Discussion Papers

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Task 3.1: Uniform approach to income inequality

3.1.1 — Comparable indicators of inequality across countriesBrian Nolan, Ive Marx, Wiemer Salverda
This paper addresses the key issue for the project of how best to approach the measurement of income inequality to enhance comparability across different studies. It focuses first on the definition of income, the income recipient unit, and the unit of analysis. Generally research focusses on the distribution of disposable income. What does this include (treatment of pension contributions, intra-household transfers, imputed rent, incorporate non-cash items)? There might be situations where gross or market income is a more appropriate focus. Households are generally the focus in measuring income inequality, though individual earnings might might be relevant as well. We also discuss the family versus household level and point to problems in cross-country consistency due to data (e.g. family used in Sweden). The summary measures used to capture inequality are also discussed, with an emphasis on capturing trends at different points in the distribution. Finally, sources for comparative data on inequality levels and trends are discussed.
3.1.2 — Measuring and mapping trends in wealth inequality Andrea Brandolini, Timothy Smeeding, Frank Cowell and Abigail McKnight
3.1.3 — Issues of measurement in inequality across and within countriesFrank Cowell, Carlo Fiorio and Francesco Scervini
This paper focuses on the use of different inequality measures for the analysis of inequality in a comparative perspective. Commonly used measures differ because of different weights given to differences in top or bottom part of the income distribution, of their robustness to outliers, of their properties, such as exact decomposability in within and between components. The different properties of commonly-used measures are examined and illustrated, and some lessons brought out for their use in comparative research.
3.1.4 — Factor components of inequalityCecilia Garcia Penalosa (with Elsa Orgiazzi)
The recent literature on cross-country comparisons of inequality has examined either changes in the distribution of income or in that of earnings, but there has been little work to what extent changes in the latter drive the former. We intend to perform a factor decomposition of income inequality in order to asses the importance of earnings and income from other sources in recent changes in inequality. The Luxembourg Income Study offers consistent data for 8 industrial countries over the last three decades of the 20th century, allowing a comparisons of the factors that have driven changes in inequality in these countries. More specifically, we will focus on the role played by self-employment income in certain countries where it has been on the rise (most notably the UK), and on the effect of increases in inequality in capital income –probably caused by tax changes- on the distribution of income.
3.1.5 — Measuring and mapping wealth inequality: A lifetime perspectiveFrank Cowell, Abigail McKnight and Eleni Karagiannaki
The shape of the upper tail of the wealth distribution is of particular interest to economists, social scientists and policy makers. The extent of concentration of wealth at the top is of important for understanding the long-run dynamics of inequality and the purposes of tax design. However this is an area where data are sparse and where there are special problems of comparability between countries and over time. Using the Luxembourg Wealth Study and other national sources we will investigate the structure of the wealth inequality focusing on the shape of the distribution and the composition of assets of the rich.
3.1.6 — Inequality Decompositions: A ReconciliationFrank Cowell and Carlo Fiorio
We show how classic source-decomposition and subgroup-decomposition methods can be reconciled with regression methodology used in the recent literature. We also highlight some pitfalls that arise from uncritical use of the regression approach. The LIS database is used to compare the approaches using an analysis of the changing contributions to inequality in the United States and Finland.
3.1.7 — Imputed rent and income re-ranking. Evidence from EU-SILC dataVirginia Maestri
The literature about imputed rent shows that the inclusion of imputed rent in the income concept reduces inequality and poverty. Indeed, the advantage from imputed rent also benefit people at the bottom of the distribution and, inparticular, retired. If imputed rent may represent a considerable non-monetary income advantage, this is not taken into account (or only partially) in the tax system. The results is that household are considerably re-ranked wtih respect ot the original market income, once imputed rent is added to their income and taxation included. We distinguish between imputed rent for tenants and homeowners by using the EU-SILC data in the period 2007-2009. The analysis considers the position of different age and tenure categories.
3.1.8 — Educational homogamy, employment and income inequality in EuropeWiemer Salverda, Vid Stimac, Daniella Brals, and Milan Pleus
This paper studies the recent developments in education-based assortative mating, or educational homogamy, across various European countries, with the help of the European Community Household Panel (ECHP) for the years 1994–2001 (an extension to EU-SILC may be considered in due course). The focus is one of the effects of such homogamy, namely the contribution to the aggregate (gross) income inequality of all households inclduing singles that is made by (gross) earnings, and the concomitant participation in paid employment including its volume in terms of hours of work, of female partners in households, that can be attributed to educational homogamy. By contrast, causes of homogamy will be dealt with only as far as relevant for analyzing this effect, and so will the corresponding literature.
3.1.9 — Stylised facts on business cycles and inequality (new title)Virginia Maestri, Andrea Roventini
The intended contributions of this work are: to study the (two-way) dynamics between business cycles and (various sources of) inequality; the possible asymmetric effects of booms vis-à-vis recessions on inequality; the presence of cross-country differences in the effect of business cycles on inequality. We use SWIID data an secondary inequality indicators available in the RED database. A correlogram analysis will help understanding the magnitude, sign and “coincidence”of the cross-correlations between GDP (and other macroeconomic indicators) and the indexes of inequality calculated in different time lags. We will also try to extract some information on the “direction”of the business cycle/inequality relationship.
3.1.10 — Trends in global wealth inequality: A view from the Forbes billionaires listings, 1987--2011Daniel Waldenström and Jesper Roine
This study presents new evidence on the wealth shares of the richest families on earth, as displayed in the global rich lists of Forbes Magazine since 1987. Using detailed information about the individual fortunes, including country of origin, the size of the fortune, how they originated (self-made or inherited), what industrial sector they belong to, as well as the sex of the family head, we are able to analyze trends in wealth inequality both within the rich and in relation to total personal wealth in the world (using aggregate numbers estimated from various sources). Furthermore, we can also address specific hypotheses regarding, e.g., the impact of globalization or technological development.
3.1.11 — The impact of indirect taxes and imputed rents on inequality: a comparison with cash transfers and direct taxes in five EU countriesFrancesco Figari & Alari Paulus (Essex)
This paper examines the redistributive impact of imputed rent (private and public) and indirect taxes (value added tax and excises), comparing this with the effects of cash transfers and direct taxes in five EU countries. The extended income concept, taking into account both imputed rent and indirect taxes, provides a more reliable picture of inequality differences across countries. Our results show that indirect taxes have a regressive effect with respect to income in all countries considered but always smaller in magnitude than other tax-benefit instruments. Imputed rent reduces overall inequality in particular where the prevalence of individuals living in own accommodation is high even among the poorest (Greece) and where the contribution of the public imputed rent is large (the UK).
3.1.12 — Immigration and inequality in the EUTommasso Frattini (Unimi)
3.1.13 — Returns to education and inequality in EuropeVito Peragine & Laura Serlenga (Uni Bari)
The data available seem to show that in the last 30 years there has been an increase in income inequality in most European countries and in US and a decrease in educational inequality. For American households the Gini coefficient climbs from 0.34 in the mid-1980s to 0.38 in the 2000s. In Europe the Gini coefficient declines in France, Greece and Turkey and rises in Finland, Norway and Sweden, as well as in Germany and Italy. Across the 24 OECD countries, the cumulative increase is of around 0.02 point. On the other hand, education inequality in terms of number of year of schooling completed and level of education achieved decreased in most of the developed countries as shown in Moschi and Scervini (2010) among others. Thomas, Wang and Fan (2001) show that the educational Gini decreased of 0.1 point across the OECD countries from 1980 to 2000. How to explain this different patterns? The existing literature has proposed different explanations of trend in income inequality and the link between educational and income inequality such as technological change, international trade and globalization. In this paper we intend to contribute to the understanding of the link between income and education inequality by analyzing the evolution of the returns to education in the US and in European countries. Building on a paper we have already produced (in attachment) and based on EU-Silc data, we intend to use the LIS database in order to provide at least three data points per country on the return to education. In particular we plan to estimate the rate of return to education in about 1995, 2000 and 2005 for a sample of European countries and the US by estimating a log hourly wage equation. As widely discussed in the literature, in this framework we acknowledge the problems of selection and endogeneity that lead to bias estimates of returns to education. As in our previous paper, we will handle selection by implementing an Heckman selection model. Also, we aim to further reduce the bias by providing Instrumental Variable estimates. How the evolution in educational returns could help to explain recent income inequality trends? Suppose we observe an increase in the return to education. A simple mechanism that could help explain the relationship between the three stylized facts (reduced education inequality, increase income inequality and increases returns to education) is based on a inequality decomposition analysis. Consider a given country and suppose that the educational inequality was constant over time. That means that the composition of the population in sub-groups defined by the educational attainments is constant. In such a case, an increase in the return to education – measured as wage premium – would clearly increase the inequality between such groups, while leaving the inequality within such groups unchanged. This – in general - would increase the overall income inequality. Hence, in this simple model an increase in educational return – constant the educational composition of the population – would increase the observed income inequality. On the other hand, the evolution of education inequality is such that the composition of population by subgroups does change: in fact, this change goes in the direction of reducing the total income inequality. The general argument is that the increased return to education might counter-balance the positive effect of education inequality and help explaining the different patterns of the two kinds of inequality.
3.1.14 — Transfer Taxes and InequalityTullio Jappelli, Mario Padula and Giovanni Pica
This study surveys the existing debate on the taxation of the intergenerational transfers. Understanding the effect of transfer taxes on the intergenerational transmission of wealth requires answering the difficult question of what is the effect of taxes on bequest. On the one hand, the economic literature is far from sharing a unanimous view on the exact nature of the motive to leave bequests. On the other, data problems, and in particular lack of data on donors, makes it hard to provide conclusive evidence on the matter. To put the debate in context, we review the legislation on the taxation of intergenerational transfers in several OECD countries. Institutional arrangements on estate taxations vary widely between countries. Despite such heterogeneity, the revenues from taxing intergenerational transfers are generally low, and decreasing from 1% in the mid-sixties to 0.4% after 1980. We take this trend as broadly indicative that little redistribution takes place through taxation of intergenerational transfers. The available evidence and the related theoretical issues make it hard to establish a causal link between the increase in wealth and income inequality and the vanishing transfer tax.
3.1.15 — Societies’ (un)equal treatment of the low skilled: Towards a comprehensive analysisWiemer Salverda
3.1.16 — Endogenous Skill Biased Technical Change: Testing for Demand Pull EffectFrancesco Bogliacino and Matteo Lucchese
In this article we use the unification of Germany in the 1990 to test the hypothesis that the increase of the supply of a production factor generates skill biased technical change. We test for this mechanism in the context of the Acemoglu and Autor (2011) model that allows for endogenous assignment of tasks to skills in the economy. We use cohorts of workers from comparable countries as a control groups. After discussing the possible confounding factors, we conclude for the absence of this effect. The differential pattern among the countries seems to be determined by labor market flexibilization and tax reform, which had a pure inequality enhancing effect.

