National Income Going Research Articles

Further evidence on inflation targeting and income distribution

AbstractThis paper examines the effect of inflation targeting (IT) on income distribution in a panel of 70 countries. Employing panel regressions and a variety of propensity score matching methods, we find strong evidence that incomes became more unequal in IT‐adopting countries relative to countries that did not adopt IT. Panel regressions suggest that Gini coefficients increased by 0.25%–0.57% and the share of income of the top 1% and 10% of households increased by 0.7% in IT adopter countries. Using propensity score matching methods, IT has been associated with a relative rise in Gini coefficients of about 1–2 percentage points, and a relative increase in the share of national income going to the top 1% and 10% of households by about 11–13 percentage points and 13–17 percentage points, respectively. The results are robust to changes in country sample and alternative estimation methodologies.

Is government debt a burden on workers' income share? An investigation on Italian dynamics

This paper aims to explore if there is a connection between public debt and wage share; the intention is to contribute to the literature regarding both the efficacy of fiscal policy and financialisation of economics. The paper examines the case of Italy between 1960 and 2019, a rather long period during which the country, much like many other advanced economies, was affected by the contemporaneous presence of deteriorating public accounts and a reduced share of national income going to labour. The empirical analysis employs a long run dynamic technique and finds that an increase in debt decreases wage share, challenging the effect of fiscal policies on employment and national income. However, when distinguishing between the components fuelling debt, the estimates reveal controversial outcomes: primary deficit increases wage share, while interests in public debt decrease it. The results are consistent with the changes in policy strategy that occurred in three subperiods and suggest that public debt should be managed, accounting for the reciprocal effects of fiscal and monetary policy and considering the introduction of a common safe asset to preserve labour income.

The Geographic Redistribution of Income in the United States, 1969–2019: Examining the Role of Federal Policy

Prior research on regional differences in income levels has focused almost exclusively on market mechanisms that affect wages. This article argues that federal policy has had significant effects on changes in regional income inequality, and that these effects have rarely been analyzed. Since 1969, an increase in transfer payments and financial deregulation have increased the share of national income going to transfers and financial income. To show how these changes played out spatially, this article offers a decomposition of the difference in income growth between ten of the fastest-growing metropolitan regions and the United States as a whole, for the period 1969–2019. In most of the regions with the fastest income growth, financial and transfer income account for most of the difference in income growth rates between region and nation. Literature on regional income inequality would benefit from paying more attention to unearned income, and from engaging more fully with literature on financialization.

Labour’s declining share of national income in Ireland and Denmark: the national specificities of structural change

The share of national income going to workers has decreased steadily across Europe since the 1980s. This apparently uniform decrease in labour’s share conceals differences amongst states however—in ‘liberal’ Ireland, this fall has been drastic, while that of ‘social democratic’ Denmark has been moderate. This article presents a parallel time series analysis of institutional and structural factors shaping labour’s share in Ireland and Denmark. Our results show that factors common to the study of variation in labour’s share operate in different ways in different countries, both in magnitude and causal mechanism. We find that stressors such as global trade, foreign investment and high-tech growth produce different effects in each location. Equally, protections such as unionization, leftist cabinets and welfare spending display contradictory effects in both locations. We conclude that ‘power resource’ models of labour share should be supplemented with comparative approaches that emphasize how institutionalized socio-political logics mediate returns to labour.

Labour’s declining share of national income in Ireland and Denmark: the national specificities of structural change

AbstractThe share of national income going to workers has decreased steadily across Europe since the 1980s. This apparently uniform decrease in labour’s share conceals differences amongst states however—in ‘liberal’ Ireland, this fall has been drastic, while that of ‘social democratic’ Denmark has been moderate. This article presents a parallel time series analysis of institutional and structural factors shaping labour’s share in Ireland and Denmark. Our results show that factors common to the study of variation in labour’s share operate in different ways in different countries, both in magnitude and causal mechanism. We find that stressors such as global trade, foreign investment and high-tech growth produce different effects in each location. Equally, protections such as unionization, leftist cabinets and welfare spending display contradictory effects in both locations. We conclude that ‘power resource’ models of labour share should be supplemented with comparative approaches that emphasize how institutionalized socio-political logics mediate returns to labour.

