Permanent Income Inequality Research Articles

Characterizing Life-Cycle Dynamics of Annual Days of Work,Wages, and Cross-Covariances

This paper investigates the dispersions in days worked and wages by adapting a novel semi-parametric specification that minimizes assumptions about life-cycle labor income dynamics. Data for Italy shows a substantial increase in income inequality after age 50 for males over the time span from 1985 to 2012, which is remarkably driven by the variations in days worked rather than wages. Results show that this increase is determined by permanent changes in the number of days worked. I also introduce an empirical strategy to decompose the cross-covariances of wages and working days to quantify the permanent and transitory responses of days worked to wage shocks. A one-percent increase in permanent wages increases the permanent days worked by 0.8% at the age of 28, while this increase is about 0.3% at the age of 55. Despite the strong reaction of days of work to wage shocks early in careers, the correlation coefficients are small, indicating that only a small share of variation in permanent days worked – which shapes the permanent income inequality – is explained by the changes in wages.

The role of education and household composition for transitory and permanent income inequality–evidence from PSID data

Transitory and permanent shocks to income have been shown to be important determinants of household consumption. This paper shows that there are significant differences in the trends of transitory and permanent income inequality between demographic groups since the 1980s. Using data from the Panel Study of Income Dynamics, educational attainment and the composition of a household are found to play a key role. While permanent inequality increases steadily for educated households, it is flat over large parts of the sample period for the less educated households. Transitory inequality increases for all households headed by couples whereas it is constant for single households. Altogether, permanent shocks account for a larger part of the income variance of educated households whereas transitory shocks are relatively more important for the less educated. These results are able to shed light on the transmission of changes in income inequality to consumption inequality.

The Role of Education and Household Composition for Transitory and Permanent Income Inequality Evidence from PSID Data

The Role of Education and Household Composition for Transitory and Permanent Income Inequality Evidence from PSID Data

European Integration and Inequality among Countries: A Lifecycle Income Analysis

AbstractThis paper analyzes the effects of the enlargements of the European Union on inequality using an approach based on individuals' lifecycle incomes. This allows one to consider the effect of different rates of growth and survival rates. Inequality in terms of permanent income was substantially less than in current per capita income at the time of all the enlargements except those of the last 10 years. The results point to the key role of policies that stimulate growth in the less developed countries. With an annual β‐convergence of 2% in current income, inequality in permanent income would be less than one third of what it is now.

Agglomeration and Growth: The Effects of Commuting Costs

We present a model of industrial location and endogenous growth with congestion costs. According to the interplay between knowledge spillovers and commuting costs, we are able to obtain both a Krugman-type and a bell-shaped agglomeration outcome. In the first case, the economy experiences a permanent income inequality in the steady state and income divergence in the transitional dynamics. In the second case, we observe an enlargement of the industrial core of the economy with a strong catching up by the periphery. Welfare analysis shows that congestion create (in the bell-shaped agglomeration case) a negative welfare effect on peripheral unskilled workers and renders the agglomerated equilibrium Pareto inferior to dispersion.

Regional inequality in Spain: permanent income versus current income

The literature on inequality among economies has focused mainly on analysing the dispersion of indicators such as current income per capita. In this paper we adopt a different approach from the usual one. In order to analyse inequality and convergence among Spanish regions, we propose to use a measure of permanent income that takes into account the entire life cycle dimension. On the basis of this approach, we make various simulations to determine the influence on inequality and convergence in permanent income of variables, such as survival rates and the existence or non-existence of convergence in current income. The results indicate that inequality in permanent income is clearly lower than that observed when the full life cycle of individuals is not taken into account.

PERMANENT INCOME, CONVERGENCE AND INEQUALITY AMONG COUNTRIES

The literature on inequality has generally focused on the analysis of annual per capita income. This paper adopts a different approach by considering the life‐cycle dimension of inequality and convergence between economies from 1960 to 2000. We analyze the present value of the set of incomes individuals obtain throughout their whole life (permanent income). On the basis of this approach, various simulations are made to determine the effect on inequality in permanent income of variables such as survival rates and the long‐run growth rates in current income. The results indicate that survival rates are an important source of inequality. Inequality in permanent income is about one third higher than in current income. The implication of this finding is that if the whole life‐cycle dimension is not considered, the level of inequality among economies is being underestimated.