Task 3.2: Understanding the mutual relationship between income inequalities and their impacts

3.2.1 — Mechanisms of inequality at the top and at the bottom of the wage distributionMarco Leonardi, Brian Nolan and Wiemer Salverda
This paper investigates trends in earnings towards the top and the bottom of the distribution, which play a major role in overall dispersion but reflect distinctive causal priocesses. It draws inter alia on OECD data on wages at the 10th. and 90th. percentile to capture key trends. It looks at how labor market institutions such as unemployment insurance, unions, firing regulations, and minimum wages have affected the evolution of wage inequality at the bottom. While institutions may have played a significant role in relation to top earnings, social norms may also be important. Comparative analysis then provides a useful window into these processes, with for example different institutional settings and perhaps norms in South and North European countries.
3.2.2 — Comparative trends in wealth inequality, income inequality and the impact of the credit crunchAndrea Brandolini and Timothy Smeeding
3.2.3 — Household joblessness and poverty in the EUMarloes de Graaf-Zijl and Brian Nolan
This paper addresses the question whether partners, belonging to the same household, have compensating or reinforcing risks of joblessness, contingent and part-time employment. We are interested in finding out whether this correlation is higher or lower in countries with high and low inequality. Or is it mainly the extent to which low-skilled individuals tend to have a low-skilled partner (homogamy, assorative mating) that drives country differences? We also study the relationship with regulatory settings regarding unemployment benefits, disability benefits, social assistance, etcetera. One of the key structural issues is that social welfare systems that rely heavily on means-testing may both underpin relatively high inequality and create poverty/unemployment traps that increase the likelihood that if one partner in a household is unemployed, the other partner will also be inactive. Using EU-SILC data, we will estimate, on the individual level, the probablity of joblessness as a function of individual, household and country characteristics (including GINI or P90/P50 and P50/P10). This would imply a multilevel model with individuals nested in households, which are in turn nested in countries.
3.2.6 — On gender gaps and Self Fulfilling expectations: An alternative approach based on paid-for-trainingCecilia Garcia Penalosa (with Sara De La Rica and Juan Dolado)
A large literature has documented the fact that differences in wages between men and women drive the allocation of domestic work within the household. We explore the general equilibrium implications of inequality in wage rates across genders. On the one hand, wage gaps affect the household division of labour; on the other, firms’ beliefs about the way in which housework is split will lead to statistical discrimination and hence to wage gaps across genders. In this context, we examine the conditions under which multiple equilibria may arise, with a gendered equilibrium being associate with wage inequality, and an ungendered equilibrium occurring simultaneously with wage equality across genders. Moreover, we should be able to analyse the welfare implications of the two equilibria. Existing work –starting with Becker- tends to imply that specialisation in market and domestic work by the genders results in higher welfare. In the general equilibrium setup that we will consider, this may not necessarily be the case, and it is possible that the ungendered equilibrium leads to higher aggregate welfare.
3.2.7 — Business strategy, wage inequality and productivityMiquel Portela (with Priscila Ferreira, Natália Monteiro and João Cerejeira)
3.2.9 — Understanding the variation in household joblessness across the EUMarloes de Graaf-Zijl and Brian Nolan
3.2.10 — An international anatomy of inequality by "native" statusVirginia Maestri and Bram Lancee
3.2.11 — Multidimensional Measurement of Richness: an international comparisonAndreas Peichl and Nico Pestel
3.2.12 — Intergenerational and intrafamily earnings correlationsLorenzo Cappellari and Paul Bingley
3.2.14 — Inflation perceptions and inequality: The Euro changeover as a natural experimentAntonio Filippin and Luca Nunziata
3.2.5 — Earnings inequality at the workplace levelLorenzo Cappellari
3.2.13 — On the varying impact of household joblessness on povertyMarloes de Graaf-Zijl, Ive Marx and Brian Nolan