The fall (and rise) of labour share in New Zealand

ABSTRACTThe share of national income going to labour in New Zealand fell substantially between the 1970s and the end of the century. Approximately half of this decline was then recovered in the following decade. In this paper, we argue that the decline from the mid-1980s onwards is due to public sector reforms. Corporatisation re-orientated the public trading enterprises away from a broad range of social and trading objectives towards generating profits, while increased fiscal discipline in non-market government departments reduced payroll costs. Consistent with this hypothesis, we show that most of the decline in aggregate labour share from the mid-1980s onwards can be attributed to a significant fall in the labour share of the public sector. To more formally analyse the effects of the reforms, we build a simple model of structural transition. The model yields several predictions that are consistent with observed trends in sectoral labour share. First, there is a large and permanent decline in public sector labour share after the reforms. Second, there is a smaller, short-run decline in private sector labour share that is reversed over the long run. The model can, therefore, explain not only the decline in aggregate labour share from the mid-1980s onwards; it can also explain the partial recovery in labour share beginning in 2002.

Garnaut versus Piketty: inequality in the coming century

If something cannot go on for ever, states Herbert Stein’s law, it will stop. In itself this is not very informative, but it opens the way to three interesting questions: (1) why can’t it go on forever?; (2) where and when will it stop?; and (3) why? Generations of economists have applied this line of inquiry to the accumulation of wealth (or its narrower version, capital) and to its close relative, the share of national income going to the holders of wealth. Their answers have varied widely.

Economic Growth and Inequality: Why It Matters and What's Coming Next

This article makes the case that the recent rise in income inequality in OECD countries reflects profound changes in the economic model that previously resulted in growth, prosperity, and social progress during the second half of the last century. The author begins by citing French economist Thomas Piketty's identification of the key driver of rising income inequality as the recent sharp increase in the share of national income going to capital (defined as interest, dividends and other investment returns) and the accompanying decline in the share going to labor (in the form of wages, salaries, pension, and other work‐related benefits). For most of the last 100 years, a successful balance was struck in a majority of OECD countries between the returns to capital and labor. Within the framework of nationally defined economies, labor could effectively advocate for its share of the productivity gains by capital, and governments had the ability to constrain the free movement of capital, set labor compensation standards, and redistribute income through progressive taxation.The author explores how two developments—globalization and the rise of machine intelligence—are disrupting this social contract and reshaping our economy and society. The combination of these two developments, by accelerating the flow of income to capital and away from labor, is eroding the historical relationship between capital, labor, and governments that has long prevailed in most OECD countries. As this happens, we are seeing rising income inequality and the erosion of the middle class, which had been the driver of economic growth for most of the past century. Indeed, the thesis of Piketty's book, Capital in the Twenty‐First Century, is that such an effect may well be taking us back to the pre‐20th century norm of high income inequality and low economic growth.In his closing arguments, the author suggests that avoiding this scenario will be more complicated than simply raising taxes on capital, as proposed by Piketty. It may well require a fundamental rethinking of the role of employment as the primary mechanism for income distribution in society and how we prepare our workforce for an economy and society in which the concept of work will be radically redefined.

What, If Anything, Can Labor Do to Rejuvenate Itself and Improve Worker Well-being in an Era of Inequality and Crisis-driven Austerity?

What, If Anything, Can Labor Do to Rejuvenate Itself and Improve Worker Well-being in an Era of Inequality and Crisis-driven Austerity?

A Simple Metric for Fair Burden Sharing?

The 'Greenhouse Development Rights' (GDRs) framework is presented as a simple metric for fair burden sharing, but it is questionable whether there is a single unique mathematical solution to the equity equation. The quest for a unitary approach to equity is a far more intricate endeavor than the proponents of the GDRs framework seem to realize. Ethical inquiry should focus on the 'how' rather than on the 'what' of climate change policy. Existing literature on equity considerations for climate change mitigation and adaptation has almost exclusively focused on fair burden sharing between nations. However, disparities among regions and income groups within nations pose perhaps more equity concerns than those between nations: 'International arrangements for equity considerations such as technology and monetary transfers may actually exacerbate income inequality in the recipient country, as the poor may be excluded from implementation' (Pan, 2003, p. 7). Inequity in the developing world, according to Pan, requires particular attention, as the income inequality gap in these nations is generally wider than that in rich countries. He notes that the poor nations with more unequal income distribution at home are more vocal for equity demands at international negotiations: 'The nations that request for per capita allocation of emissions rights for the sake of equity are those in many cases with a record of the most unequal income distribution and a lack of social security and basic human rights' (Pan, 2003, p. 12). A case in point is Brazil, with almost half of the national income going into the pocket of the top 10% of its population. However, most of the existing literature not only ignores the climate responsibilities of affluent individuals and groups in developing countries ('the north in the south'), but also the existence of impoverished groups residing in the developed world ('the south in the north'). A major benefit of the 'Greenhouse Development Rights' (GDRs) approach, as proposed by Baer et al. (Baer, Athanasiou, Kartha & Kemp-Benedict, 2008; Baer, 2009), seems to be that it addresses the inequitable distribution of income both

