Income inequality is less severe in Germany than in the US. Part of this is due to CEO pay in the US growing faster than in Germany. This column offers some novel explanations for these observations. From the mid-1990s, Germany began offshoring managerial tasks to Eastern Europe, reducing demand for German managers. In addition Germany offshored skill-intensive jobs to Eastern Europe, reducing the skill premium.
Dalia Marin , 23 June 2016
Alexander W. Cappelen, Bertil Tungodden, 26 May 2016
What happens in the brain when something is fair or unfair? In this video, Alexander Cappelen and Bertil Tungodden present their research on the effects of fairness on our brains. Using fMRI technology, the neuroeconomics study shows that the brain reacts to unfairness. Income inequalities are perceived as fair if they reflect different work contributions. This video was recorded at the Choice Lab, Norwegian School of Economics, in Bergen.
The Asian Development Bank Institute (ADBI) invites submissions of unpublished papers that focus on structural transformation and inclusive growth. Both theoretical and empirical research papers with policy orientation are welcome provided that findings, conclusions, and policy recommendations are based on solid evidence and analysis.
Manuscripts can focus on a group of countries, or individual economies.
The papers should be related to, though not limited to, one of the following topics:
Growth decomposition across the income quantiles1
Structural transformation and growth incidence2
Structural transformation and income inequality
Future of the Kuznets Curve hypothesis3
Structural transformation and livelihood diversification
Julia Tanndal, Daniel Waldenström, 13 April 2016
Financial deregulation in the US has been shown to be associated with rising income inequality over the past four decades. This column looks at the income effects of financial deregulation in the UK and Japan during the 1980s and 1990s. As in the US, deregulation substantially increased the shares of income going to the very top of the distribution. These findings highlight the importance of financial markets in the evolution of income inequality in society.
Branko Milanovic, 24 February 2016
The Kuznets curve was widely used to describe the relationship between growth and inequality over the second half of the 20th century, but it has fallen out of favour in recent decades. This column suggests that the current upswing in inequality can be viewed as a second Kuznets curve. It is driven, like the first, by technological progress, inter-sectoral reallocation of labour, globalisation, and policy. The author argues that the US has still not reached the peak of inequality in this second Kuznets wave of the modern era.
Pablo Fajgelbaum, Amit Khandelwal, 28 November 2015
Recent studies have established a causal link between trade and rising wage inequality. This column suggests there is also a pro-poor bias of trade. In moving from autarky to trade, the relative prices of goods consumed intensively by the poor, such as food, fall more. The gains from opening to trade are estimated at 63% for the 10th percentile of the income distribution and 28% for the 90th percentile.
Claudia Olivetti, M Daniele Paserman, 12 November 2015
Intergenerational income mobility is currently not very high in the US compared to other developed countries. This column shows that US intergenerational income equality was high in the 19th century but plummeted between 1900 and 1920. The income-mobility ladder was thus pulled up during the so-called Great Gatsby era.
Florence Jaumotte, Carolina Osorio Buitron, 22 October 2015
Inequality in advanced economies has risen considerably since the 1980s, largely driven by the increase of top earners’ income shares. This column revisits the drivers of inequality, emphasising the role played by changes in labour market institutions. It argues that the decline in union density has been strongly associated with the rise of top income inequality and discusses the multiple channels through which unionisation matters for income distribution.
Robert Z. Lawrence, 15 October 2015
The US debate over income inequality in the 1980s and 1990s focused on the growing disparity between the earnings of the skilled, the unskilled and the super-rich. After the global crash, the decline in labour’s share of national income has been added to these concerns. This column presents an alternative explanation for this decline, arguing that limited substitution possibilities between capital and labour combined with the acceleration in the pace of labour-augmenting technical change raises the effective labour-capital ratio. The policy implications of this alternative explanation are profoundly different from those currently circulating.
Ravi Kanbur, Joseph Stiglitz, 18 August 2015
Growth theories traditionally focus on the Kaldor-Kuznets stylised facts. Ravi Kanbur and Nobelist Joe Stiglitz argue that these no longer hold; new theory is needed. The new models need to drop competitive marginal productivity theories of factor returns in favour of rent-generating mechanism and wealth inequality by focusing on the ‘rules of the game.’ They also must model interactions among physical, financial, and human capital that influence the level and evolution of inequality. A third key component will be to capture mechanisms that transmit inequality from generation to generation.
