Income Inequality,Globalization, and the Welfare State: Evidence from 23 Industrial Countries, 1990–2009

The debate regarding the welfare state–weakening effect and the income inequality‐increasing effect of globalization remains a contentious issue among stratification scholars. For some, globalization increases income inequality, while for others, globalization has no, or a negligible, effect on income inequality. This study brings new evidence to bear on this debate by separately investigating effects of multiple indicators of globalization (international trade, foreign direct investment [FDI] and immigration), and of welfare state generosity (government social‐protection spending) on (1) income inequality before taxes and transfers and (2) income inequality after taxes and transfers, using data from 23 Organisation for Economic Co‐operation and Development (OECD) countries over 1990–2009. First, results show a positive effect of international trade, a negative effect of immigration, but no effect of FDI and government social‐protection spending on income inequality before taxes and transfers. Second, results show no effect of the globalization indicators but a negative effect of government social‐protection spending on income inequality after taxes and transfers. These findings suggest that (1) globalization has inequality‐increasing effects depending on measures of income inequality; (2) the welfare state, in many OECD countries, continues to shape income distribution; and (3) in contrast with the popular narrative, immigration may decrease income inequality.     

PITFALLS IN TESTING FOR COINTEGRATION BETWEEN INEQUALITY AND THE REAL INCOME

Frank (2009) constructed a comprehensive panel of state‐level income inequality measures using individual tax filing data from the Internal Revenue Service. Employing an array of cointegration exercises for the data, he reported a positive long‐run relationship between income inequality and the real income per capita in the United States. This article questions the validity of his findings. First, we suggest a misspecification problem in his approach regarding the order of integration in the inequality index, which shows evidence of nonstationarity only for the post‐1980 data. Second, we demonstrate that his findings are not reliable because the panel cointegration test he used requires cross‐section independence, which is inappropriate for the U.S. state‐level data. Employing panel tests that allow cross‐section dependence, we find no evidence of cointegration between inequality and the real income. (JEL D31, O40)     

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.     

The Social Inclusion and Inequality Nexus: EU versus non‐EU migrants

This study examines the relationship between social inclusions of migrant and income inequality. Both positive and negative impacts of social inclusion on income inequality have been observed in the previous literature. This study specifically considers two types of migration flow: migration flow from EU and migration flow from non‐EU. The aim of this article is twofold: 1) is there a strong association between social inclusion of migrants and income inequality, 2) is there any different impact of social inclusion of two types of migrants (EU vs non‐EU)? Using data from 33 mainly European countries over the period 2003‐2015 and controlling for savings rate, arable land rate and age‐dependency ratio, our results indicate that there is a significant negative relationship between social inclusion and income inequality. In particular, we find that social inclusion from non‐EU migrants significantly reduces income inequality compare with EU migrants.     

Income inequality,poverty and crime across nations

We examine the relationship between income inequality, poverty, and different types of crime. Our results are consistent with recent research in showing that inequality is unrelated to homicide rates when poverty is controlled. In our multi‐level analyses of the International Crime Victimization Survey we find that inequality is unrelated to assault, robbery, burglary, and theft when poverty is controlled. We argue that there are also theoretical reasons to doubt that the level of income inequality of a country affects the likelihood of criminal behaviour.     

Illustrating the Implications of How Inequality is Measured: Decomposing Earnings Inequality by Race and Gender

This paper makes three distinct contributions: it presents a novel modification to an established methodology for assessing inequality using the CPS ASEC data, it illustrates how valuable a multi-metric inequality analysis is by reconciling some open questions regarding the trend in inequality and the role of the composition of income along the distribution, and it provides a baseline assessment of the trend in earnings inequality for four distinct groups of income earners. The evolution of earnings inequality from 1995 to 2010 is compared to increasing inequality in total income as documented by Thomas Piketty and Emmanuel Saez to show that earnings inequality has followed a qualitatively similar, though less extreme trend. In the process, the disconnect between the trend in the Gini coefficient and inequality assessed via the share of income going to the top 1 % of income earners is reconciled through the use of several alternative inequality indices. Finally, the evolution of the earnings distribution for black women, black men, white women, and white men are considered separately, which shows that there are important differences in the experience of inequality. The main findings are that only white men have experienced changes in within-group earnings inequality that parallel the changes in inequality seen in the overall distribution. By contrast, black income earners have seen no notable increase in within-group inequality by any measure, suggesting that they may rightly perceive growing inequality as primarily a between-group phenomena.     

