Earnings Inequality Research Articles

The labor market in Belgium, 2000–2016

Might the Belgian labor market be included in the gallery of “Belgian surrealism”? At first sight, Belgium with its 11 million inhabitants has withstood the Great Recession and the euro area debt crisis relatively well, quickly getting back on track toward growth and employment, apparently without rising earnings inequality. But if one digs a little deeper, Belgium appears to be a strongly segmented labor market, first and foremost in an astounding north–south regional (linguistic) dimension. This extreme heterogeneity, along with several demographic challenges, should serve as a warning for the future.

Gay Glass Ceilings: Sexual Orientation and Workplace Authority in the UK

A burgeoning literature has examined earnings inequalities associated with a minority sexual orientation, but far less is known about sexual orientation-based differences in access to workplace authority – in contrast to well-documented gender and race-specific differences. We provide the first large-scale evidence on this question using confidential data from the 2009-2014 UK Integrated Household Surveys (IHS) (N = 607,709). We are the first to document that men and lesbians are significantly more likely to have objective measures of workplace authority compared to otherwise similar heterosexual men and women. However, we also find clear evidence that men face glass ceilings: their higher likelihood of attaining workplace authority is driven entirely by their significantly higher odds of being low-level managers. In fact, men are significantly less likely than comparable heterosexual men to be in the highest-level managerial positions that come with higher status and pay. Oaxaca decompositions suggest that this differential access to workplace authority for men is due to discrimination as opposed to different skills and characteristics. Moreover, this gay glass ceiling is stronger for racial minorities than for whites. Corresponding effects for lesbians exist but are notably weaker. These results provide the first direct evidence of social stratification in the workplace associated with a minority sexual orientation and reveal that differences are exacerbated for individuals with multiple marginalized identities.

The changing of the French labor market, 2000–2017

France has the second largest population in the EU. Since 2000, the French labor market has undergone substantial changes resulting from striking trends, some of which were catalyzed by the Great Recession. The most interesting of these have been the massive improvement in the education of the labor force (especially of women), the resilience of employment during the Great Recession (albeit with a very late recovery), and the dramatic emergence of very short-term employment contracts and low-income independent contractors, which together fueled earnings inequality.

Monetary Policy and Inequality Under Labor Market Frictions and Capital-Skill Complementarity

Contrary to previous beliefs, recent empirical work has found that the effects of monetary policy on inequality are far from modest. In order to improve our understanding of the channels through which monetary policy has distributional consequences, we build a New Keynesian model with incomplete asset markets, asymmetric search and matching (SAM) frictions across skilled and unskilled workers and, foremost, capital-skill complementarity (CSC) in the production function. Our main finding is that an unexpected monetary easing increases labor income inequality between high and low-skilled workers, and that the interaction between CSC and SAM asymmetry is crucial in delivering this result. This is so since the increase in labor demand driven by a monetary expansion leads to larger wage increases for high-skilled workers than for low-skilled workers since the former have smaller matching frictions (SAM-asymmetry channel). Moreover, the increase in capital demand amplifies this wage divergence due to skilled workers being more complementary to capital than substitutable unskilled workers are (CSC channel). Strict inflation targeting is often the most successful rule in stabilizing measures of earnings inequality even in the presence of shocks which introduce a trade-off between stabilizing inflation and aggregate demand.

The Minimum Wage and Annual Earnings Inequality

This paper provides an empirical analysis of the impact of the minimum wage on annual earnings inequality in the United States over the last three and a half decades. We focus on men between the ages of 25 and 61, and use administrative Social Security earnings records from 1981-2015 from the U.S. Social Security Administration to measure annual earnings.

Unequal Use of Social Insurance Benefits: The Role of Employers

California's Disability Insurance (DI) and Paid Family Leave (PFL) programs have become important sources of social insurance, with benefit payments now exceeding those of the state's Unemployment Insurance program. However, there is considerable inequality in program take-up. While existing research shows that firm-specific factors explain a significant part of the growing earnings inequality in the U.S., little is known about the role of firms in determining the use of public leave-taking benefits. Using administrative data from California, we find strong evidence that DI and PFL program take-up is substantially higher in firms with high earnings premiums. A one standard deviation increase in the firm premium is associated with a 57 percent higher claim rate incidence. Our results suggest that changes in firm behavior have the potential to impact social insurance use and thus reduce an important dimension of inequality in America.