Task 3.3 Uniform approach to educational inequalities

3.3.1 — A new data set on educational inequalityElena Meschi, Francesco Scervini
3.3.4 — Indicators of institutional features of educational systemsDaniele Checchi, Herman van de Werfhorst
Our idea is to characterise educational systems in terms of alternative measures of stratification (tracking, streaming, private education) and centralization (central examination, structure of financing and teachers’ recruitment), and then correlate alternative educational outputs (not just years of education, but also competences, civicness and possibly many others, like happiness) with institutional measures.
3.3.8 — Educational reform and educational attainment in Europe: A long-run perspectiveMichela Braga, Daniele Checchi and Elena Meschi
3.3.9 — Measuring educational institutional diversityThijs Bol and Herman van de Werfhorst
3.3.7 — Family background, self-confidence and economic outcomesAntonio Filippin, Marco Paccagnella
In this paper we analyze the role played by self-confidence, modeled as beliefs about one’s ability, in shaping task choices. We propose a model in which fully rational agents exploit all the available information to update their beliefs using Bayes’ rule, eventually learning their true type. We show that when the learning process does not converge quickly to the true ability level, even small differences in initial confidence can result in diverging patterns of human capital accumulation between otherwise identical individuals. As long as inital differences in the level of self-confidence are correlated with the socioeconomic background (as a large body of empirical evidence suggests), self-confidence turns out to be a channel through which education and earnings inequalities are transmitted across generations. Our theory suggests that cognitive tests should take place as early as possible, in order to avoid that systematic differences in self-confidence among equally talented people lead to the emergence of gaps in the accumulation of human capital.
3.3.6 — Expansion of schooling and educational inequalityGabriele Ballarino, Elena Meschi and Francesco Scervini
3.3.5 — Expansion of schooling and educational inequalityMichela Braga, Daniele Checchi, Elena Meschi

Task 3.4: Understanding the mutual relationship between educational inequalities and its impacts

3.4.1 — Equality of opportunity: the correlation between educational attainment and parental background, and the role of institutionsGabriele Ballarino, Daniele Checchi, Francesco Scervini
We make an attempt to link the widely explored parents-children educational attainment correlations to cross-country variations in institutions. We will focus especially on educational institutions such as: presence and age at school tracking, diffusion of private and public schools, school autonomy, etc. (see point 12). If available data allow it, we would like to explore the effect on parents-children educational correlations of a major recent institutional change in European Higher Education, namely the reform known as “Bologna process”. If data were available, a comparison between pre- and post-reform correlations could enable an evaluation of the reform.
3.4.2 — An educational-inequality minimizing set of institutionsDaniele Checchi, Cecilia Garcia Penalosa
We expand our Economic Policy paper by using estimated correlations to predict alternative combination of institutions. Most materials already available.
3.4.3 — Expansion of schooling and educational inequality in Europe: Educational Kuznets curve revisited Elena Meschi and Francesco Scervini
This paper analyses the relationship between schooling expansion and educational inequality in a panel of developed countries over different birth cohorts. Compared to previous literature, we expand the comprehension of this relationship by exploiting the longitudinal dimension of our data and by focusing on different measures of inequality. We find evidence of a non-linear relationship between expansion and inequality of education and we argue that this evidence is complementary and not necessarily in contrast with the educational Kuznets curve found by previous studies. We also discuss how educational policies may influence educational inequality and we find that the length of compulsory education affects inequality only through its effect on average education, while school tracking shapes inequality independently of the level of education.
3.4.4 — Intergenerational mobility in terms of income, class and wealth in Great Britain and GermanyReinhard Pollak

