has experienced significant economic growth in recent years (on average, 5% in 2000–08), but many people are still living in poverty. Income inequality, as measured by the official Gini coefficient, has also increased. This paper evaluates household income and income inequality in Indonesia, assessing both market and non-market income to reach a more accurate measure of how actual income affects living standards. We find that if household income considers non-market income, income distribution is significantly more balanced, the coefficient of income inequality falls from 0.41 to 0.21 and the income share of the population's poorest deciles increases more than fivefold. The results suggest that market income alone is a misleading measure of income distribution in Indonesia.     

Superior female education: Explaining the gender earnings gap trend in Thailand

It is well-known that along with Thailand's remarkable increase in real income per capita during 1985–2005, an increase in overall income inequality was observed. What is not documented in the literature is that, during the same time period, the gender earnings inequality declined considerably. This paper seeks to identify the main factors that contributed to the decline in gender earnings gap in Thailand's wage and salary sector during 1985–2005. A parametric methodology, the Neumark (1988) version of the Blinder–Oaxaca (1973) method, is implemented in order to decompose gender earnings gap. I also make a methodological contribution by proposing a way to modify the DiNardo–Fortin–Lemieux (1996) nonparametric decomposition method so that its results are comparable to those from the Neumark version of the Blinder–Oaxaca method. The key findings of this paper are as follows. First, I find that increases in female education and changes in unobserved factors, which were concurrent with modernization, were the main sources of the decline in gender earnings gap. Second, over time, improvements in the education of females in this sector surpassed that of males. However, the superior education of females did not result in females earning higher than males due to the existing counteracting effect of the unexplained factors. Finally, the nonparametric investigation corroborated the results from the parametric methodology.