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61. Financial Market Integration and Income Inequality

Author:
Jae Wook Jung and Kyunghun Kim
Publication Date:
07-2018
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Benefits of financial market integration include cheaper and alternative op-tions of saving and borrowing for households and entrepreneurs. In the global financial market, asset choices for households widen so that individu-als can manage their idiosyncratic income risk more effectively. On the other hand, financial market integration makes investors who hold foreign assets more vulnerable to global financial shocks. In the recent financial crisis, finan-cial market distress which initially arose in the U.S. had an enormous impact on the peripheral countries. This example shows that the strong shock prop-agation occurs via integrated financial markets. The existing literature shows that financial market integration has a sizable impact not only on business cycles in the short run, but also on economic growth in the long run. However, there has been little attention to income distribution, specifically in related to the financial market integration. In this paper, we fill the void in the literature by focusing on the following two styl-ized facts: income inequality has been exacerbated in most countries over the past two decades, and the financial market has been integrated across coun-tries during the same period. In particular, we answer three research questions to investigate the relationship between the two facts. First, how does financial market integration affect income inequality? Second, how do financial market integration and financial market development interact to change income ine-quality? Third, what components do theoretical model need to explain the interaction effect of financial market development and integration on income inequality? We test hypotheses that the effect of financial market openness on inequality is conditional on the level of domestic financial market development when the financial market opens. An empirical study with panel data comprised of 174 countries for the period 1995-2017 finds that the overall effect of finan-cial integration on income inequality is nonlinear. Financial market integration creates the intensive and extensive margins of credit supply which may de-pend on the development level of financial market disproportionally. This paper uncovers a novel empirical evidence that financial market integration and financial market development interact to change income inequality. When other things are controlled, the effect of financial market integration on in-come inequality depends on financial market development. In a country with underdeveloped financial market, income inequality gets worse as financial market opens. On the other hand, when financial market is highly developed, the effect of financial market openness on income inequality is mostly insig-nificant in a statistical sense. The results are still valid with different measures of financial market development, integration, and income inequality. We check that the results are robust as an endogeneity issue among financial market development and integration is controlled. We also suggest some important structures for the conventional economic model to account for our empirical finding as theoretical implications. Based on these implications, extensions of the conventional small open economy model with financial constraints having suggested components such as het-erogeneous holdings of foreign assets across income and asset levels and entrepreneurial shocks will be necessary to understand an interaction of fi-nancial market openness and domestic market development on the distribu-tion of income in a country. Our finding also echoes that studying an eco-nomic mechanism in which economic growth, financial market outcomes, and inequality are endogenously determined.
Topic:
Development, Income Inequality, Financial Markets, Economic Growth, and Integration
Political Geography:
Global Focus

62. Using wage boards to raise pay

Author:
Arindrajit Dube
Publication Date:
12-2018
Content Type:
Policy Brief
Institution:
Economics for Inclusive Prosperity (EfIP)
Abstract:
During the past 40 years, the United States has experienced a sharp and sustained rise in wage and income inequality. The high level of inequality in the United States reflects both a disconnect between (1) average wages and productivity, and (2) top and bottom wages.
Topic:
Economics, Labor Issues, Income Inequality, Labor Policies, Wage Subsidies, Economic Policy, and Economic Theory
Political Geography:
United States

63. Inequality in the 21st century: A critical analysis of Piketty’s work

Author:
Nadia Garbellini
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Thomas Piketty’s (2014) Capital in the XXI Century aims to analyze distributions of income and wealth and their determinants, in a set of developed countries from the nineteenth century to the present. The objective is a bold one, made even more so by the fact that Piketty pursues it not only from a theoretical, but also, from an empirical point of view. The task is particularly impressive not only because of the enormous effort required in collecting and organising data, but also because the work entails attaching a deterministic interpretation to facts and figures from radically different countries over a time span that covers almost two centuries, thereby forcing comparison between numbers coming from clearly incommensurable contexts. These difficulties are not lost to Piketty, who states that “[w]ithout precisely defined sources, methods, and concepts, it is possible to see everything and its opposite.” (Piketty, 2014, pp.2-3) This study argues that the empirical ‘methods and concepts’ adopted by Piketty are not always consistent with those coming from his reference theoretical framework, nor from National Accounts (United Nations, 2009).
Topic:
Economics, Inequality, Income Inequality, Economic Growth, and Capital
Political Geography:
Global Focus