Task 4.1: The impact on living standards, poverty and deprivation, and risk

4.1.2 — Inequality, poverty and the EU 2020 Strategy TargetsBrian Nolan, Chris Whelan
As part of its 2020 Strategy adopted in 2010, the EU has set a number of headline targets including one for poverty reduction over the next decade. This is a major development in the role accorded to social inclusion in the EU, and thus very important at the level of principle. However, the specific way the target itself has been framed, and the implications for approaches to implementing it, also merit careful consideration. The population identified in framing the target is persons in the member states either below a country-specific relative income poverty threshold, above a material deprivation threshold, or in a “jobless” household. This paper presents an in-depth analysis and critique of the way that target is formulated on both conceptual and empirical grounds and documents the consequence for our understanding of both cross-national and socio-economic patterning of poverty. The paper concludes with a discussion of alternative approaches to combining low income and material deprivation to identify those most in need from a poverty reduction perspective.
4.1.3 — The Social Stratification of Social Risk. Class and Responsibility in the ‘New’ Welfare State.Olivier Pintelon, Bea Cantillon, Karel Van den Bosch and Christopher T. Whelan
Welfare states are said to have evolved over the course of the past twenty years towards a ‘social investment’ model of welfare, characterised by a focus on equality of opportunity and upward social mobility combined with greater emphasis on individual responsibility. More or less concurrently, under the mantra of ‘individualisation’, scepticism has grown with regard to the relevance of traditional stratifi cation schemes. This paper sets out to ascertain whether social class, i.e. intergenerational background, (still) affects the occurrence of ‘social risks’. Using SILC 2005 data, it considers the impact of social class (of origin) on a relevant selection of social risks: unemployment, ill-health, living in a jobless household, single parenthood, temporary employment, and low-paid employment. The results provide clear evidence of a continuing infl uence of social class. On this basis, we argue that a one-sided focus on individual responsibility could open the door to new forms of marginalisation.
4.1.4 — Understanding Material Deprivation in Europe: A Multilevel AnalysisChris Whelan, Bertrand Maître, Brian Nolan
This paper aims to explore the meaning and relevance of cumulative disadvantage in the context of increasing inequality in incomes. It contrasts a situation where those experiencing deprivation generally do so in only one dimension – such as health or housing – as opposed to the concentration of disadvantage across various dimensions in a particular population group. This is empirically investigated using data capturing a range of dimensions of disadvantage, as well as income and labour force status, from EU-SILC. The emphasis will be on measuring and understanding the variation across countries in the extent to which different dimensions are indeed experienced in combination, in other words the extent of cumulative disadvantage.
4.1.5 — The evolution of inequality and policy responses: Learning from Australia in comparative perspectivePeter Saunders and Peter Whiteford
This paper analyses recent trends in inequality in Australia in comparative perspective, vis-à-vis other OECD countries. The focus is on the nature of increasing inequalities in income and education, seeking to distinguish the elements that are distinctive to Australia versus ones more commonly observed across other OECD countries. The evolution of attitudes to inequality is also investigated in parallel. Finally, the policy implications and policy responses to increasing inequalities are examined and the feed-back between growing inequalities in market outcomes and the redistributive impacts of taxation and transfers brought out.
4.1.6 — Inequality and deprivation: micro and macro perspectivesChris Whelan, Bertrand Maître, Richard Layte and Dorothy Watson
4.1.10 — Inequality and Poverty in Ireland's Economic CrisisBrian Nolan
4.1.7 — Poverty dynamics and long-term poverty in SwedenCarina Mood and Jan O. Jonsson
4.1.8 — Asset-based measurement of povertyAndrea Brandolini, Abigail McKnight and Tim Smeeding
4.1.9 — Material deprivation across countries and over timeEmma Calvert and Brian Nolan
4.1.11 — Job Loss and the RecessionBrian Nolan
4.1.12 — Reassessing the EU 2020 Poverty Target an Analysis of EU-SILC 2009 Bertrand Maître, Brian Nolan and Chris Whelan
4.1.13 — Multidimensional Poverty Measurement in Europa: An Application of the Adjusted Headcount ApproachChris Whelan, Brian Nolan and Bertrand Maître

Task 4.2: the impact on gender inequalities and the family

4.2.1 — Inequality and the FamilyEmma Calvert and Tony Fahey
This paper assesses the contribution made to household inequalities and disadvantage (including intergenerational) by changing patterns of family formation and breakdown. It focuses on separation and divorce, lone parenthood, and partnering (including assortative mating) and investigates how differences across countries and over time can be related in the first instance to household income inequality, and then to broader measures of welfare and disadvantage.

Task 4.3: The Impact on Health and Health Inequalities

4.3.1 — Income, income distribution and healthJohan Fritzell
Over the last decade a major research field has developed, particularly in social epidemiology but also in social sciences, analysing, debating and discussing the links between income, income inequality and health. A main driving force behind this development was the idea that among rich countries it is not the size of the economic pie that matters but how the prosperity is distributed that determines population health - to put it bluntly, inequality kills. The argument is still controversial and two recent systematic reviews came up with very different conclusions. This paper will first, go through the basic arguments and thereafter discuss some theoretical weaknesses and interpretation problems in much of the recent literature on the possible relation between income, income distribution and health. It will also include new analyses of the link between income inequality and changes thereof (based on data from the Luxembourg Income Study) and different measures of population health.
4.3.2 — Inequality and objective and subjective measures of healthOlli Kangas
The paper first describes national differences in objectiven and self-reported health. Then the paper proceeds to analyzes determinants of of the two forms of health. Objective health indicators are derived from various OECD publications (e.g. Health at glance) and they are imputed into the European Social Survey –(ESS) data that contains individual level data for more than 20 European countries. In the ESS data base there is a number of health-related questions that allow us to evaluate the subjective component of health. The paper end up in multilevel analyses of the relationship between inequality, labour market status, age, income etc. and the two health indicators.
4.3.3 — The Causal Effect of Education on Health and Health Conditions: Evidence from SHARE and ELSA Giorgio Brunello, Margherita Fort, Nicole Schneweeis, Rudolf Winter Ebmer
Education is a key source of inequalities, not only in the labor market. In this paper, we use data from 7 European countries (Austria, the Czech Republic, the Netherlands, Denmark, France, Italy and the UK) to investigate whether education causally affects the health and health conditions of individuals aged 50 plus. We use data from SHARE and ELSA, which provide information on a wide range of conditions, from cancer to hypertension, from diabetes to bone problems. While this information is partially self-reported, it relies also on objective assessment (certification by medical doctors). We also investigate the effects of education on the decision to screen. Policy intervention, if required, needs causal relationships. We use the cross country and cohort variation in compulsory school reforms to identify such relationships in our data.
4.3.4 — Inequality, working conditions and health outcomesClaudio Lucifora and Elena Cottini
Evidence on the association between health outcomes and socio-economic situation is well documented across many societies and time periods (see e.g. Smith, 1999; Deaton, 2003), but the causal mechanisms underlying this relationship are complex and controversial. We intend to investigate the relationship between working conditions and health outcomes over the distribution of wages for a set of European Coutries. After defining physical and mental health indicators, we shall proceed in the analysis of the links between working conditions at the various deciles of the wage distribution (low pay-high pay) and their effect on health outcomes. The empirical analysis will focus on the estimates of the impact of workers’ characteristics and job attributes on both health outcomes. Next, we will use the anchoring vignettes approach to the measurement of health in order to obtain comparable measures of population health that are purged of cross-country differences in the reporting of health (Tandon et al.2003, Salomon et al. 2004). The dataset that we intend to use are the European Foundation’s survey on working conditions (EWCS 1995,2000, 2005), EU-SILC (2003-2007) and the Multi Country Survey Study on Health and Responsiveness (WHO-MCS, 2000-2001).
4.3.5 — Dynamics of cross-national poverty and mortality ratesJohan Fritzell, Olli Kangas, Jennie Bacchus Hertzman, Jenni Blomgren and Heikki Hiilamo
4.3.6 — Socioeconomic gradient in health: how important is material deprivation?Mate Blazquez, Elena Cottini ans Ainhoa Herrarte
4.3.7 — Parental health and child schoolingMassimiliano Bratti Mariapia Mendola
This paper provides new empirical evidence on the impact of parental health shocks on investment in child education using detailed longitudinal data from Bosnia and Herzegovina. Our study controls for individual unobserved heterogeneity by using child fixed effects, and it accounts for potential health misreporting bias by employing several, more objective, health indicators. Our results show that children of ill mothers, but not of ill fathers, are significantly less likely to be enrolled in education at ages 15-24. Moreover, there is some evidence that mothers’ health shocks have more negative consequences on younger children and sons.[JEL. I21 O15] Keywords. Human Capital, Intrahousehold allocation, Health shocks, Education, Bosnia and Herzegovina