Review 2

It is easy to forget how much of the post‐war economic consensus was based on a form of Capitalism Light, where many parts of the free‐market system were heavily curtailed. At the Bretton Woods conference in 1944, Secretary of the Treasury Henry Morgenthau hailed the agreement to create the IMF as ‘driv[ing]… the usurious money lenders from the temple of international finance’. Keynes was convinced that free capital flows should not be a part of the reconstituted world economy. Much of the post‐war prosperity in the US and Europe was built with financial repression, closed capital accounts, no freedom to migrate and a good deal of state ownership of manufacturing companies. What the immediate post‐war era sowed, the 1970s seemed to reap. The share of national income going to labour hit a high. At the same time, the German Social Democrats experimented with more state intervention in the economy, Britain's economy was dominated by the unions, and militant left‐wing movements were on the march in many Western countries. The European Economic Community intervened in an ever lengthening list of agricultural products and state‐sponsored industries – from Airbus to British Leyland – seemed to proliferate. Exchange rates, only recently freed from the shackles of Bretton Woods, were once again being managed by various European stabilisation arrangements. The end of capitalism as we knew it, predicted by the majority of self‐respecting intellectuals for most of the twentieth century, was not necessarily around the corner but seemed to be getting closer. More than one observer predicted that capitalism might be smothered slowly but surely through a multitude of politically‐driven encumbrances. George Gilder's Wealth and Poverty, a 1981 bestseller that made the New York Times list, detailed how inflation and progressive taxation conspired to produce euthanasia of the free enterprise system. In the same year, Ronald Reagan came to office. The great Volker deflation was in full swing, wringing inflation out of the system at horrific social costs.

Will Marx be proved right?

Abstract. Marx argued that, as capitalism evolved, workers would receive a declining share of national income. The experience of the last century has not supported this prediction. But the entry of the vast labour forces of China and India into the world economy might just prove Marx right after all. In any case, it suggests that study of the shares of national income going to different factors of production will be interesting once more.

The Empirical Content and Longevity of Ricardian Economics

There is generally recognized gap, though of uncertain width, between abstract analytical propositions of Ricardian economics and concrete implicit in their use by contemporaries as guides to legislative action. The first purpose of this paper is to inquire into nature of economic statements made by Ricardo, and by John Stuart Mill. Can their key propositions be construed as, and did they intend them to be, empirical statements? What tests did they accept to measure truth of their theory? How did they bridge gap between their abstractions and real world? A second purpose, to which first inquiry is necessary preliminary, is to throw some light on related historical issue of some importance. Mark Blaug has recently charged Mill with having given an artificial extension of life to Ricardian system, after it had become empirically untenable. Blaug argues that the body of doctrine which Ricardo bequeathed to his followers rested on series of about course of economic events which were subject to empirical verification, in strictest sense of term. These included a rising price of corn, rising share of national income going to rent receivers, constant real wages, and gradual vanishing of investment opportunities in industry. But statistical evidence, available in 1830s and 1840s, falsified these predictions. At that stage, Blaug argues, system was retained only because of its usefulness to opponents of Corn Laws. Still more, therefore, with repeal of those laws in 1846, should system have been rejected as obsolete. For then even its basic assumption-an insulated economy-was no longer realistic. Thus, in 1848 Mill revived system which, it is claimed, had been falsified as to its key deductions, and rendered irrelevant by attainment of its chief policy objective.2 Mill effected this in some instances, Blaug suggests, by conveniently ignoring gap between facts and his theory. In others, it is charged, he actively sought to remove theory from any possibility of falsification by facts. This involved two gambits. One was to turn Ricardo's definite predictions into vague statements of tendency, guarded by

