Tax policy to correct inequality assumes that nobody is entitled to advantages due to luck alone. But the public largely rejects complete equalisation of 'brute luck' inequality. This column argues that there is near universal public support for an alternative, benefit-based theory of taxation. Treating optimal tax policy as an empirical matter may help us to close the gap between theory and reality.
Matthew Weinzierl, 24 September 2016
Speaker: Professor Elhanan Helpman FBA
Chaired by: Professor Richard Blundell FBA, University College London
While the rise in income inequality is hardly disputable, its causes have been debated for the last 20 years. Extensive research is shedding new light on the contribution of globalization to rising inequality. Although the ascent of less developed countries in the world economy has impacted inequality in the developed part of the world, the new research identifies drivers of inequality that are common to both rich and poor countries. The lecture will start with a historical account and end with the most recent insights.
James Bessen, 22 September 2016
A popular notion is that computer automation leads to major job losses. However, this ignores the dynamic economic responses that involve both changing demand and inter-occupation substitution. Using US data, this column explores the effect of automation on employment growth for detailed occupational categories. Computer-using occupations have had greater job growth to date, while those using few computers suffer greater computer-related losses. The real challenge posed by automation is developing a workforce with the skills to use new technologies.
Giacomo De Giorgi, Anders Frederiksen, Luigi Pistaferri, 17 September 2016
Household consumption can be influenced by the consumption behaviour of peers. This column examines why this is the case, and considers some policy implications. The tendency for individuals to under-save (or over-borrow) in an attempt to ‘keep up with the Joneses’ appears to be driven by the average consumption of their peers, rather than by the consumption of conspicuous items. If tax policy fails to consider these peer effects, it risks wrongly estimating the effects of tax reforms that target certain groups.
John Helliwell, 06 September 2016
Discussions about inequality tend to focus on the distribution of income and wealth. This column argues for a shift in focus towards another source of inequality – subjective wellbeing. Wellbeing inequality has grown significantly for the world as a whole and in eight of the ten global regions. One way to address this inequality is to increase social trust.
Gylfi Zoega, 01 September 2016
Britain’s decision to leave the EU surprised many. This column examines the relationship between economic prosperity and voting behaviour in the referendum. The regions that have benefitted most from immigration and trade voted most strongly in favour of remaining, while the regions where people feel most threatened voted to leave. In other countries fearing a similar EU exit, economic policy should aim to ensure that the gains from trade and immigration are as widespread as possible.
Kurt Mitman, Dirk Krueger, Fabrizio Perri, 30 August 2016
Previous research found that income and wealth inequality had little impact on the aggregate dynamics of consumption, investment and output. This reinforced the idea that we can study downturns in the economy using representative agents. This column argues that household inequality affects both the depth of a recession and the welfare losses of those affected by it. Therefore we should explicitly measure and model household heterogeneity when we consider the impact of business cycle fluctuations and the welfare consequences of economic crises.
Brian Nolan, Max Roser, Stefan Thewissen, 27 August 2016
With inequality rising and household incomes across developed countries stagnating, accurate monitoring of living standards cannot be achieved by relying on GDP per capita alone. This column analyses the path of divergence between household income and GDP per capita for 27 OECD countries. It finds several reasons why GDP per capita has outpaced median incomes, and recommends assigning median income a central place in official monitoring and assessment of living standards over time.
Thorvaldur Gylfason, 22 August 2016
One-dimensional indicators such as GNI per capita are known to be flawed measures of wellbeing. The Human Development Index (HDI) introduced dimensions of health and education alongside income. This column argues that an HDI adjusted for inequality and hours worked gives deeper insight into a country's economic standing. Using this composite measure, the US falls from first to seventh among G8 countries.
Roy Van der Weide, Christoph Lakner, Elena Ianchovichina, 11 August 2016
Household income surveys underestimate income inequality because they fail to capture top incomes. A popular solution is to combine the household survey with data from income tax records, though for countries like Egypt these records are not available, leading to an underestimate of inequality. This column argues that data on house prices can instead be used to estimate the top tail of the income distribution. Using this method the Gini index for urban Egypt increases from a survey-based figure of 0.36, which suggests that it is one of the world’s most equal countries, to 0.47.
Maleke Fourati, Gabriele Gratton, Pauline Grosjean, 14 July 2016
It is typically argued that the rising popularity of Islamist parties in parts of the Arab world reflects votes from the poor and disenfranchised. This column challenges this perspective, arguing that Islamist parties gain political support from the middle classes, due in large part to neoliberal economic policies. Using survey and electoral data from Tunisia, it shows that belonging to the middle class and living in a rich district together affect the decision to vote for the religious party more than actually being religious. These findings suggest that the same framework used to analyse political competition in the West can be fruitfully applied to the Muslim world.