Task 4.4: The Impact on Inter-generational Transmission, Wealth and Housing

4.4.1 — On the relationship between income inequality and intergenerational mobilityTim Smeeding
While strong assumptions are often made about the relationship between the level of cross-sectional inequality in income and the inter-generational mobility in earnings and income, that relationship is in fact a complex one. This paper first seeks to unravel the hypothesised linkages between the two. It then assembles the available evidence and explores how best to add to it in order to identify empirically when higher inequality is and is not likely to be associated with lower intergenerational mobility. In doing so it distinguishes processes towards the top and bottom of the distribution from those operating around the middle.
4.4.2 — Increasing inequality and the intergenerational transmission of poverty and disadvantageChris Whelan, Brian Nolan and Bertrand Maître
This paper investigates the linkages between growing up in a poor household and experiencing poverty and disadvantages as an adult. It employs data available for a number of European countries and the USA to assess the strength of these linkages and how that varies across countries. It then investigates institutional factors in the labour market, the education system and the broader welfare state that may be associated with this variation.
4.4.3 — Increasing inequality and the intergenerational transmission of wealthFrank Cowell, Abigail McKnight, Tim Smeeding, Andrea Brandolini
4.4.4 — The demographics of changing wealth inequalityFrank Cowell, Abigail McKnight
Demographic change has affected wealth accumulation, wealth division and overall wealth distribution. On average people are living longer healthier lives, many women are delaying motherhood until later in life, divorce rates and lone parenthood have both increased. The incidence of these changes has not been uniform across the population. In some cases these changes lead to an increase in the concentration of wealth and in others to the dispersal of wealth. The effect of demographic change varies across countries and is affected by tax systems, legal systems affecting the division of wealth and pensions on divorce and death, cultural differences relating to inheritance. In this paper we shall examine how demographic change is related to changes in the wealth distribution and how societal differences affect this relationship.
4.4.5 — Home-ownership, housing regimes and income inequalities in Western EuropeMichelle Norris, Nessa Winston
This paper examines housing inequalities in the EU15, focusing on national differences in access to housing and housing disadvantage. Using the new comparative dataset from the European Union Survey on Income and Living Conditions, it describes the extent of these inequalities in each country. On the basis of this analysis, the paper proceeds to outline a number of in-depth case studies of particular countries. Each case study examines the following: patterns of inequality and disadvantage associated with different housing positions; the key factors associated with housing inequality and disadvantage; approaches to housing provision; variations in the meaning of housing tenure; the nature of the welfare state; recent patterns of economic and welfare change; and the impact of changes in the global economy in each context. The conclusions to the paper link the findings to debates on the reconstruction of the welfare state and changes in welfare state regimes, which frequently tend to neglect the importance of housing. In addition, it places the findings in the context of debates on the expansion of home ownership, asset based welfare and the impact on the opportunities and life chances of households.
4.4.6 — Income inequality, housing, and the distribution of wealthFrank Cowell, Abigail McKnight, Brian Nolan
Housing is the main asset held by households across most of the income distribution. Trends in access to housing and in house prices thus dominate wealth distribution trends as they impact on most households This paper investigates the impact of increasing income inequality as it interacts with the housing market, in terms of access to housing in the first instance, across a range of countries with different levels of overall home ownership. It then looks at house price fluctuations, how these have been related to trends in incomes and in the labour market, and how they have impacted on the changing distribution of wealth across home owners and the population as a whole.
4.4.7 — Asset poverty and the impact of assets on social outcomesAbigail McKnight
Owning assets is important for smoothing income over the lifecycle, financing large items of expenditure, helping families through hard times, assisting in the start up of business ventures, for the down payment on house purchase. It is also clear that assets can have a positive impact on other medium and long-term outcomes such as employment prospects, general health and psychological well-being. This effect further exacerbates and entrenches existing inequalities in income and wealth between individuals and families. In this paper we shall build on existing research in the UK to examine the relationship in other countries and assess the extent to which inequalities in assets has contributed to rising intragenerational and intergenerational inequalities.
4.4.8 — Elderly home-ownership: The impact of family and labour-market trajectoriesCaroline de Wilde
The focus is the impact of family and labour market trajectories on elderly homeownership, which in a country such as Belgium is an important dimension of social stratification, having a profound and demonstrable impact on living standards. It is the outcome of a process of cumulative (dis)advantage. For both elderly men and women, the impact of the family variables outweighs the impact of the labour market career indicators. Forming a couple advances wealth creation while having more children hampers this. For men, the impact of the labour market variables mainly concerns the length of the labour market career: choosing early retirement partly depends on house ownership. There is no significant impact of career interruptions for men but there is for women. However, women who never worked are better off in old age compared to their counterparts with labour market experience. A process of cumulative (dis)advantage was found to be significant only for men a with a lower educational level experiencing relationship dissolution and for women whose father had a lower educational level with each additional child.
4.4.9 — Life-course trajectories and inequalityCaroline de Wilde
In this paper, I analyse the impact of life-course family and labour market experiences on household incomes of elderly people in two countries characterised by a different welfare regime – Belgium and the UK, combining panel data and life history information from two panel surveys. My results show that old-age incomes for both genders are indeed influenced by previous lifecourse experiences, and that differences between Belgium and the UK can be explained in terms of the (development of) specific welfare regime characteristics. In particular, family experiences have a larger impact in ‘male-breadwinner’ Belgium, while in the UK the scarring effect of unemployment persists even into old age. Also, the longer of one’s career spent in blue-collar work or selfemployment/ farming, the lower the income in old age. A new finding from this study is that, compared to the market, the welfare state turns out to be a more efficient ‘mechanism’ of stratification for elderly incomes. Finally, some effects point at a ‘life-course mechanism’ that warrants further research: men from a more privileged background who did less well on the labour market fare worse in old age compared to their counterparts from a less privileged background whose labour market experiences are more in line with their blue-collar upbringing.
4.4.10 — Income inequality and access to housing in EuropeAnnika Smits, Bram Lancee, & Caroline Dewilde
Despite the fact that housing can be seen as one of the main characteristics of social status and wealth, it has thus far been largely neglected in social stratification research. It has only been recently that researchers have called for attention to incorporate measures of wealth, such as housing, in studies on inequalities. This paper deals with the question whether housing inequality differs across nations. This is done by investigating whether the relative cost of housing is unequally distributed over income groups, and to what extent housing inequalities are greater in countries with stronger income inequalities. We employ multilevel analyses using the EU-SILC data for 26 countries in 2006.
4.4.11 — Intergenerational transmission and day care in DenmarkNiels Westergaard-Nielsen
4.4.12 — Intergenerational top income mobility in Sweden: Capitalist dynasties in the land of equal opportunity?Anders Björklund, Jesper Roine and Daniel Waldenström
4.4.13 — Economic well-being and distributional effects of housing-related policies in three European countriesVirginia Maestri
The project aims at analyzing the distributional effects of housing-related policies. We analyse the effect of the simultaneous introduction of imputed rent, mortgage tax relief, property taxes and housing benefits for different tenure and age groups. The distributional effects are assessed on the basis of the economic well-being of the household that includes the non-monetary value of imputed rent. The analysis also pays attention to the income re-ranking effect generated by particular policies. The analysis is carried out with the use of the tax microsimulation model EUROMOD and covers the tax year 2006 for Estonia, Italy and the UK. The country coverage will be extended with the next release of EUROMOD (end 2011)
4.4.14 — An analysis of generational equity over recent decades in the OECD and UK Jonathan Bradshaw and John Holmes
In The Pinch David Willetts (2010) attracted attention by asking whether “the boomers have been guilty of a monumental failure to protect the interest of future generation” p xv. This was just the latest contribution to a long running concern of social policy analysts about horizontal equity or generational fairness. Using OECD data 1980-2007 in the first part of this paper we show that there is no evidence that social expenditure has been shifting in favour of the elderly at the expense of children except perhaps recently in Nordic countries. For the UK we have created a time-series using the published articles since 1988 and the raw data sets since 1996 for the annual Office for National Statistics analyses of the Effect of Taxes and Benefits on Household Incomes and used it to analyse trends in the redistributive impact of cash benefits, direct and indirect taxes and services on the retired and households with children and across the income distribution. The analysis shows how the relative support for the retired versus children has changed over time, which elements have contributed to the changes and for which part of the income distribution. There has been a small shift in final income in favour of the elderly but it was not the result of changes in taxes, benefits or services in kind but rather a change in the original income distribution in favour of the elderly.
4.4.15 — Home Ownership and Income Inequalities in Western Europe: Access, Affordability and QualityMichelle Norris and Nessa Winston
4.4.16 — The Interplay between Economic Inequality Trends and Housing Regime Changes in Advanced Welfare Democracies: A New Research AgendaCaroline Dewilde
In this paper, I argue that our understanding of the increase in economic inequality in advanced welfare democracies could be enhanced by taking account of the changes which took place in the housing regimes of many countries. I demonstrate how one could derive testable hypotheses concerning a direct relationship between both social trends, which can at least theoretically go in both directions (i.e. changing housing regimes influencing inequality trends, or inequality trends influencing characteristics of housing regimes), while the ‘classical’ driving forces of increasing inequalities function as intermediate variables in a multivariate model. Alternatively, a simple interaction model could guide future research, in the sense that social trends which are routinely considered as ‘driving forces’ of increasing economic inequality – but altogether do not explain that much of the observed long-term trend – could theoretically work out in a different way under different housing regimes.
4.4.17 — The effect of parental wealth on children's outcomes in early adulthoodEleni Karagiannaki

