From classes to copulas: wages,capital, and top incomes

Public debates about the rise in top income shares often focus on the growing dispersion in earnings, and the soaring pay for top executives and financial-sector employees. But can the change in the marginal distribution of earnings on its own explain the rise in top income shares? Are top executives replacing capital owners in the group of top-income earners, or are we rather witnessing a fusion of top capital and top earnings? This paper proposes an extension of the copula framework and uses it for exploring the changing composition of top incomes. It illustrates that changes in top income shares can easily be decomposed into respective changes in the marginal distributions of labour and capital income and the changing association between the two types of income. An application using tax record data from Norway shows that the association between top labour and capital incomes grew stronger between 1995 and 2005 in the top half of the wage and capital income distribution, though it declined for the top 1% of capital income receivers. A gender decomposition demonstrates that the association of wage and capital incomes at the top is particularly striking for men, whilst women are largely under-represented in the top halves of the two marginal distributions.     

Economic Contribution of Migrant Workers to Thailand

In the past decade or two, an increasing number of migrants from countries neighbouring Thailand have moved to Thailand temporarily or permanently in search for jobs and life security, causing an increase in the labour supply in the Thai labour market. This paper attempts to find the economic contribution of these migrant workers to Thailand using various data sources and a collection of related findings. We find that capital gains from migrant workers show an increasing trend from around 0.03 per cent of the real national income (880 million baht) in 1995 to around 0.055 per cent of the real national income (2,039 million baht) in 2005. Using the adjusted labour share, the net contribution of migrant workers is on average 0.023 per cent of the real national income per year, or around 760 million baht per year.     

Changes in Income Concentration: Taxes or Macroeconomic Conditions?

We examine the relative importance of tax rates and macroeconomic fluctuations in explaining the share of national adjusted gross income (AGI) reported by the top 0.5% of all taxpayers. Results indicate that cutting the top income or capital gains tax rate would increase the top AGI share but not by enough to increase revenues. The preponderance of evidence suggests that the top AGI share is affected more by the capital gains tax rate than by the income tax rate but that real gross domestic product fluctuations have even larger effects.     

Top incomes and human well-being: Evidence from the Gallup World Poll

The share of income held by the top 1 percent in many countries around the world has been rising persistently over the last 30 years. But we continue to know little about the relationship between the rising top income shares and human wellbeing. Using data from 24 countries and years ranging from 2005 to 2013 in the Gallup World Poll and the World Income Database, this study examines the relationship between top income share and different dimensions of subjective wellbeing. The results are mixed, with the negative relationship between top income shares and average life ladder being driven largely by the European sub-sample. For the European countries, we also document evidence that top income is statistically significantly associated with lower average enjoyment and being well-rested yesterday, and higher average stress and sadness yesterday. Overall, our findings suggest that, at least for individuals in Europe, an economic policy that increases national incomes may have significant crowding-out effect on aggregate evaluative wellbeing if it only increases the share of income at the very top of income distribution. More generally, our results highlight the complex relationships between income inequality and subjective wellbeing across different countries.     

Long-run trends in top income shares: The role of income and population growth

This paper studies the sensitivity of long-run trends in top income shares to differences in top-share measures. While the standard measure fixes a share of the population, we define alternatives that allow variation in both incomes and size of the top group based on defining absolute income thresholds. In an application to United States data, we find that top income share trends over the past century vary somewhat depending on the measure used. Allowing top groups to increase in size after 1980 along with overall economic growth results in a larger increase of top income shares. The historical drops before WWII are sensitive to the choice of income deflator: using GDP inflates interwar top income shares but using CPI deflates them. Altogether, these results recommend using complementary approaches to defining top income groups when measuring long-term top income share trends.

     

The causal effect of social capital on income: A new analytic strategy

This study identifies three groups of job seekers in terms of the channels used to search for jobs: the formal channel involving only official procedures to obtain a job, the informal channel using only social contacts to obtain a job, and the joint channel leveraging both social contacts and official procedures. The analysis of a national sample survey of China shows that joint channel users, due to their relatively higher level of social capital, not only make more job search attempts but also obtain higher income than formal channel users. Meanwhile, joint channel users, because of their relative advantages in both human capital and social capital, not only make more job attempts but also obtain higher income than informal channel users. The two comparisons offer a new strategy to test the causal role social capital plays in labour market success, regardless of whether social capital is exogenous or endogenous to human capital.     

