Earnings inequality and subnational political economy in the United States, 1970–2000

Previous studies of rising inequality in the United States have overlooked the potential role of subnational political economic variation as an institution that shapes earnings restructuring. This paper uses hierarchical linear models to examine how state right-to-work laws contribute to growth in inequality in 80 metropolitan labor markets from 1970 to 2000. Contrary to conventional expectations, labor markets in states with right-to-work laws experience relatively mild growth in earnings inequality, and are less unequal by 2000 than non-RTW labor markets. The trend cannot be fully explained by union density, job growth, uneven development or variation in racial inequality. The findings contribute to a distinctly sociological perspective on rising inequality that considers how social, institutional and economic factors interact at the local and state levels to shape earnings.     

Self-employment disadvantage in the working lives of blacks and females

Self-employment, regardless of its quality, offers the advantage of keeping individuals employed, thereby contributing to a continuous work history and earnings over the lifetime. But in the individual life cycle, how important is self-employment, particularly given evidence that self-employment spells tend to be of short duration? Also, to what extent does self-employment contribute to race and gender differences in lifetime employment? We use an increment-decrement life table to analyze the role of self-employment in differentiating the working lifetimes of blacks and women from those of white men. White men's average lifetime years spent in self-employment exceed black men's by as many as six years, thus accounting for nearly the entire difference between whiteand black men's lifetime years employed. White women's self-employment episodes,while almost as numerous as white men's, are shorter and less connected towage-employment episodes. Black women's self-employment episodes are bothinfrequent and of short duration.

     

Inequality and education decisions in developing countries

In this paper we analyze the effect of inequality on school enrollment, preferred tax rate and expenditure per student in developing countries; when parents can choose between child labor, public schooling or private schooling. We present a model in which parents make schooling decisions for their children, weighing the utility benefit of having a child with formal public or private education versus the forgone income from child labor or household work. Parents vote over the preferred tax rate to finance freely provided public education. The utility benefit of an educated child is proportional to expenditure per student, so that there is congestion in public school. We find that when parents can send their children to work or to private school, high inequality leads to exit from public education at both ends of the income distribution. Thus high inequality reduces the support for public education, leading to a low tax rate and expenditure per student. Exit from public education results in both high child labor and a large fraction of students attending private school. In fact there is a threshold level of inequality above which there is no longer support for public education. In addition we explore the implications for the design of foreign aid. The results suggest that foreign aid policies should focus on promoting school attendance rather than increasing school resources, as the later policy might be offset by a reduction in the recipient country’s fiscal effort, with little impact on outcomes.      

Household wealth and the measurement of economic well-being in the United States

We analyze the level and distribution of economic well-being in the United States during the 1980s and 1990s based on the standard measure of money income and a measure in which income from wealth is calculated as the sum of lifetime annuity from nonhome wealth and imputed rental-equivalent for owner-occupied homes. Over the 1982–2000 period, median well-being increases faster when these adjustments are made than when standard money income is used. This adjustment also widens the income gap between African-Americans and whites but increases the relative well-being of the elderly. Adding imputed rent and annuities from household wealth to household income considerably increases measured inequality and the share of income from wealth in inequality. However, both measures show about the same rise in inequality over the period. We also find an increasing share of wage and salary income in our expanded definition of income among the richest 1% over the period but do not find that the “working rich” have largely replaced rentiers at the top of the economic ladder.      

Inequality, unemployment and growth: New measures for old controversies

This essay surveys some of the work of the University of Texas Inequality Project, a small research group that for the past decade has worked primarily to develop new measures of economic inequality, using a method based on the between-groups component of Theil’s T statistic. In this way, inequality statistics can be computed from many diverse and mundane sources of information, including regional tax collections, employment and earnings, census of manufacturing, and harmonized international industrial data sets. The rich data environment so constructed permits new analyses of patterns of economic change, by region, by sector, and by country, and broadly supports the idea that the movement of inequality is closely related to macroeconomic events at the national and the global level. I thank Ravi Kanbur for the invitation to submit this essay for consideration by the JOEI, and I thank the members of the UTIP team for comments on the draft.     