Task 4.5: The Impact on Social Cohesion

4.5.1 — Social Cohesion in EuropeTony Fahey
4.5.2 — Material Deprivation, Economic Stress and Reference Groups in Europe: An Analysis of EU-SILC 2009Chris Whelan and Bertrand Maître
4.5.4 — Inequality, deprivation and crimeDeirdre Healy, Aoghan Mulcahy, Ian O’Donnell
Criminological research consistently demonstrates that inequality is a key factor in shaping people’s involvement with the criminal justice system, both as victims and offenders. Inequality is associated with high levels of victimization, high levels of involvement with the criminal justice system (and low levels of satisfaction with it), high levels of recidivism, and so on. However, the precise relationship between crime and inequality in particular communities is often mediated by a range of specifically local factors. This research proposes to explore the specific dynamics of the relationship between crime and inequality in particular communities characterized by high levels of inequality and marginalization – such as urban areas characterized by multiple disadvantage, and other groups such as ex-prisoners.
4.5.5 — Economic Inequality and HappinessAda Ferrer-i-Carbonell and Xavier Ramos
The dislike that individuals have for inequality has recently been empirically tested by using self-reported measures of happiness as a proxy for utility. The few empirical existing studies have shown that inequality, usually measured as the GINI coefficient in the region or country where the individual lives, has a negative effect on self-reported happiness (notably Alesina, Di Tella and MacCulloch, 2004). In this project, we want to contribute to the literature by examining the reasons behind inequality aversion. First, we have already started to examine whether and to which extent the inequality aversion found is related to risk aversion. Although this theoretical hypothesis has been tested using experimental data this has can now be done with large panel data sets. Second, we will carefully examine the existence of different population groups for which inequality aversion may differ. In concrete, we will test whether more financially vulnerable individuals (e.g., low income, lower educated and women) show lower or higher inequality aversion than individuals with a more stable financial situation.