Inequality and Crime: Separating the Effects of Permanent and Transitory Income*

AbstractEarlier studies on income inequality and crime have typically used total income or total earnings. However, it is quite likely that it is the changes in permanent rather than in transitory income that affects crime rates. The purpose of this paper is therefore to disentangle the two effects by, first, estimating region‐specific inequality in permanent and transitory income and, second, estimating crime equations with the two separate income components as explanatory variables. The results indicate that it is important to separate the two effects; while an increase in the inequality in permanent income yields a positive and significant effect on total crimes and three different property crimes, an increase in the inequality in transitory income has no significant effect. Using a traditional, aggregate, measure of income yields insignificant effects on crime.

Income Inequality, Permanent Incomes, and Income Dynamics

As income mobility over time serves to offset income inequality existing at any point in time, cross-national differences in social stratification are preferably assessed from data on average incomes over an extended period of time. Hence, this article uses longitudinal income data from the Panel Study of Income Dynamics and the European Community Household Panel to reassess the received empirical evidence. Even discounting the impact of income mobility, however, the United States continues to exhibit the highest level of permanent income inequality in this particular sample of industrial countries. In addition, older workers and individuals at the bottom of the income distribution have faced significantly worse income prospects than common in many European countries.

Convergence in recent growth theories: a survey

This paper reviews one of the crucial issues in the recent growth literature concerning the hypothesis of cross country convergence of levels and growth rates of income per capita implied by the neo‐classical growth model, both in the Solow‐Swan and Rampsey‐Cass‐Koopmans versions. The alternative endogenous growth models, consistent with permanent income inequality, are considered. Convergence to a common income level versus divergence is discussed from a theoretical point of view. Then, empirical tests of the convergence property are presented. What emerges is that Barro type regressions and their findings about “conditional” convergence are questionable and cannot be used to give a definitive response on this issue.

Economic Development, Urban Underemployment, and Income Inequality

The evolution of inequality in permanent income is investigated during the course of a less developed country's transformation from a primarily agricultural to a primarily urban-industrial economy. The source of inequality is market luck in obtaining employment in the protected urban formal sector versus employment in the unprotected urban It is shown that with development the log variance measure of inequality in this country tends to follow an inverted U: it rises when urbanization is low and consequent pressure on the land keeps rural incomes low, making agents willing to incur high risks of underemployment in the urban informal sector, and eventually falls after urbanization and consequently rural incomes has increased sufficiently to allow agents to make better than even bets in the industrial sector. These results in combination with new empirical evidence suggest that rather than being an unimportant artifact of the design of inequality indices, inverted-U behavior of inequality may be driven by the important social phenomenon of mass urban underemployment.

Effects of Marital and Fertility Patterns on the Transmission and Distribution of Wealth

Previous literature has discussed the role of assortative mating and of social class differences in fertility on the inheritance of financial wealth and the degree of wealth inequality. This paper argues that assortative mating and differential fertility play the same sort of role in the intergenerational transmission of human wealth. A path model of the intergenerational transmission of human wealth is constructed from correlations taken from the literature. Estimates are then derived of the extent to which permanent income inequality would be reduced by the elimination of assortative mating, of differential fertility, and of unwanted fertility. Social scientists have long been aware of the fact that the size distribution of income and wealth is influenced by fertility and marital patterns. If inheritances are an important part of total wealth (as they certainly are in traditional agricultural societies in which land is the major form of wealth), and if the poor have more children than do the rich, the equilibrium inequality in wealth and income will be greater than in a society where fertility is the same across social classes [22]. Similarly, the degree of assortative mating by inherited wealth will be positively related to the inequality in wealth and income. Marital and fertility patterns also have an effect on the degree of intergenerational social mobility, which could be measured by the correlation between the son's rank in the distribution of wealth or income and that of his father. This correlation will be higher The author is Associate Professor of Economics, University of Maryland. * Research for this paper has been supported by grants from the Office of Economic Opportunity and from the Department of Labor to the Project on the Economics of Discrimination at the University of Maryland. Computer time was made available by the Computer Science Center at the University of Maryland. I would like to acknowledge helpful comments from Barbara Bergmann, John Conlisk, Robert Hauser, Randall Weiss, and the editor while absolving them of all responsibility for any errors. [Manuscript received October 1975; accepted March 1976.] The Journal of Human Resources * XII * 2 This content downloaded from 207.46.13.129 on Wed, 29 Jun 2016 04:23:04 UTC All use subject to http://about.jstor.org/terms