Estimates of the Causal Effects of Education on Earnings over the Life Cycle with Cohort Effects and Endogenous Education

We estimate the wage premia associated with educational attainments focusing on the lifecycle pattern of earnings. We employ a model where educational attainment is discrete and ordered and log wages are determined by a simple function of work experience for each level of attainment. We distinguish between lifecycle and cohort effects by exploiting the fact that we have a short panel. We find that age earnings profiles lose the traditional bell shape and become flat when we allow for cohort differences. Females still have higher college premia compared to males. However, there are clear earnings inequalities between cohorts with smaller college premia for younger compared to older cohorts, for both males and females.

EMPREGO E DESIGUALDADE DE RENDIMENTOS NO BRASIL: UMA ANÁLISE A PARTIR DA ESTRUTURA DE OCUPAÇÕES

O objetivo deste trabalho é discutir o emprego e a desigualdade de rendimentos entre as ocupações, buscando identificar também diferenças entre homens e mulheres na estrutura de emprego. Considerando-se a reestruturação ocorrida na Pesquisa Nacional por Amostra de Domicílio (PNAD) em 2002, com base na Classificação Brasileira das Ocupações (CBO), as informações desse ano são comparadas às de 2012. O emprego se alterou entre as ocupações, com destaque, de um lado, para o crescimento daqueles ocupados nas ciências e artes e, de outro lado, para a queda do emprego dos trabalhadores agrícolas. Na análise individual de cada determinante, os resultados da pesquisa sugerem queda da desigualdade como um todo e da parcela explicada pela ocupação, que se firma como um dos principais determinantes da desigualdade de rendimentos no Brasil. As mulheres possuem os menores rendimentos e níveis de desigualdade, e, entre as ocupações, há diferenciais maiores entre elas que entre os homens. Por fim, é possível constatar que a queda dos diferenciais de rendimento entre as ocupações ocorreu devido à melhoria em outros determinantes, como a maior homogeneidade no capital humano dos indivíduos, que ficaram mais qualificados, e às quedas dos diferenciais intersetoriais e entre homens e mulheres.

Personal Earnings Inequality and Polarization: The Czech Republic in Comparison with Austria and Poland

This article analyzes personal earnings distribution in the Czech Republic, Austria, and Poland, using EU-SILC longitudinal data. It captures a before-crisis period, 2004–2007, and a period impacted by the economic crisis, 2007–2010. It focuses on earnings distribution from three perspectives. First, it applies a relative distribution method to verify the hypothesis that the crisis might have spurred a “hollowing of the middle.” Second, it focuses on factors that affected the movements of individuals along the earnings distribution. Third, it reveals the structure of earnings inequality through regression-based decomposition. It concludes that the crisis did not spur earnings polarization.

REMOVING THE “VEIL OF IGNORANCE”: NONLINEARITIES IN EDUCATION EFFECTS ON GENDER WAGE INEQUALITIES

A large literature studies the mean gender wage gap in developing countries and finds mixed evidence about the role of education policies in closing gender earnings inequalities. We contribute to this literature by exploring two types of nonlinearities in wage earning regressions: (1) nonlinearities on the effects of education on expected earnings along the distribution of education endowments; and (2) heterogeneities on the contributions of education to the gender wage gap at different quantiles of the wage distribution. Our analyses provide new insights on how these nonlinear effects can be used to set up better targeted gender and development policies. (JEL I26, C14)

Welfare Capitalism in Post-Industrial Times: Trilemma or Power Over Rents?

ABSTRACTThe structure of ‘post-industrial’ economies is widely held to be problematic for welfare capitalism, because of inherent limits to productivity growth in services compared to manufacturing. The so-called post-industrial trilemma is suggested to allow only two of relative earnings equality, high levels of employment and fiscal balance, and has resulted in the widespread policy belief that greater earnings inequality and welfare state retrenchment are unavoidable. This article challenges the micro foundations of this understanding, that the production of economic value is technologically determined by the physical properties inherent in goods and services. In contrast, we argue theoretically, and demonstrate empirically, that production, allocation and distribution are contingent processes better conceived in terms of ‘power over rents’ with associated externalities between sectors. Our analysis suggests that the post-industrial trilemma thesis may have unduly distracted research from the potential for redistributive politics to achieve sustainable levels of productivity growth, fiscal balance and higher levels of earnings equality.

