Inequality, Redistribution and Mobility: Volume 28

This paper places what has happened to income inequality in rich countries over recent decades alongside trends in median and low incomes in real terms, taken as incomplete but valuable indicators of the evolution of living standards for “ordinary working families” and the poor. The findings demonstrate first just how varied country experiences have been, with some much more successful than others in generating rising real incomes around the middle and toward the bottom of the distribution. This variation is seen to be only modestly related to the extent to which income inequality rose, which itself is more varied across the rich countries than is often appreciated. The extent to which economic growth is transmitted to the middle and lower parts of the distribution is seen to depend on a range of factors of which inequality is only one. Sources of real income growth around the middle have also varied across countries, though transfers are consistently key toward the bottom. The diversity of rich country experiences should serve as an important corrective to a now-common “grand narrative” about inequality and stagnation based on the experience of the USA.

This paper produces a comprehensive assessment of income redistribution to the working-age population, covering OECD countries over the last two decades. Redistribution is quantified as the relative reduction in market income inequality achieved by personal income taxes (PIT), employees’ social security contributions, and cash transfers, based on household-level micro-data. A detailed decomposition analysis uncovers the respective roles of size, tax progressivity, and transfer targeting for overall redistribution, the respective role of various categories of transfers for transfer redistribution; as well as redistribution for various income groups. The paper shows a widespread decline in redistribution across the OECD, both on average and in the majority of countries for which data going back to the mid-1990s are available. This was primarily associated with a decline in cash transfer redistribution while PIT played a less important and more heterogeneous role across countries. In turn, the decline in the redistributive effect of cash transfers reflected a decline in their size and in particular by less redistributive insurance transfers. In some countries, this was mitigated by more redistributive assistance transfers but the resulting increase in the targeting of total transfers was not sufficient to prevent transfer redistribution from declining.

This paper attempts to interpret the Bartholomew (1973) index of mobility in terms of a directional mobility index based on the one-step expected states of movement corresponding to a specific state of transition matrix. A partial ordering of directional mobility of a general state of transition matrices, referred to as “upward mobility favoring sequential averaging (UMFSA),” is proposed using the algebraic equivalent of the generalized Lorenz ordering of expected states. When the underlying mobility depends on the initial distribution of the states, using a Bayesian approach, the indices are reexamined for a general class of matrices. This enables us to interpret the Prais (1955) and Bibby (1975) mobility index in this framework.

We propose a framework for the measurement of income mobility over several time periods, based on the notion that multi-period mobility amounts to measuring the degree of association between the individuals and the time periods. More precisely we compare the actual income share of individuals at a given time in the total income of all individuals over the whole period analyzed, with their “expected” share, assumed to be equal to the hypothetical income share in the total income of society over the whole accounting period that an individual would have had at a given time, had there been complete independence between the individuals and the time periods. We then show that an appropriate way of consistently measuring multi-period mobility should focus on the absolute rather than the traditional (relative) Lorenz curve and that the relevant variable to be accumulated should be the difference between the “a priori” and “a posteriori” shares previously defined. Moving from an ordinal to a cardinal approach to measuring multi-period mobility, we then propose classes of mobility indices based on absolute inequality indices. We illustrate our approach with an empirical application using the EU-SILC rotating panel dataset. Our empirical analysis seems to vindicate our approach because it clearly shows that income mobility was higher in the new EU countries (those that joined the EU in 2004 and later). We also observe that income mobility after 2008 was higher in three countries that were particularly affected by the financial crisis: Greece, Portugal, and Spain.

Educational policies are widely recognized as the means par excellence to equalize opportunities among children with different social and family backgrounds and to promote intergenerational mobility. In this chapter, we focus on the French case and we apply the opportunity equalization criterion proposed by Andreoli, Havnes, and Lefranc (2019) for evaluating the effect of rising compulsory schooling requirements in secondary education. Our results show that such education expansion has a limited redistributive effect on students’ earnings distribution. Nonetheless, we provide evidence of opportunity equalization among groups of students defined by family background circumstances.

This paper investigates the effect of household size, and in particular of the number of children of different age groups, on poverty, defined as being in a situation of low income. We apply various static and dynamic probit models to control for the endogeneity of the variables of interest and to account for unobserved heterogeneity, state dependence, and serially correlated error components. Using Luxembourg longitudinal data, we show that the number of children of different age groups significantly affects the probability of being poor. However, the magnitude of the effect varies across different specifications. In addition, we find strong evidence of true poverty persistency due to past experience, spurious poverty persistency due to individual heterogeneity, and transitory random shocks.

We show that a social planner who seeks to allocate a given sum in order to reduce efficiently the social stress of a population, as measured by the aggregate relative deprivation of the population, pursues a disbursement procedure that is identical to the procedure adhered to by a Rawlsian social planner who seeks to allocate the same sum in order to maximize the Rawlsian maximin-based social welfare function. Thus, the constrained minimization of aggregate relative deprivation constitutes an economics-based rationale for the philosophy-based constrained maximization of the Rawlsian social welfare function.

Studies on wage discrimination assume that independent observers are able to distinguish a priori which workers are suffering from discrimination. However, this may not be a good assumption when anti-discrimination laws mean that severe penalties can be imposed on discriminatory employers or when unobserved heterogeneity is significant. We develop a wage discrimination model in which workers are not classified a priori. It can be thought of as a generalization of the standard empirical framework, whereas the Oaxaca–Blinder model can be thought of as an extreme case. We propose a finite mixture model to explicitly model unobserved heterogeneity in individual characteristics and estimate the probabilities of being a discriminated or a non-discriminated worker. We illustrate this proposal by estimating wage discrimination in Germany and the UK.