Inheritance flows in Sweden, 1810–2010
Jesper Roine, Henry Ohlsson, Daniel Waldenström 08 August 2014
The extent to which lifetime incomes are determined by inherited wealth is a politically sensitive issue, but long-run evidence on this question is limited. This column presents evidence on Swedish inheritance flows since the early 19th century. Despite a long history of aristocracy, accumulated capital was small relative to income in pre-industrial Sweden. In more recent times, Sweden stands out as a country where the return of capital has not automatically translated into a return of inherited wealth.
Thomas Piketty’s book Capital in the Twenty-First Century (Piketty 2014) has received enormous attention since its publication. A fundamental question raised is whether a person’s lifetime income is the result of his or her own efforts or, alternatively, founded on inheritance. Even for those who believe that inequality does not matter as long as it is based on one’s own effort, the potential of a return to high levels of inequality based on inheritance is a totally different matter. To many people, such a development would be much less acceptable than increased inequality per se.
Economic history Europe's nations and regions Poverty and income inequality
Sweden, Inequality, inheritance, wealth, capital, capital accumulation
Sourcing foreign inputs to improve firm performance
Maria Bas, Vanessa Strauss-Kahn 14 July 2014
The rise of trade in intermediate inputs is well documented, but its role in shaping domestic economies is not yet completely understood. This column presents evidence from French firms on the effects of importing intermediate inputs. Firms importing more varieties of intermediate inputs increased their productivity and exported more varieties. Foreign inputs from the most advanced economies have the strongest effect on firm productivity, but imported inputs from all countries help raise the number of export varieties.
Should trade policy fight or promote imports of intermediate inputs? While several studies have shown the recent increase in imports of intermediate goods, their role in shaping domestic economies is not yet completely understood. Following the work of Feenstra and Hanson (1996), a large literature focuses on the impact of imported intermediate inputs on employment and inequality. It concludes that, like outsourcing, imported intermediate inputs have a role (although limited) in explaining job losses and wage reductions.
employment, productivity, wages, Inequality, trade, exports, outsourcing, imports, global value chains, Intermediate inputs
Institutions, trade shocks, and regional differences in long-run educational and development trajectories
André Carlos Martínez, Aldo Musacchio, Martina Viarengo 09 July 2014
Institutions are known to play a powerful and enduring role in countries’ divergent levels of economic development. This column presents evidence that institutions matter for within-country inequality, too. In Brazil, changes in export prices and export tax revenues led to an increase in education spending in states that experienced commodity booms, which increased the number of schools and improved educational outcomes such as literacy rates. However, the effect was limited in states where slavery was predominant in colonial times.
Understanding the determinants of long-run socio-economic development is a major concern for academics and policymakers in many countries around the world. In particular, beyond understanding differences in development or educational and other outcomes across countries, the origins of within-country inequality are now a fundamental issue, given the impact inequality has on the long-run prosperity of nations.
Development Economic history Education
development, education, growth, institutions, Inequality, Brazil, colonialism, trade shocks, extractive institutions
Globalisation, job security, and wages
Kerem Cosar, Nezih Guner, James R Tybout 07 July 2014
Trade liberalisations are often accompanied by labour market reforms, making it difficult to isolate their effects. This column discusses the effects of trade liberalisation, globalisation, and labour-market reforms on the Colombian labour market. Reduced trade frictions increased cross-firm wage inequality and shifted the firm-size distribution rightward, with offsetting effects on overall wage inequality. Average income increased, but the gains were concentrated among employees of large, productive firms with access to export markets. Greater trade openness also increased job turnover.
How does increased openness to international trade affect workers’ wages and job security? This question is central to the public debate concerning the effects of globalisation, but convincing quantitative answers have been difficult to come by. One fundamental reason is that major trade liberalisation episodes have often coincided with labour reforms (Heckman and Pages 2004). Colombia is a case in point. As Figure 1 shows, this country experienced deindustrialisation, higher job turnover rates, and heightened wage inequality in the years following its 1986–1991 trade liberalisation.
International trade Labour markets
productivity, unemployment, globalisation, wages, trade liberalisation, Inequality, labour market reforms, exports, Colombia, job security
Capital is not back: A comment on Thomas Piketty’s ‘Capital in the 21st Century’
Odran Bonnet, Pierre-Henri Bono, Guillaume Camille Chapelle, Étienne Wasmer 30 June 2014
Thomas Piketty’s claim that the ratio of capital to national income is approaching 19th-century levels has fuelled the debate over inequality. This column argues that Piketty’s claim rests on the recent increase in the price of housing. Other forms of capital are, relative to income, at much lower levels than they were a century ago. Moreover, it is rents – not house prices – that should matter for the dynamics of wealth inequality, and rents have been stable as a proportion of national income in many countries.