Do labour market reforms reduce labour productivity growth? A panel data analysis of 20 OECD countries (1960–2004)

Based on comprehensive regression analysis, the authors find that weak wage growth and a smaller labour share of national income significantly reduce labour productivity growth. They conclude that supply‐side labour market reforms have contributed to reducing labour productivity growth: this cannot be explained by a deregulation‐induced inflow of low‐productivity labour as proposed by OECD researchers. They also discuss why deregulation, easier firing and higher labour turnover may damage learning and knowledge accumulation in companies, notably by weakening the functioning of the “routinized” innovation model (“Schumpeter II”). Finally, their findings raise doubts about the relevance of Baumol's law and Verdoorn's law.     

The economic marginality of ethnic minorities: an analysis of ethnic income inequality in Singapore

This paper examines ethnic income inequality in Singapore from the perspectives of labour‐market segmentation and human capital. The findings of this study show that neither perspective is useful in explaining ethnic income inequality in Singapore. Further, the analysis shows that educational differences among the Chinese, Indians and Malays account for very little of the income gap. Much of the income difference is due to discrimination. The source of this discrimination lies in the segregation of ethnic minorities in lower‐paying jobs and occupations across all industries, reflecting Chinese domination in the economic and political spheres.     

The impact of household capital income on income inequality��a factor decomposition analysis for the UK, Germany and the USA

This paper analyses the contribution of capital income to income inequality in a cross-national comparison. Using micro-data from the Cross-National Equivalent File (CNEF) for three prominent panel studies, namely the BHPS for the UK, the SOEP for West Germany, and the PSID for the USA, we use the factor decomposition method described by Shorrocks (Econometrica 50:193–211, 1982). The factor decomposition of disposable income into single income components shows that capital income is exceedingly volatile and that its share in disposable income has risen recent years. Moreover, capital income makes a disproportionately high contribution to overall inequality in relation to its share in disposable income. This applies to Germany and the USA in particular. Thus capital income accounts for a large part of disparity in all three countries.     

Fundamental accrued capital gains and the measurement of top incomes: an application to Chile

Most previous studies of income inequality have either ignored capital gains or have used taxable realized capital gains to estimate top incomes. Neither of these approaches is fully satisfactory. We apply for the first time a new methodology that allows us to account for fundamental accrued capital gains as part of the top incomes in a theoretically consistent manner. We estimate the shares of the super-rich in Chile showing that accrued capital gains have a large impact on these estimates. Also, the top income shares estimated using fundamental capital gains appear to exhibit a more stable and presumably more plausible time profile than estimates based on capital gains derived from asset market variations.     

Off-farm labour decision of Canadian farm operators: Urbanization effects and rural labour market linkages

Understanding the factors affecting off-farm labour decisions of census-farm operators has significant implications for rural development and farm income support policy. We examine the off-farm labour decisions of Canadian farm operators using micro-level data from the 2001 Census of Agriculture combined with community level data from the 2001 Census of Population. While confirming some of the findings of previous research with respect to the effects of human capital and farm characteristics on off-farm work participation, this study shows the differential impact of those variables for operators of smaller and larger holdings. Family, community and regional characteristics appear more relevant in determining the joint decision to work off-farm and operate a smaller holding, compared to the decision to work off-farm and operate a larger farm. Results suggest that, once other factors are accounted for, proximity to urban centres does not have a positive effect on the joint decisions to participate in off-farm work and to operate a holding. This joint decision, in fact, is more related to the dynamics of the local labour market. A major implication of these findings is that while urban centers might represent an engine of growth for overall rural income through employment opportunities for the non-farm workforce, the non-farm income of farm operators is more likely to be affected by policy initiatives that address directly the dynamics of labour markets in the community where the operator lives.     