Human capital and earnings in eighteenth-century Castile

Using the Ensenada Cadastre, a unique database on Castilian households circa 1750, this paper provides new evidence on the relationship between human capital and male labor earnings in eighteenth-century Spain. Human capital is proxied by individual indicators of basic skills (literacy and numeracy) and of occupational skills. We employ a Mincerian regression approach and find a positive and statistically significant association between skills and average earnings. Although we cannot reliably assess causality in the observed relationship, these findings are robust to conditioning on household composition, job characteristics, and place of residence. Nonetheless, further testing indicates that the earnings gradient associated with literacy is driven mainly by unobservable variables (e.g., ability, family background) that explain both the worker's acquisition of this skill and his earnings. The estimated associations are stronger for urban than for rural workers and are highly heterogeneous across activity sectors. Our analysis reveals that workers with higher skills were not only better remunerated in their main occupation but also more likely to diversify their earnings through “by-employment”. Finally, quantile regression analysis indicates that earnings disparities—between workers with different skills—were much smaller at the lower than the upper end of the earnings distribution. This evidence suggests that, in pre-industrial Castile, human capital may have contributed to inequality of earnings.

Has Personal Earnings Inequality Become Polarized? The Czech Republic in a Comparative Perspective

This article analyses personal earnings distribution in the Czech Republic (CR) since the early transition from communism, using a relative distribution method. It applies data from two surveys, the national Microcensus (MC) and the European Union Statistics
 on Income and Living Conditions (EU-SILC), covering the period 1988–2013. The trend of “hollowing-out of the middle” was confirmed in the early transition phase, but this phenomenon later subsided. Earnings polarization was apparent for all sex and education subgroups in the Czech Republic between 1988 and 1996. Austria (AT) and Poland (PL) were selected for comparison for the longest period covered by EU-SILC, 2005–2013. While the middle was hollowing out in Austria, earnings in
 Poland were becoming more homogeneous.

Occupational Race Segregation, Globalization, and White Advantage: White-Black Earnings Inequality in U.S. Metropolitan Areas

ABSTRACTAddressing the need to systematically assess the materialist foundations of color-blind racism, we use insights from critical race theory to investigate the metropolitan-level racial inequality at the turn of the century. Namely, we examine the association between occupational race segregation and white advantage (i.e., white-black earnings inequality) for men and women in 202 U.S. metropolitan statistical areas in the year 2000. We find that occupational race segregation exacerbates white advantage for both male and female workers, supporting the tenets of the materialist conception of color-blind racism. We also consider how processes of globalization and labor market transformation impact white advantage. Our findings indicate that global capital increases white advantage for males, whereas foreign direct investment and casualization serve to decrease it. They also indicate that exports decrease white advantage for females, whereas percent foreign born increases it.

Healthcare investment and income inequality

This paper examines how the relative shares of public and private health expenditures impact income inequality. We study a two period overlapping generation's growth model in which longevity is determined by both private and public health expenditure and human capital is the engine of growth. Increased investment in health, reduces mortality, raises return to education and affects income inequality. In such a framework we show that the cross-section earnings inequality is non-decreasing in the private share of health expenditure.We test this prediction empirically using a variable that proxies for the relative intensity of investments (private versus public) using vaccination data from the National Sample Survey Organization for 76 regions in India in the year 1986–87. We link this with region-specific expenditure inequality data for the period 1987–2012. Our empirical findings, though focused on a specific health investment (vaccines), suggest that an increase in the share of the privately provided health care results in higher inequality.