INEQUALITY AND TRUST: NEW EVIDENCE FROM PANEL DATA

We estimate the causal link from income inequality to generalized trust by reconsidering the country‐level evidence on this issue. First, we exploit the panel dimension of the data, thus controlling for any country unobservable time‐invariant variables, and find a negative relationship between the two variables that holds only for developed countries. Second, we focus on these advanced economies and provide instrumental variable estimates using the predicted exposure to technological change as an exogenous driver of inequality. According to our findings, the negative causal effect of inequality on trust is even larger than that coming from ordinary least squares estimation. We also provide new insights on the effects of different dimensions of inequality, exploiting measures of both static inequality—such as the Gini index and top income shares—and dynamic inequality—proxied by intergenerational income mobility. (JEL D31, O15, Z13)     

Long term stability of time preferences and the role of the macroeconomic situation

We look at the stability of survey based subjective time preferences over time using data from a Dutch panel survey with a long time horizon and find that the ranking of individual time preferences is stable. Simple observation of the aggregated measured time preferences reveals instability in aggregated preferences. In order to shed light on this instability we look at the relationship between the individual socio-economic situation and time preferences and the macroeconomic situation and time preferences. While we find no clear relationship between socio-economic situation and time preferences, we find that for the sample as a whole patience is positively correlated with economic growth, but negatively correlated with income inequality. When studying how the estimations differ across income groups we observe that there is a considerable asymmetry in how different income groups react to changes in the macroeconomic situation.     

Trend Analysis of Anticipated Lifetime Income Inequality among Post‐war Japanese Youth

This study aims to measure the inequality of anticipated lifetime income and the inequality of annual income among the younger generation (24–29‐year‐old men), and to examine any trends that can be found in terms of inequality between 1955 and 2005 in Japan. Anticipated lifetime income is defined in this study as the present value of the total anticipated annual income that one is likely to earn each year between the ages of 24 and 59 years, assuming that there is no intragenerational class mobility. The anticipated lifetime income for each young male is estimated using the Social Stratification and Social Mobility Survey dataset, which is a Japanese national cross‐sectional survey of social stratification and social mobility. An inequality in the anticipated lifetime income can be regarded as an “inequality of outlook” among the younger generation. As a result of this analysis, it was found that the Gini coefficient, the most general measurement of income inequality, had significantly increased for anticipated lifetime income between 1995 and 2005. At the same time, the gap between the Gini coefficient of anticipated lifetime income and that of annual income had narrowed. It is suggested that “inequality of outlook,” which cannot be easily identified using a superficial index, has increased significantly.     

The Persistence of Wives’ Income Advantage

Recent reports using cross‐sectional data indicate an increase in the percentage of wives who outearn their husbands, yet we know little about the persistence of wives’ income advantage. The present analyses utilize the 1990 – 1994 waves of the National Longitudinal Survey of Youth 1979 (N= 3,481) to examine wives’ long‐term earnings advantage. Although a significant minority of women outearn their husbands in 1 year, considerably fewer do so for 5 consecutive years. The presence and persistence of wives’ income advantage vary by demographic characteristics, economic and human capital measures, and over the individual and marital life course. The findings suggest caution in interpreting women’s relative economic gains as signaling absolute progress toward eliminating gender inequality within marriages.     

THE DECOMPOSITION OF INEQUALITY BY CLASS AND BY OCCUPATION:

Sociological research on earnings and income has focused on predicting individual income. Analyses most often use occupational status or class, along with other economically relevant variables, to explain earnings or income variations among individuals (income determination). Aggregate inequality (income distribution) has received considerably less attention, except in cross-national research. This especially holds for applying central concepts of stratification to the analysis of inequality. That is, class and occupation differences in economic rewards are rarely used to investigate aggregate earnings or income inequality. This study, using 1976 and 1977 Panel Study of Income Dynamics survey data, estimates the proportion of total earnings/income inequality accounted for by class and by occupation. Theil's index is used to measure earnings and income inequality and thus decompose total inequality into between-and within-group components. Wright's five-category schema is replicated for decomposition of inequality by class and a traditional four-category ordinal typology for decomposition by occupation. The two schemas show similar results: both class and occupation respectively account for between one-fifth and one-fourth of total earnings and income inequality. The results show the relevance of these central stratification typologies for the analysis of aggregate inequality.     

Baby booming inequality? Demographic change and earnings inequality in Norway, 1967�C2000

In this paper, we demonstrate how age-adjusted inequality measures can be used to evaluate whether changes in inequality over time are due to changes in the age-structure. To this end, we use administrative data on earnings for every male Norwegian over the period 1967–2000. We find that the substantial rise in earnings inequality over the 1980s and into the early 1990s, is to some extent driven by the fact that the large baby boom cohorts are approaching the peak of the age–earnings profile. We further demonstrate that the impact of age-adjustments on the trend in inequality during the period 1993–2000 is highly sensitive to the method used: While the most widely used age-adjusted inequality measure indicates little change in inequality over this period, a new and improved age-adjusted measure suggests a decline in inequality.     