Philippe Aghion, Ufuk Akcigit, Antonin Bergeaud, Richard Blundell, David Hemous, 28 July 2015
In recent decades, there has been an accelerated increase in top income inequality, particularly in developed countries. This column argues that innovation partly accounts for the surge in top income inequality and fosters social mobility. In particular, the positive effect of innovation on social mobility is due to new innovators.
Bernardin Akitoby, Sanjeev Gupta, Abdelhak Senhadji, 18 July 2015
There has been a heated debate about the effectiveness of fiscal policy as a countercyclical tool but little evidence on how it can support growth. This column shows that fiscal policy can lift medium- and long-term growth in both advanced and developing economies. But all fiscal reforms are not equal in their growth dividend. Successful reforms are often part of a broader reform package and can balance the growth-equity trade-off.
Matthew E. Kahn, Cong Sun, Siqi Zheng, 08 July 2015
China’s cities suffer from extremely high levels of air pollution, and Chinese consumers spend more than $US100 million on anti-smog products per year. Using recent internet sales data, this column explores how investing in such self-protection products varies for consumers with different income brackets. The urban poor are shown to be less likely to engage in this health-improving strategy. This suggests that cross-sectional income comparisons understate lifetime inequality.
Markus Brückner, Daniel Lederman, 07 July 2015
The relationship between aggregate output and income inequality is central in macroeconomics. This column argues that greater income inequality raises the economic growth of poor countries and decreases the growth of high- and middle-income countries. Human capital accumulation is an important channel through which income inequality affects growth.
Chie Aoyagi, Giovanni Ganelli, Kentaro Murayama, 03 June 2015
Income inequality in Japan has been growing over the past few decades. This column discusses the macroeconomic significance of inclusive growth and its role in the ultimate success of Abenomics. The findings suggest that full implementation of structural reforms – including launching the third arrow of Abenomics – would be necessary to foster growth and increase equality.
Melissa S. Kearney, Phillip B. Levine, 28 May 2015
Compared with other developed countries, the US ranks high on income inequality and low on social mobility. This could be particularly concerning if such a trend is self-perpetuating. In this column, the authors argue that there is a causal relationship between income inequality and high school dropout rates among disadvantaged youth. In particular, moving from a low-inequality to a high-inequality state increases the likelihood that a male student from a low socioeconomic status drops out of high school by 4.1 percentage points. The lack of opportunity for disadvantaged students, therefore, may be self-perpetuating.
Jason Furman, 20 February 2015
The US economy has strengthened considerably in recent years, presenting an opportunity to address the 40-year stagnation in incomes for the middle class. This column provides historical and international context for the key factors affecting middle-class incomes: productivity growth, labour force participation, and income inequality. It also outlines President Obama’s approach to economic policies – what he terms “middle-class economics” – which is designed to improve all three.
Kirill Shakhnov, 17 January 2015
The rapid growth of the US financial sector has driven policy debate on whether it is socially desirable. This column examines the trade-off between finance and entrepreneurship, and links the growth of finance to rising wealth inequality. Although financial intermediation helps allocate capital efficiently, people choosing a career in finance do not internalise the negative effect on the pool of talented entrepreneurs. This mechanism can explain the simultaneous growth of wealth inequality and finance in the US, and why more unequal countries have larger financial sectors.
Loukas Karabarbounis, Brent Neiman, 25 November 2014
The share of compensation to labour in gross value added has declined in recent decades for most countries and industries around the world. Recent work has also used the share of compensation to labour in net value added as a proxy for inequality. This column discusses that gross and net labour shares have declined together for most countries since 1975 – an outcome consistent with the worldwide decline in the relative price of investment goods.
Olivier Coibion, Yuriy Gorodnichenko, Lorenz Kueng, John Silvia, 25 October 2014
There are several conflicting channels through which monetary policy could affect the distribution of wealth, income, and consumption. This column argues that contractionary monetary policy raised inequality in the US, while expansionary monetary policy lowered it. This evidence stresses the need for monetary policy models that take into account heterogeneity across households. Current monetary policy models may significantly understate the welfare costs of zero-bound episodes.