How do labour laws affect unemployment and the labour share of national income? The experience of six OECD countries, 1970–2010

Using longitudinal data on labour law in France, Germany, Japan, Sweden, the United Kingdom and the United States over the period 1970–2010, the authors estimate the impact of labour regulation on unemployment and the labour share of national income. Their dynamic panel data analysis distinguishes between the short‐run and long‐run effects of regulatory change. They find that worker‐protective labour laws in general have no consistent relationship to unemployment but are positively correlated with labour's share of national income. Laws specifically relating to working time and employee representation are found to have beneficial effects on both efficiency and distribution thus proxied.     

SMARTer indicators for decent work in a post‐2015 development agenda: A proposal

The MDG employment indicators suffer from major shortcomings, including measurement problems, inappropriate use of aggregate statistics, ambiguous interpretability, and assumptions that do not apply to developing countries. Based on this critique, the authors propose a new set of four indicators for productive employment and decent work, namely: the growth of labour value added per worker, the working poverty rate, the share of workers receiving less than an absolute minimum labour income, and the share of workers receiving less than 60 per cent of the median labour income. They demonstrate the empirical application of these indicators using the country cases of Uganda and Peru.     

Rural Azerbaijan through Quantitative and Qualitative Research Lenses: Debating the Transition to Small Farm Capitalism

This article examines agrarian relations in post‐Soviet Azerbaijan after redistributive land reforms. We argue that the reforms failed to establish small‐farm capitalism on former collective and state farm land. Commodity production in rural Azerbaijan is characterized by increasing concentration of land and capital, and the recipients of the privatized land shares procure livelihoods not through commercial farming, but through a combination of strategies—including wages, remittances from migrant relatives, and subsistence agriculture. This study is based on the combination of state statistics, government reports, and local ethnography—in‐depth interviews with land reform administrators and with rural residents in six diverse villages from two distinct regions of Azerbaijan. Previous studies of post‐Soviet transition in rural Azerbaijan reported different results of the land reforms. A quantitative account based on the state statistics reported a postreform countryside where small farmers, former collective and state laborers, live off their privatized land shares and increase agricultural productivity. A qualitative account based on local ethnography suggested that the privatized land shares play a marginal role in the livelihoods of local residents. We show how the discrepancy is illusory and stems from an erroneous, legal definition of “small farms” used in the state statistics, which conflates socially distinct categories of land use. When the statistical terms are put into their social context, the quantitative data confirm the qualitative findings.     

Investigating the role of multilevel social capital in ethnic income inequality in the Chinese labour market

This study examines to what extent individual- and county-level social capital respectively and jointly explain the Chinese ethnic income inequality. Using two waves of the Chinese General Social Survey data, social capital is operationalised into extensivity, upper reachability, mean prestige, and range via the position generator. Results show that social capital is unevenly distributed along the ethnic line in China, minorities are in disadvantaged position in accessing social capital, especially the number of occupation accessed and mean occupational prestige, compared with Han. When cross-level interactions are taken into account, with the increase of county-level social capital, its positive effect on minorities’ income attenuates while it become stronger for Han’s income. The differential returns of social capital on income between minorities and Han may be attributable to the mean prestige of their accessed position networks. Finally, the Blinder-Oaxaca decomposition analysis uncovers that when all variables are controlled for, there is still approximately 24 % of the income gap between minorities and Han remained unexplained, indicating the severe ethnic wage penalty minorities are facing in the Chinese labour market.     