Task 4.6: Education, Capabilities and Life-Long Learning

4.6.1 — On the distribution of educational capabilitiesDaniele Checchi
The idea is to exploit IALS survey (1994-98) to study the determinants of adult competences for life, their distribution and their correlation with national structure of educational systems (affecting educational attainment) + nation labour market institutions (affecting labour market participation).
4.6.4 — Socio-economic gradients in children’s cognitive: are cross-country comparisons robust to who reports family characteristics?John Jerrim and John Micklewright
Three major studies of international student assessment, PISA, PIRLS and TIMSS, have been widely used to explore how the socio-economic gradient in children’s cognitive ability differs between countries. The evidence has been cited in prominent survey papers, including Hanushek and Woessmann (2010) and Machin (2009). However, the scope for using the data to explore socio-economic gradients is limited by the quality of information available in the surveys on family background. This issue has seen little analysis, with the result that there are large uncertainties over quality of the evidence that has been published. There are large amounts of missing data on measures of parental education, and as a consequence authors have often turned to children’s reports of the number of books in the home as the principal indicator of socio-economic status. Research on social stratification with other international surveys has also placed heavy reliance on respondents’ reports of books in the home, e.g. Evans et al (2010). There has, however, been little consideration of the possible measurement error in the data that are collected, or whether books in the home are a reasonable proxy for other more conventional measures of household resources, notably household income. The paper will focus on two issues in particular, exploiting information collected from parents in PIRLS that has seen very little use to date. First, we will compare children’s reports on books in the home with parental reports of the same information. Second, we will compare the reported information on books, both from the children and the parents, with available information reported by parents on household income for a restricted number of countries. In both cases the work will be augmented by some work with PISA where for some countries there is information on socio-economic background collected from parents as well as children on parental education and occupation. We will see whether or not there are common patterns across countries, which would increase the generality of any conclusions that can be reached. Finally, we will then assess whether estimates of socio-economic gradient in test scores depend upon whether family background measures are based on child or parental reports and on whether cross-national patterns based on measures of books in the home are similar to those based on household income. The work will be conducted with John Jerrim, research officer at the Institute of Education. 4k euros are requested from the GINI network as a contribution to the cost of the input required. The output will be a GINI working paper which will also be submitted for consideration by an academic journal. M Evans, J Kelley, J Sikora, and D Treiman (2010) ‘Family Scholarly Culture and Educational Success: Books and Schooling in 27 Nations’ Research in Social Stratification and Mobility 28 (2): 171-97. E Hanushek and L Woessmann (2010) ‘The Economics of International Differences in Educational Achievement’ IZA Discussion Paper 4925, Bonn, forthcoming, Handbook of the Economics of Education, North-Holland. S Machin, (2009) ‘Inequality and Education’ in W. Salverda, B. Nolan, and T. Smeeding (eds.) The Oxford Handbook of Economic Inequality. Oxford: Oxford University Press.

Task 5.1: Understanding the impact of inequality on political preferences

5.1.1 — Economic polarization and generalised social trustSander Steijn and Bram Lancee
Previous research suggests that where inequality is high, trust is low. However, the association between inequality and trust is almost never analysed in a way that adequately discriminates between mechanisms. Furthermore, previous research does not differentiate between effects of income inequality and effects of national wealth. In this paper, we propose an evaluation of the effects of both inequality and national wealth. Theoretically, we distinguish between stratification effects and perception effects of inequality. Empirically, besides actual income inequality and national wealth, we include a measurement of perceived inequality on the basis of individual level earnings estimations for stereotypical jobs. Our findings show that there is no effect of inequality on trust once taking into account national wealth, suggesting that resources rather than inequality explain trust.
5.1.2 — Social inequality and voter turnout - evidence from EU electionsDániel Horn
The paper looks at the link between inequality and voter turnout, and derives three hypothesis from previous literature. It is shown that inequality associates negatively with turnout at the national elections (hypothesis 1). Although this is not a very strong effect, but it is net of several factors affecting voter turnout that are empirically well proven – such as individual characteristics or different features of the political system. The literature suggests that this negative association is either due to the lower turnout of the poor relative to the rich in high inequality countries (hypothesis 2) or due to the effects of the universal welfare state, which increases turnout through altered social norms as well as decreases inequality through government intervention (hypothesis 3). Although none of the hypotheses were refuted, neither was really supported by the data. I also tested whether inequalities at the top or at the bottom have a different affect on turnout. Although the results, again, are not very robust, it seems that larger differences in income between the very rich and the middle decreases overall turnout, while higher difference between the middle and the very poor increases turnout. This is just the opposite of what is expected from the Downsian rational voter model.
5.1.3 — Does economic inequality structure political competition?Armen Hakhverdian and Tom van der Meer
5.1.6 — Inequality and democratic attitudesRobert Andersen
5.1.7 — Inequality and instutional trustHerman van de werfhorst and Natalia Letki
5.1.9 — Inequality, Trust and social networksNatalia Letki and Inta Mierina
5.1.13 — Public opinion, government policy, and income inequality: Representation and feedbackArmen Hakhverdian
Scholars studying inequality have demonstrated that trends in inequality, and variations between countries, are very different in different parts of the income distribution. However, up till now, the literature on the consequences of inequality has not incorporated this finding. Using EU-SILC data for 24 European countries, we analyse how inequality in different parts of the income distribution is related to civic, cultural and social participation. Results indicate that a substantial part of the impact of inequality manifests itself through resources at the individual and societal level. However, independent of resources, it is still the case that more inequality magnifies the relationship between income and participation. This is in line with a view that inter-individual processes explain why inequality diminishes participation.
5.1.10 — Increasing income inequality and attitudes to inequality: a cohort perspectiveMàrton Medgyesi
5.1.11 — Income inequality and participation: A comparison of 24 european countriesBram Lancee and Herman van de Werfhorst
5.1.12 — Disentangling causality between inequality and attitudesMads Meier Jaeger and Anders Holm

Task 5.2: Understanding the relationship between inequality and legitimacy

5.2.1 — Inequality, opinions and support for redistributionMeir Yaish and Robert Andersen and
5.2.2 — Opinions about international inequalityHerman Van de Werfhorst, Brian Burgoon
5.2.3 — Income distribution, inequality perception and redistributive claims in European societiesIstván György Tóth, Tamás Keller
In this paper we analyse how redistributive preference relates to actual income and to its distribution. For measuring the relationship on macro level, we defi ne distance based measures of income inequality (P-ratios, based on data from LIS) and test them for their direct and for their contextual effects on aggregate (country level) and on individual redistributive claims. For measuring redistributive preference we develop a composite index using available public opinion (Eurobarometer) data for the European Union member states. On macro level there is a continued and high support of state redistribution in many European countries but the cross-country variance is also high. Preferences for redistribution correspond to various aspects of inequality (most notably, to the extent and depth of relative poverty). On micro level the redistributive preference, while mostly derived from rational self interest (material position, labour market status, expected mobility), is also driven by general attitudes about the role of personal responsibility in one’s own fate and by general beliefs about causes of poverty and the like. While the affl uent, the middle and the poor have different appetite for redistribution everywhere, the distance between their attitudes also seems to be determined by the distance between their relative positions (ranks in the distribution). In countries having larger level of aggregate inequalities the general redistributive preference (of the rich, of the middle and of the poor) is higher, however in countries with very high levels of inequalities the difference in redistribution preference begins to decrease, which is a hint for a curvilinear relationship. The slope of this socioeconomic gradient seems, however, steeper in countries with middle inequality levels. The results of the paper can contribute to a refi nement of the predictions developed in the frame of the median voter theorem and, via this, to a better understanding of political processes.
5.2.5 — Inequality and EuroscepticismWouter Van der Brug
5.2.6 — Income, income inequalities, their perceptions, happiness and legitimacy of democracyKrzysztof Zagorski
5.2.7 — Inequality and opinions on education spendingDániel Horn