Knowledge and beliefs about national development and developmental hierarchies: The viewpoints of ordinary people in thirteen countries

Scholars and policy makers have for centuries constructed and used developmental hierarchies to characterize different countries. The hypotheses motivating this paper are that such social constructions have been circulated internationally, are constructed similarly in various countries, and follow the social constructions of elite international organizations, such as the United Nations. This paper uses data from 15 surveys in 13 diverse countries to study how developmental hierarchies are understood in everyday life. Our research shows that most people have constructions of developmental hierarchies that are similar across countries and are similar to the developmental hierarchies constructed by the United Nations. These findings suggest that developmental hierarchies are widely understood around the world and are widely available to ordinary people as they make decisions about many aspects of life.     

Ridge estimator with correlated errors and two-stage ridge estimator under inequality restrictions

Liew (1976a Liew, C.K. (1976a). A two-stage least-squares estimation with inequality restrictions on parameters. Rev. Econ. Stat. LVIII(2):234–238.[Crossref], [Web of Science ®] , [Google Scholar]) introduced generalized inequality constrained least squares (GICLS) estimator and inequality constrained two-stage and three-stage least squares estimators by reducing primal–dual relation to problem of Dantzig and Cottle (1967 Dantzig, G.B., Cottle, R.W. (1967). Positive (semi-) definite matrices and mathematical programming. In: Abadie, J., ed. Nonlinear Programming (pp. 55–73). Amsterdam: North Holland Publishing Co. [Google Scholar]), Cottle and Dantzig (1974 Cottle, R.W., Dantzig, G.B. (1974). Complementary pivot of mathematical programming. In: Dantzig, G.B., Eaves, B.C., eds. Studies in OptimizationVol. 10. Washington: Mathematical Association of America. [Google Scholar]) and solving with Lemke (1962 Lemke, C.E. (1962). A method of solution for quadratic programs. Manage. Sci. 8(4):442–453.[Crossref], [Web of Science ®] , [Google Scholar]) algorithm. The purpose of this article is to present inequality constrained ridge regression (ICRR) estimator with correlated errors and inequality constrained two-stage and three-stage ridge regression estimators in the presence of multicollinearity. Untruncated variance–covariance matrix and mean square error are derived for the ICRR estimator with correlated errors, and its superiority over the GICLS estimator is examined via Monte Carlo simulation.     

Status Traps

In this article, we explore nonlinearities in the intergenerational mobility process using threshold regression models. We uncover evidence of threshold effects in children's outcomes based on parental education and cognitive and noncognitive skills as well as their interaction with offspring characteristics. We interpret these thresholds as organizing dynastic earning processes into “status traps.” Status traps, unlike poverty traps, are not absorbing states. Rather, they reduce the impact of favorable shocks for disadvantaged children and so inhibit upward mobility in ways not captured by linear models. Our evidence of status traps is based on three complementary datasets; that is, the PSID, the NLSY, and US administrative data at the commuting zone level, which together suggest that the threshold-like mobility behavior we observe in the data is robust for a range of outcomes and contexts.     

More on the measurement of inequality

The article, written in 1973, examines what comparisons of income distributions can be made when Lorenz curves cross, employing the concept of third-order stochastic dominance. “More on the measurement of inequality” as reviewed by Prof. P. Lambert will appear in the Rediscovered Classics section, along with the editorial.     

Light and shadows: An analysis of racial differences between siblings in Brazil

Using data from the 2010 Census of Brazil, this article quantitatively examines the phenomenon of sibling differences in racial classification. In sum, the findings demonstrate that within-sibling racial heterogeneity occurs in 17–19% of families. The strongest predictor of racial discordance between siblings is racial discordance between parents. Furthermore, within-sibling regression models establish that race exhibits a modest but statistically significant association with some education and labor market outcomes. Most outcomes are not associated with race for siblings aged 15–19, although in families with both sexes, darker females have more favorable educational outcomes, while darker males have less favorable outcomes. In contrast, darker siblings aged 20–25 are less advantaged than their lighter brothers and sisters along a number of dimensions. They have significantly lower education, lower personal income, lower formal employment, and lower occupational status. It is argued that patterns for siblings aged 20–25 may be indicative of individual racial discrimination.