Income and Social Mobility - Findings
Both causes and effects of inequality have been extensively studied by ESOP researchers. In addition, new methods of measuring inequality have been developed.
Implications of inequality in the US | Social mobility in Norway | Labor market discrimination | Measurement of inequality
One paper that we would like to emphasize is Jonathan Heathcote, Kjetil Storesletten and Giovanni L. Violante (2010) ’’The Macroeconomic Implication of Rising Wage Inequality in the United States’’. published in the Journal of Political Economy. The paper starts from the premise that the US wage structure has been transformed by a rising college premium, a narrowing gender gap, and increasing persistent and transitory residual wage dispersion in recent years. What are the implications of these changes for cross-sectional inequality in hours worked, earnings and consumption, and welfare? With the changing wage structure as the only primitive force, the model can account for the key trends in cross-sectional US data. Four channels of adjustments seem to be generally important for modern market economies. In terms of alleviating the adverse effects of rising consumption inequality, the four channels – savings, flexible hours, female participation, and enrolment – are all quantitatively important. In terms of overall welfare, female participation and college choice matter much more than saving and flexible labour supply, since the model allows individuals to take advantage of the opportunities created by the dynamics of gender and skill-biased demand shifts.
ESOP’s research has been occupied with many aspects of social mobility in Norway. One important mechanism that might prevent social mobility is the interaction between the housing market and school quality. If all good school districts only had expensive housing it could prevent social mobility. Jon Fiva has studied this possibility. He has analyzed housing market reactions to the release of previously unpublished information on school quality. He finds a robust short-term housing market reaction to publication of school quality indicators, suggesting that households are willing to pay for better schools. The segregating effects appear to be moderate as the publication effect does not seem to be permanent as prices revert to prepublication levels, after two to three months.
Another aspect of social mobility is related to discrimination. Steinar Holden and Åsa Rosén have analyzed labor market discrimination. Employment protection legislation is an important part of the Nordic labour market. When workers do not face the threat of being fired over night, they need not be afraid to claim their rights, even if it might cause conflict with the employer. However, for groups that face discrimination, general employment protection may reduce their chance of being hired. Holden and Rosén consider a case where workers who seldom get new offers become less attractive in the labour market. A vicious circle can be established where employers discriminate because other employers discriminate. Discrimination as a cause of the gender wage gap has been studied empirically by Erling Barth. Using matched employer-employee data from Norway he finds that female labour supply is less elastic than that of men. The results suggest that the larger share of the gender wage gap for low-educated workers may be attributed to differences in labour market frictions between men and women.
Another important research issue has been the measurement and assessment of inequality. Ingvild Almås, Alexander Cappelen, Jo Thori Lind, Erik Sørensen and Bertil Tungodden has developed an “unfairness Lorenz curve” and “unfairness Gini”. They use this to study the implications of theories of justice for the evaluation of the income distribution in Norway. They find that both pre-tax income and post-tax income distribution has become less fair in Norway between 1986 to 2005, as women's economic situation has deteriorated and as the tax system has become less progressive.