Inequality: A Trend Analysis

The attempt to grapple with poverty during the 1960's led to renewed recognition of the importance of inequality in affluent societies. This paper summarizes trends in the share of national income going to the bottom fifth of the population, ranked according to income, and in the composition of that bottom fifth over the past twenty years. Between 1947 and 1967, despite the decline in the share of total national income going to the top 5 percent, little progress was made in increasing the share of the bottom 20 percent. A specific timetable of income-redistribution is needed for the 1970's so that we can assess our programs in increasing the share of national goods going to the poor and to minorities. Over the next ten years, we should seek to expand the share of income going to families in the bottom 20 percent of the population by at least 2 to 3 percent—from 5.4 percent in 1967 to 7 or 8 percent in 1977. In the mid-1960's considerable progress was made in reducing inequality between blacks and whites: the ratio of nonwhite to white income increased from 53 percent in 1963 to 62 percent in 1967—an increase of approximately 2.25 percent a year. This gain should continue, so that by 1979, a black income would be at least 89 percent of white income.

INFLATION AND ECONOMIC DEVELOPMENT STUDIES IN THE MEXICAN EXPERIENCE*

THE HYPOTHESIS THAT moderate inflation can be used as a tool for accelerating the rate of economic development of underdeveloped countries is widely held. The theoretical rationale for this point of view is that inflation promotes a rise in the share of national income going to profit receivers and hence increases the aggregate propensity to save. Moreover, by favorably affecting incentives, rising prices are presumed to enhance the rate of capital formation. The Mexican experience, 1935-55, is inconsistent with the above propositions; for, despite an average annual increase in prices of 10 per cent, which drastically redistributed national income in favor of profits, the private aggregate propensity to save did not increase. Rising prices and profits had little effect upon the pace of real private investment; indeed, for a number of years after 1948, real investment actually declined, while prices and profits continued to rise. The disparities between the theoretical expectations and the observed behavior in Mexico may be explained as follows: inflation redistributes income indiscriminately; it increases the relative share of unprogressive and unthrifty profit receivers, as well as that of the progressive and thrifty. Moreover, wealthy Mexicans, because of tradition and the influence of the higher material standards in the United States, are high spenders. Investment, especially in massmarket industries, has been discouraged because of the low purchasing power of the population at large; inflation has intensified this problem. Inflation in Mexico has probably reduced the rate of economic growth. It has encouraged investors to specialize in real property and inventory accumulation. The growing population has, therefore, been absorbed into the labor force at an unsatisfactory rate, and the aggregate increment to the capital stock required to produce a unit increase in national income has been raised.

Do the Statistics of the Concentration of Wealth in the United States Mean What They Are Commonly Assumed to Mean?

As I begin, I can imagine the critic asking: But preciselv what are the statistics of the concentration of wealth in the United States commonly assumed to mean? And where are these statistics and what are they? Now although the title of this paper is not of my own phrasing, I am willing, if needs be, to defend it. We are a long way, of course, from knowing at all accurately just how property and incomes are distributed among the twenty-one million or more families of this country. We do not even know whether the average family income is as low as $1200 or as high as $1600. We are not sure whether the share of the aggregate national income going to the richest 2 per cent of our families is more nearly a fourth, or a fiftlh, or a sixth of the total. The poorest half of our families may possibly get a fourth or perhaps three tenths of the national dividend-just what the proportion may be is uncertain. The picture is blurred, but its general outlines are nevertheless unmistakable. WVe are reasonably certain that such full knowledge as we might gain from a complete and accurate census of incomes would merely give precision and definiteness to our impressions. There would be, we are confident, no general upsetting of the notions we lhave already formned with respect to the state of things. Yet, this being so, the wonder is that most of us seem to accept the situation with a large measure of complacency. If it is true that the richest 10 per cent of our families get a third, or anything like a third, of the national dividend, and that the poorest fourth get incomes of less than $600, or at most less than $7i00, per family, it might seem that we should not have to look further for an overwhelming indictment of our present economic system. Facts like these, some persons allege, must spell revolutioni. Very likely we sometimes find it easy to push these troublesome statistics aside, saying to ourselves that viewing matters relatively, rather than absolutely, conditions are not so bad. Greater inequalities than these have existed in other times and other countries. Despite the relatively high average family income in the United States, incomes seem to be distributed here with rather less inequality than in some of the other great industrial nations.