FDI AND INCOME INEQUALITY: EVIDENCE FROM A PANEL OF U.S. STATES

This study employs state‐level panel data to explore the relationship between inward foreign direct investment (FDI) and income inequality in the United States. Using panel cointegration techniques that allow for cross‐sectional heterogeneity and cross‐sectional dependence, we find that, in the long run, FDI exerts a significant and robust negative effect on income inequality in the United States. This result for the United States as a whole does not imply that FDI narrows income gaps in each individual state. There is considerable heterogeneity in the long‐run effects of FDI on income inequality across states, with some states (21 out of 48 cases) exhibiting a positive relationship between FDI in income inequality.(JEL F21, D31, C23)     

Income inequality,cultural capital,and high school students' academic achievement in OECD countries: A moderated mediation analysis

This study examines how social context, in this case, income inequality, shapes the role of cultural capital in educational success. First, we revisit the associations between (objectified) cultural capital and academic achievement, and cultural capital's role in mediating the relationship between family SES and academic achievement. More importantly, we explore how national-level income inequality moderates these two relationships. By analyzing a multilevel dataset of 32 OECD countries, a combination of PISA 2018 data and several national indexes, we find that: (1) cultural capital not only has a positive association with students' academic achievement but also acts as a significant mediator of the relationship between family SES and academic achievement in OECD countries; (2) both cultural capital's association with academic achievement and it's mediating role are stronger in more equal countries than in unequal ones. The findings shed new light on understanding how cultural capital shapes intergenerational education inequality across countries with different levels of inequality.     

A Research Note on Family and Income Distribution: The Equalizing Impact of Married Women's Earnings in Metropolitan Brazil*

Using the 1985 Brazilian Annual Household Survey (PNAD), this study analyzes the extent to which the labor force participation of married women influenced familyincome inequality. The marginal impact on family earnings is decomposed into two components, one generated uniquely by differences in earnings inequality between spouses and another produced by imperfect assortive mating on spouses' earnings. Results show that the correlation among spouses' earnings is significantly less than one (0.4), and that the level of earnings inequality is more than 50 percent higher among wives than husbands. Because these forces are offsetting, wives' labor income has a negligible impact on family-income inequality in Brazil. The results demonstrate the importance of isolating the influence of imperfect assortive mating from that due to inequality in earnings between men and women.     

Can a minimum wage increase have an adverse impact on inequality? Evidence from two Latin American economies

This paper uses a semiparametric model to analyze the impact of an increase in the real minimum wage on inequality in Colombia between 1995 and 1999 and in Paraguay between 1993 and 2000–2001. Simulations suggest that if the employment effects of the minimum wage increase are ignored, the underlying policies would contribute to reduce earnings inequality in Colombia and would be inequality neutral in Paraguay. By considering the drop in wages of those who lost their jobs, simulations suggest that in both countries the policy in question would increase earnings inequality under some assumptions about the employment elasticity of the minimum wage and the new level of earnings unemployed workers rely upon. While these findings do not mean that minimum wage increases in LDCs (Less Developed Countries) necessarily have adverse distributional affects, they suggest that minimum wage policy should be implemented with care depending on how sensitive employment is to wage increases. An erratum to this article can be found at     

The impact of taxes and transfer payments on the distribution of income: A parametric comparison

The Luxembourg Income Study data is used to explore the impact of taxes and transfer payments on the distribution of income across 13 countries for different years. The five-parameter generalized beta distribution and 10 of its special cases are considered as models for the size distribution of income. Maximum likelihood methods are used to estimate the model with corresponding measures of goodness of fit and inequality reported. These results identify the best-fitting two-, three-, and four-parameter models as well as describe the inter-temporal patterns of inequality corresponding to earnings, total income, and disposable income. A general pattern of increasing inequality is observed for almost all countries considered along with significantly different distributional impacts of taxes and transfer payments across countries.     

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 influence of earnings on income distribution in the United States

This article discusses whether the so called “skill-biased technological change” hypothesis is able to explain the individual earnings inequality in the U.S. during the period 1968–2000. Using the statistic information supplied by the Census Bureau and the Bureau of Labor Statistics, the article analyzes the earnings evolution, explaining the reasons why earnings inequality has increased, and the relation of this increase with the household income distribution. The main conclusions are the following: (a) changes on labor productivity are not the main cause of the increase in earnings’ inequality, and (b) this earnings’ inequality is not the only reason for the increase of the households’ income inequality.     

INCOME INEQUALITY: THE CONSEQUENCES OF SKILL‐UPGRADING WHEN FIRMS HAVE HIERARCHICAL ORGANIZATIONAL STRUCTURES

During the last three decades, most developed countries have experienced increasing income inequality. Using Danish register data from 1992 to 2007 for all private‐sector employees, we confirm that income inequality has increased in Denmark. We also observe an increase in the relative employment of highly educated individuals, as well as differential income growth rates across employee subgroups where, in particular, managers experienced significant real income progression. We use an equilibrium search framework with on‐the‐job search to study the interplay between skill‐upgrading, management compensation, and income inequality. In this model we can determine the management and education premia. We can also show that when our model is exposed to skill‐upgrading, it is capable of producing income dynamics similar to those observed in the Danish income distribution. (JEL J3, J6, M5)