Ghazala Azmat, Rosa Ferrer, 12 July 2016
Gender gaps in earnings exist in high-skill industries despite male and female workers having similar educational backgrounds. This column uses evidence from the legal industry to assess how performance affects career outcomes across genders. Performance gaps, defined by hours billed and new revenue raised, explain a substantial share of the gender gaps in earnings, as women’s working hours are affected by having young children while those of men are not. An important implication is that gender-based inequality in earnings and career outcomes might not decrease in the near future as more high-skilled workers are explicitly compensated based on performance.
James Harrigan, Ariell Reshef, Farid Toubal, 06 July 2016
Job polarisation has been documented in many large developed economies over the past two decades. This column shows how the growth of ICT has contributed to these trends. Using French firm-level data, it documents the declining share of middle-wage jobs, and identifies an increase in the share of technology-related jobs as an important contributing factor. Firms with more ‘techies’ are also found to grow faster than less techie-intensive firms.
Wolfgang Keller, Hâle Utar, 05 July 2016
Recent shifts in political sentiment regarding EU membership have been caused in part by a growing hostility towards globalisation. This column uses Danish evidence to analyse whether globalisation causes a polarisation of jobs in developed countries, and in particular whether it causes a loss of middle-income jobs. Rising import competition can increase income inequality, but it also accounts for a substantial part of all high-wage employment gains. The task for policymakers is to make these gains felt by the majority of citizens.
Daron Acemoglu, Pascual Restrepo, 05 July 2016
Many economists throughout history have been proven wrong in predicting that technological progress will cause irreversible damage to the labour market. This column shows that so far, the labour market has always adapted to the replacement of jobs with capital, using evidence of new types of skilled jobs between 1970 and 2007. As long as the rate of automation of jobs by machines and the creation of new complex tasks for workers are balanced, there will be no major labour market decline. The nature of new technology, and its impact on future innovation potential, has important implications for labour stability.
Janet Currie, Hannes Schwandt, 02 July 2016
Inequalities in mortality rates are a good indicator of economic wellbeing, but most of the existing literature does little to distinguish between developments in infants and adults. This column uses extensive US data to analyse mortality trends across all age groups. It finds that the health of the next generation in the poorest areas of the US has improved significantly and the race gap has declined significantly. Underlying explanations include declines in the prevalence of smoking and improved nutrition, and a major cause is social policies that target the most disadvantaged.
Fabienne Ilzkovitz, Adriaan Dierx, 19 June 2016
Firms with greater market power can behave monopolistically, and recent research suggests that declining market competitiveness is driving income inequality. While competition authorities already measure the overall impact of their interventions by using customer savings, these measurements do not account for indirect effects of intervention. This column introduces a DSGE model to model competition policy interventions as a negative mark-up shock. Competition policy has a significant and positive impact on growth and jobs, and impacts richer and poorer households differently. Interventions have important redistributive effects that benefit the poorest in society.
Brandon Dupont, Joshua Rosenbloom, 19 June 2016
The long-run persistence of social and economic status has received substantial attention from economists of late. But the impact of economic and political shocks on this persistence has yet to be thoroughly explored. This column examines the disruptions from the US Civil War on the Southern wealth distribution. Results suggest that an entrenched southern planter elite retained their economic status after the war. However, the turmoil of the decade opened mobility opportunities for Southerners of more modest means, especially compared with the North.
Peter Lindert, Jeffrey Williamson, 16 June 2016
Americans have long debated when the country became the world’s economic leader, when it became so unequal, and how inequality and growth might be linked. Yet those debates have lacked the quantitative evidence needed to choose between competing views. This column introduces evidence on American incomes per capita and inequality for two centuries before World War I. American history suggests that inequality is not driven by some fundamental law of capitalist development, but rather by episodic shifts in five basic forces: demography, education policy, trade competition, financial regulation policy, and labour-saving technological change.
Torben Andersen, Jonas Maibom, 29 May 2016
Theory and empirical data contest the direction of causality in the relationship between economic performance and income inequality – a relationship that is of great political importance. This column uses evidence from OECD countries to show that the relationship is not linear. While some countries can improve economic performance only at the cost of increasing economic inequality, other countries can improve both economic performance and equality without such a trade-off.