Does foreign direct investment polarize regional earnings? Some evidence from Israel

This paper investigates the polarizing effect of FDI on regional earnings in host nations. A key hypothesis is that the link between FDI and regional inequality is mediated by regional capital–labor ratios. In the absence of regional FDI data, a method for estimating the effects of FDI on regional inequality is proposed in which national FDI is hypothesized to be a common factor for regional capital investment. Empirical analysis of regional panel data for Israel shows that regional capital stocks vary directly and heterogeneously with the stock of national FDI, and that regional earnings vary directly and homogeneously with regional capital–labor ratios. These two relationships are used to calculate the contribution of FDI to regional earnings inequality over time. We find a substantial polarizing effect. Between 1988 and 2010 the variance of log regional earnings increased from about 0.011 to 0.025. More than half of this increase may be attributed to the polarizing effects of FDI. Policy implications of these findings are discussed.

Measuring Trends in Urban Inequality and Poverty in the Copperbelt, Zambia

This article is a discussion of how to measure urban inequality using the results of large household samples. It has two aims. The first is to de-mystify the methods of measuring earnings inequality by discussing their logic and their results in plain language that is suitable for a non-specialist audience. The second is to persuade the reader that such surveys can be suitable for measuring income derived from all kinds of livelihood strategies, including informal sector activities. The results show persistently high levels of inequality over time among income earners on the Copperbelt. Disaggregation of the employed workforce by major occupational groups reveals increasingly more elementary and middle-income workers than higher income managers, professionals, and technicians. This pattern differs by gender, however, with only women experiencing a marked increase in low-skill, low-wage employment.

Income Distribution in Turkey during the Global Financial Crisis

The aim of this study is to examine mechanism responsible for the behavior of the income and earning inequality in Turkey during the global financial crisis based on data from the 2006 to 2014 Income and Living Conditions Survey. Gini decomposition by income source is employed in order to provide an analysis of the contribution of the various income sources to the evolution of income inequality and to assess the impact of a marginal percentage change in the income from a particular source on income inequality. For examining the contributions of specific variables (education, position in occupation, economic sector) to the interpretation of labor earnings inequality in terms of their gross and marginal contribution, we use static decomposition of Theil T index.

Sibling gender and wage differences

ABSTRACTFamily influences on economic performance are investigated. In particular, sibship sex composition is related to hourly wages using data from the National Longitudinal Survey of Youth 1979. The wages of men are increasing in the proportion of siblings who are brothers, but the wages of women are insensitive to sibling gender. Nonwage outcomes are generally unaffected. Contrasts by age structure and demographic group are also presented. The analysis addresses econometric challenges like the endogeneity of fertility and selection into the workforce. In addition, mechanisms such as labour market interactions, human capital investment and role model effects are documented. A questionnaire on job search indicates a same-gender bias in the use of brothers and sisters in obtaining employment. Developmental and psychological assessments suggest that brothers may be associated with worse childhood home environments and more traditional family attitudes among women. The findings are policy relevant and contribute to an understanding of gender differences and earnings inequality.

Persistent Heterogeneous Returns and Top End Wealth Inequality

Are there simple and observable aggregate statistics that might help determine and forecast the degree of wealth inequality? Do they explain the differences in wealth inequality across economies and over time? To answer these questions, we build a general equilibrium, neoclassical growth model, in which the stationary wealth distribution has heavy right tail with the Pareto tail index, Pt. In the simplest cases of the model, the tail index depends on interest rate (r), growth rate (g), aggregate labor income share (EY), and aggregate capital to output ratio, (KY), summarized in a formula Pt = Pt ( r,g,EY,KY) (rather than the simple gap r-g , put forth in Thomas Piketty's “Capital in the 21st century”). In addition, financial development, production technology, corporate and wealth taxes affect the tail index through their effects on these sufficient statistics. When we calibrate the model to the U.S. economy, we find that the model requires significant persistent heterogeneous returns to investment in order to generate the tail index of U.S. wealth distribution. In this calibration, earnings inequality and, to a lesser extent, initial wealth distribution have negligible effects on top end wealth inequality. The transition of the model economy after a uniform wealth destruction shock or changes in corporate tax (but not after a financial deregulation shock) produces the joint dynamics of EY, KY, and wealth inequality experienced in major developed economies after World War II. Lastly, we find empirical evidence for persistent heterogeneous returns in the PSID surveys.