64. Where Do Profits and Jobs Come From? Employment and Distribution in the US Economy

Author:
Lance Taylor and Özlem Ömer
Publication Date:
04-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
“Meso” level analysis of 16 producing sectors sheds light on broad forces shaping growth of employment and profits. In a growth decomposition from 1990 through 2016, employment responds positively to output increases and negatively to rising productivity. The macro profit share responds positively to sectoral productivity and demand shifts, and negatively to real wage increases. The decomposition weights suggest that wage repression raises profits in business services, education and health, wholesale and retail trade, and parts of manufacturing. Observed profit growth was robust in manufacturing, trade, finance and insurance, and information. The latter two (and wholesale trade) benefitted from favorable demand shifts. However, they generate less than a quarter of total profits. Owners of real estate receive more than a quarter but their share is not increasing. Growth of the remaining one-half of profits has been due to demand shifts and productivity growth which exceeded real wage increases. Market power matters in all sectors. The strongest effects may act against employment and real wages in labor markets.
Topic:
Inequality, Income Inequality, Economy, Monopoly, Rent, Minimum Wage, and Wealth
Political Geography:
North America and United States of America

65. Universal Basic Income as a Tool of Empowerment for Minorities

Author:
Sonja Wolf and Craig Willis
Publication Date:
12-2018
Content Type:
Research Paper
Institution:
European Centre for Minority Issues (ECMI)
Abstract:
Minority empowerment is a relatively new approach on research and policy-making in the field of minority studies. At its core lies the ideal to remove the marginalisation of minorities by providing room for them to take agency on their own behalf. One policy that has been identified as having the potential to rapidly affect marginalised communities is the implementation of a Universal Basic Income; a monthly amount paid equally to all residents of an area without any means-testing or conditions. This working paper explores how these two fields of research can connect and identifies the key areas of everyday life that could be affected. This includes focus on employment, education, relationships and family life, community work, and government intrusion and social stigma; core elements for any individual and society, including minority communities. The analysis section finds that UBI has the potential to alter all of these aspects, but only if it is used to increase the existing standard of welfare and government services and not as an opportunity to reduce government spending by cutting the vital existing programmes.
Topic:
Labor Issues, Minorities, Income Inequality, Universal Basic Income, Welfare, and Social Services
Political Geography:
Global Focus

66. Inequality dynamics in China: Income growth for the poor, but more for the rich

Author:
Shi Li and Terry Sicular
Publication Date:
12-2018
Content Type:
Policy Brief
Institution:
United Nations University
Abstract:
In the late 1970s, China embarked on a major programme of economic transition and reform. Since then, China’s economy has been transformed from a socialist planned economy to a predominately market economy characterized by a combination of state, private, and mixed forms of ownership. Over the past forty years, household incomes have risen six-fold, poverty has declined dramatically, and in recent years a new class of ultra-rich has emerged. These developments have naturally led to questions about inequality trends in China.
Topic:
Economics, Poverty, Reform, Income Inequality, and Welfare
Political Geography:
China and Asia

67. Why is Women’s Work Low-Paid? Establishing a framework for understanding the causes of low pay among professions traditionally dominated by women

Author:
Jill Rubery
Publication Date:
11-2017
Content Type:
Working Paper
Institution:
Oxfam Publishing
Abstract:
This discussion paper was commissioned by Oxfam’s UK Programme to understand why certain occupations in the UK labour market, traditionally dominated by women, are low-paid. The paper argues that jobs associated with traditional and outdated notions of ‘women’s role in the home’ extends into the jobs market. This affects attitudes towards remuneration in professions such as cleaning and caring. The paper sets out a framework for understanding the risks of low pay and to explore the issue of the undervaluing of low-paid jobs with respect primarily to women. The author calls these the five ‘V’s: visibility, valuation, vocation, value-added and variance, and sets out a possible series of policy responses.
Topic:
Gender Issues, Poverty, Labor Issues, Inequality, Income Inequality, and Labor Rights
Political Geography:
United Kingdom and Europe