EFFECTS OF EXPOSURE ON PREVALENCE AND CUMULATIVE RELATIVE RISK: DIRECT AND INDIRECT EFFECTS IN A RECURSIVE HAZARD MODEL

This paper outlines decomposition methods for assessing how exposure affects prevalence and cumulative relative risk. Let     x     denote a vector of exogenous covariates and suppose that a single dimension of time   t   governs two event processes     T ₁  and   T ₂.    If the occurrence of the event     T ₁    determines entry into the risk of the event     T ₂,    then subgroup variation in     T ₁    will affect the prevalence     T ₂,    even if subgroups in the population are otherwise identical. Although researchers often acknowledge this phenomenon, the literature has not provided procedures to assess the magnitude of an exposure effect of     T ₁    on the prevalence of     T ₂.    We derive decompositions that assess how variation in exposure generated by direct and indirect effects of the covariates     x     affect measures of absolute and relative prevalence of     T ₂.    We employ a parametric but highly flexible specification for baseline hazard for the     T ₁  and   T ₂    processes and use the resulting parametric proportional hazard model to illustrate the direct and indirect effects of family structure when     T ₁    is age at first sexual intercourse and     T ₂    is age at a premarital first birth for data on a cohort of non-hispanic white U.S. women.     

Labour Market and Human Capital Behaviour of Immigrant Couples: Evidence from Australia

We examine the labour market and human capital investment behaviour of immigrant couples in Australia. The family investment hypothesis (FIH) states that immigrant husbands, whom the FIH assumes to be the primary earners in the family, will invest more in their human capital than immigrant wives, whom the FIH assumes to be secondary earners. Using longitudinal data from Household, Income and Labour Dynamics in Australia (HILDA) for the period 2001 to 2014, we do not find support for the FIH. Instead, we find that foreign-born husbands and wives share similar labour market assimilation patterns with respect to hours of work and wages. Our estimates suggest that immigrant wives' labour market behaviour can be better explained by their own long-term career progression and labour market assimilation, than through supporting their husbands' labour market assimilation.     

Arbeitsteilung,Berufsorientierung und Partnerschaftsstabilität – Ehen und nichteheliche Lebensgemeinschaften im Vergleich*

The central finding of this paper is that the link between the division of labour and the risk of separation differs depending on the type of relationship. Marriages tend to be destabilised by the wife’s participation in the labour force and stabilised by the traditional division of labour. Empirical evidence of this is manifest in a positive effect of the wife’s income and a negative effect of the husband’s relative income on the likelihood of separation. In contrast to this, unmarried long-term relationships are stabilised by egalitarian division of labour. This is evident from the absence of negative effects of an employment of the female cohabiter on stability of relationship. Furthermore, in unmarried cohabitations the relative income of the man increases the risk of a separation. In addition to the income ratio, homogamous attitudes have explanatory value. Cohabitations are stable when both partners are career-oriented. This finding points to an egalitarian gender-role-orientation among unmarried men. It also implies that an egalitarian orientation has an impact on the living arrangement which needs to be accepted by both partners – for instance when family planning and timing of marriage are concerned.     

The ‘myth’ of the family farm: Defining the family farm and assessing its importance in the European community

Family farming is a central but inadequately defined concept in the European Community's agricultural policy. An investigation into the importance of family farming is reported, using data from the European Community's Farm Accountancy Data Network that covers some 59,000 farms in the 12 Member States. A definition is adopted, based on the share of the labour provided by the family, to group farms into family, intermediate or non-family types. Almost three-quarters of Community farms were classed as family farms in 1989, but they produced only just over half of the total agricultural output and 62% of the total income. The incidence of family farming varied between countries and was lowest in the United Kingdom, where less than half fell into the family group. In all countries family farms tended to be smaller and to have lower incomes per person than non-family farms. However, the non-family group did not consist solely of larger farms operated by family labour supplemented by hired labour; at least in some countries the group contained smaller farms operated on a part-time basis and where there is substitution by hired labour for family labour. These subgroups point to alternative ways of structural adjustment to achieve higher incomes from farming.     

THE COLLAPSE AND RECOVERY OF THE CAPITAL SHARE IN EAST GERMANY AFTER 1989

After the 1990 unification, East Germany's capital income share plunged to 15.2% in 1991, then increased to 37.4% by 2015. To account for these large changes in the capital share, I model an economy that gains access to a higher productivity technology embodied in new plants. As existing low productivity plants decrease production, the capital share varies due to the nonconvex production technology: plants require a minimum amount of labor to produce output. Two policies—transfers and government‐mandated wage increases—have opposite effects on output growth, but contribute to lowering the capital share early in the transition. (JEL E20, E25, O11)