The impressive success of Thomas Piketty’s book (Piketty 2014) shows that inequality is a great concern in most countries. His claim that “capital is back”, because the ratio of capital over income is returning to the levels of the end of the 19th century, is probably one of the most striking conclusions of his 700 pages. Acknowledging the considerable interest of this book and the effort it represents, we nevertheless think this conclusion is wrong, due to the particular way capital is measured in national accounts.
house prices, housing, Inequality, rents, housing bubble, capital, wealth inequality
Is Piketty’s ‘Second Law of Capitalism’ fundamental?
Per Krusell, Tony Smith 01 June 2014
Thomas Piketty’s new book has been widely praised for its empirical contribution, but his prediction of rising inequality rests on economic theory. This column argues that Piketty’s pessimistic forecast is based on an extreme – and unrealistic – assumption about households’ saving behaviour. According to standard theory, the wealth–income ratio would increase only modestly as growth falls, so declining growth would not be a powerful force for generating high inequality.
Over the last several weeks, we have thought quite a bit about the main message in Thomas Piketty’s now world-famous book, Capital in the Twenty-First Century (Piketty 2014). We have also discussed it at great length with colleagues. In sum, at least in our departments, there has been a massive collective effort at interpreting both the material presented in the book and the background material on which the book builds. In this column we would like to present one perspective on the book that does not seem to have attracted sufficient attention in the public discussions.
Poverty and income inequality
growth, Inequality, wealth, saving, savings
Global income distribution: From the fall of the Berlin Wall to the Great Recession
Christoph Lakner , Branko Milanovic 27 May 2014
Since 1988, rapid growth in Asia has lifted billions out of poverty. Incomes at the very top of the world income distribution have also grown rapidly, whereas median incomes in rich countries have grown much more slowly. This column asks whether these developments, while reducing global income inequality overall, might undermine democracy in rich countries.
The period between the fall of the Berlin Wall and the Great Recession saw probably the most profound reshuffle of individual incomes on the global scale since the Industrial Revolution. This was driven by high growth rates of populous and formerly poor or very poor countries like China, Indonesia, and India; and, on the other hand, by the stagnation or decline of incomes in sub-Saharan Africa and post-communist countries as well as among poorer segments of the population in rich countries.
Global economy Politics and economics Poverty and income inequality
democracy, income inequality, globalisation, Inequality
How unequal is the European Parliament’s representation?
Anish Tailor, Nicolas Véron 21 May 2014
The European Parliamentary elections are conducted under rules that give voters power that varies with their nationality. This inequality is higher than in European and US national elections, as well as in large emerging-market democracies like Brazil, India, and Indonesia. Making the distribution more equal would be simple, but would require a change in the EU Treaties.
This week’s European Parliament election (22–25 May) has several unprecedented features. Most importantly, the main pan-European parties are fielding lead candidates for European Commission President. Turning the election into a presidential horse race was intended to increase electoral participation and enhance the Parliament’s democratic legitimacy, even though it remains to be seen whether voters will actually see things this way.
EU institutions Politics and economics
elections, democracy, EU, Inequality, voting, European parliament, treaty change
Falling real wages in the UK
David Blanchflower, Stephen Machin 12 May 2014
The pain of the UK’s Great Recession has been spread more evenly than previous downturns, with falling real wages across the distribution. This column asks why this happened, how it compares with the US experience, and what the prospects are for recovering lost wage gains.
There have been unprecedented falls in real wages in the UK since the start of the recession triggered by the financial crisis of 2008. This did not happen in previous economic downturns – median real wage growth slowed down or stalled, but it did not fall. Indeed, in past recessions, almost all workers in both the lowest and highest deciles of the wage distribution experienced growing real wages. It was the unemployed who experienced almost all the pain – they lost their jobs and much of their incomes, and many were unemployed for a long time.
Labour markets Poverty and income inequality
US, unemployment, wages, Inequality, UK, Great Recession, real wages
How to address inequality
Jeffrey Frankel 29 April 2014
Awareness of inequality is rapidly rising. This column argues that commentators should focus on identifying the policies that are best suited to improving income distributions efficiently, and the politicians that support them. It is not sufficient to sound the alarm about inequality and the political reach of the super-rich.
Inequality has received a lot of attention lately, particularly in two arenas where it had not previously received as much: American public debate and the International Monetary Fund. A major driver is the observation in the US that income inequality has now returned to the extreme levels of the Gilded Age (Piketty 2014).
Politics and economics Poverty and income inequality
US, Inequality, redistribution, voting, Political Economy