68. Infrastructure, Gender and Violence: Women and Slum Sanitation Inequalities in Delhi

Author:
Susan Esme Chaplin and Reetika Kalita
Publication Date:
10-2017
Content Type:
Special Report
Institution:
Centre for Policy Research, India
Abstract:
In Delhi, as in many other Indian cities, millions of men, women and children who live in slums and informal settlements haveto daily confront the lack of adequate sanitation facilities. These sanitation inequalities have a greater impact on the health and socioeconomic status of women and girls because of their greater social vulnerability to sexual violence; there is also the role played by biology in their need for privacy, safety and cleanliness. Men and boys, on the other hand, tend to use public urinals and open defecation (OD) sites generally more frequently, because their need for privacy during these sanitation activities is not such a cause for concern. In addition, women and girls are forced every day to risk using precarious spaces for their sanitation activities that may expose them to gender-based violence and harassment and not satisfy their biological and socio-cultural needs. These urban sanitation inequalities also negatively impact the time women have available for paid employment as well as their daily domestic responsibilities, as they have to spend each morning queuing for toilets or getting up earlier to go with other women to OD sites. For adolescent girls this can often mean being late for school, which threatens their education and future life choices. India failed to meet Millennium Development Goal No. 7 (adopted by the United Nations in 2000) relating to halving the proportion of people without access to basic sanitation. In terms of toilet usage across India, the Census 2011 found that 81 percent of urban households had a private toilet or latrine. But when it came to slum households, only 66 percent had a toilet, meaning that 34 percent had to either use a community or public toilet or resort to OD (Ministry of Housing and Urban Poverty Alleviation & National Buildings Organisations 2013, p. 60). In reality, there are an estimated 41 million urban dwellers still practising OD because of a lack of access to improved sanitation (WaterAid 2016). OD is a compulsion, not a choice, and creates particular risks and imposes a variety of harms upon women and children that men and boys do not suffer. Who or what is responsible for such socioeconomic consequences of the lack of adequate sanitation infrastructure in Indian cities which perpetuate gender inequalities? How do harms like gender-based violence impact the everyday lives of women and girls living in slums in particular? This project report examines these issues using the notion of infrastructural violence and then examines the harms and suffering caused by a lack of sanitation infrastructure in two long-established localities in Delhi: Mangolpuri and Kusumpur Pahari. Mangolpuri is a resettlement colony in the northwest region of Delhi with an estimated population of more than 350,000. It is interspersed with eight JJCs clusters of varying sizes. Kusumpur Pahari is located in the heart of south Delhi, near Jawaharlal Nehru University, and now has five blocks of JJCs and an estimated population of nearly 50,000.
Topic:
Development, Gender Issues, Health, Children, Women, Income Inequality, and Sanitation
Political Geography:
South Asia, India, and Asia

69. The Impact of the Tax System and Social Expenditure on the Distribution of Income and Poverty in Latin America

Author:
Nora Lustig
Publication Date:
03-2017
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
This paper presents results on the impact of fiscal policy on inequality and poverty in sixteen Latin American countries around 2010. The countries that redistribute the most are Argentina, Brazil, Costa Rica and Uruguay, and the least, Guatemala, Honduras and Peru. At higher social spending, greater redistribution is achieved, but countries with a similar level of social spending show different levels of redistribution which suggests that other factors such as the composition and targeting of the expenditures are involved in determining the redistributive effect beyond its size. Fiscal policy reduces extreme poverty in twelve countries. However, the incidence of poverty after taxes, subsidies and monetary transfers is higher than the pre-fisc poverty rate in Bolivia, Guatemala, Honduras, and Nicaragua, even when fiscal policy does reduce inequality. Expenditure on pre-school and primary education is equalizing and pro-poor in all countries. Spending on secondary education is equalizing in all countries and also pro-poor in some countries but not all. Expenditure on tertiary education is never pro-poor, but it is equalizing, with the exception of Guatemala, where it is regressive and unequalizing and in Venezuela, where its redistributive effect is zero. Health spending is always equalizing but it is pro-poor only in Argentina, Brazil, Chile, Costa Rica, Ecuador, the Dominican Republic, Uruguay and Venezuela.
Topic:
Civil Society, Poverty, Capitalism, and Income Inequality
Political Geography:
Latin America

70. The Impact of Taxes and Social Spending on Inequality and Poverty in El Salvador

Author:
Nora Lustig, Margarita Beneke, and José Andrés Oliva
Publication Date:
01-2017
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
We conducted a fiscal impact study to estimate the effect of taxes, social spending, and subsidies on inequality and poverty in El Salvador, using the methodology of the Commitment to Equity project. Taxes are progressive, but given their volume, their impact is limited. Direct transfers are concentrated on poor households, but their budget is small so their effect is limited; a significant portion of the subsidies goes to households in the upper income deciles, so although their budget is greater, their impact is low. The component that has the greatest effect on inequality is spending on education and health. Therefore, the impact of fiscal policy is limited and low when compared with other countries with a similar level of per capita income. There is room for improvement using current resources.
Topic:
International Trade and Finance, Poverty, and Income Inequality
Political Geography:
El Salvador