Task 5.3: Understanding the impact of inequality and values on country-level outcomes

5.3.1 — Income inequality, value systems, and macroeconomic performanceGiacomo Corneo
Along with changes in economic inequality, developed countries after World War II have exhibited significant changes in values. Important trends have been the shift from survival attitudes to desires for self-expression and from solidarity to individualism. In this paper we scrutinize the interaction between value systems and economic inequality, and analyze their joint implications for macroeconomic performance. Both the extent of expected income disparities and their determinants are likely to have incentive effects on the type of values that families tend to transmit to their children. Depending on perceived opportunities for their children, parents may try to instil various views of “good life”; examples include fulfilment in work, economic success, hedonistic enjoyment, devotion to family, cultivation of friendships, social solidarity, and political engagement. In turn, value systems affect economic choices because they add a symbolic payoff to actions. Depending on the distribution of value systems in society, values may reinforce or dampen economic inequality. We are interested in understanding the nature of equilibria that can emerge under various circumstances with respect to both value systems and patterns of inequality. Furthermore, we are interested in comparing those equilibria in terms of efficiency, social welfare, and macroeconomic performance
5.3.2 — Inequality and national level politicsBrian Burgoon
5.3.3 — Inequality and opinions on national welfareBrian Burgoon, Carles Boix
5.3.5 — Inequality and the partisan backlash against globalizationBrian Burgoon

Task 6.1: Constraints imposed by rising economic inequality

6.1.1 — The impact of rising market income inequality on policy agendas and spending patterns; the determinants of cross-country variationIve Marx
This paper will look at the impact of rising market-income inequality (especially at the lower end to the income distribution) on social expenditure trends and policy reform. While much research has looked at the impact of social expenditure on poverty and inequality, we intend to look at this relationship from a reverse angle. Complementary to the papers that will consider the impact on institutional trust, participation and social cohesion, we will consider how rising market-income inequality (especially at the lower end of the distribution) has affected social spending levels and patterns (transfer vs. social investment spending)? Is rising market income inequality a catalyst for welfare retrenchement or for social policy innovation? If, as we expect, we find that there are important cross-country differences in this respect, what then are the relevant mediating factors (e.g. the extent of means-testing, tax vs. social contribution funding, state-run vs social partners governance)? The analysis will build on such data sources as the Luxembourg Income Study, complemented with policy information drawn from i.a. the country reports.
6.1.2 — The puzzle of egalitarianism revisitedBea Cantillon, Ive Marx and Karel Van den Bosch
There are reasons to suspect that rising economic inequality limits the capacity for effective policy making, especially if it comes to promoting social cohesion and equality of opportunity. A key empirical element here is the link between economic inequality and welfare-state development. There exists a strong association at the country level between the level of income inequality and the size of the welfare state, measured as social spending. We also know that there is a strong correlation between social spending and social outcomes, for example the level of relative-income poverty. (Förster and Mira d'Ercole, 2005; Nolan and Marx, 2008). It is important to enhance our understanding of these associations. Generally speaking, there might be three kinds of causal explanations. First, the direction of causality may go from an extensive welfare state to a condensed waged distribution. This is the line followed by Alvarez (2001), who has argued that second-order effects of social expenditure are a large part of the explanation of the puzzle: the higher taxes and transfers of large welfare states influence labour supply in such a way that a more condensed wage distribution results. But the causal mechanism may also run in the other direction. A highly unequal distribution of market incomes may make it politically and technically more difficult to redistribute income. That high social expenditure tends to be associated with limited wage inequality and vice versa is suggestive evidence as one could expect this to be the other way around given that high pre-tax, pre-transfer wage inequality creates a stronger need for public redistribution. Thirdly, an extensive welfare state as well as a limited degree of wage inequality may both be the results of a third variable. As Atkinson (2000) suggests, countries may be characterized by notions of equity that are widely shared within any society, but that differ across societies. A society in which the value of solidarity is widely shared may simultaneously support pay norms, collective agreements and adequate minimum wages, as well as quasi-universal and generous benefits. The more intriguing hypothesis here, and the one we will focus on, appears to be that high market-income inequalities pose barriers to the formation of robust and wide coalitions upholding large, redistributive welfare states.
6.1.3 — Distributional Consequences of Labor Demand Adjustments to a Downturn. A Model-based Approach with Application to Germany 2008-2009Herwig Immervoll and Andreas Peichl
Macro-level changes can have substantial effects on the distribution of resources at the individual and household levels. Since the onset of the current economic downturn, concerns about its implications for poverty and distributional outcomes more generally have led to a range of policy initiatives seeking to support vulnerable groups. These efforts are, however, hampered by how little is in fact known about the likely distribution of changes in market income, or the capacity of existing redistribution systems to soften the negative impact of job and income losses. While it is possible to make informed guesses about which groups are likely to be hardest-hit, detailed distributional studies in OECD countries are still largely backward-looking. This paper attempts to provide forward-looking income-distribution scenarios. It takes as a starting point existing macro-level forecasts and combines them with household-level micro-data, as well as more recent additional data (notably from quarterly labour force surveys), in order to model the incidence of rising unemployment, earnings losses and the associated decline in household income. We first discuss alternative approaches for linking changes in macro-level variables to outcomes at the household level and summarise possible advantages and drawbacks of each method. In a second step, we provide an illustration of the different methods for at least one European OECD country (the choice of countries depends on data availability). The aim is not to provide forecasts but to derive a range of scenarios that can be used for benchmarking the effectiveness of existing income safety nets. To link the results to the current policy debate, we model job and earnings losses allowing for two relevant margins of adjustment: (1) the extent to which earnings losses are a result of complete or partial unemployment; and (2) the share of labour-market adjustments borne by non-standard workers (such as those with temporary jobs who are more easily shed from the workforce but are often not covered by unemployment benefits). Based on the results, we discuss factors that are likely to determine the effectiveness of different policy responses that countries are considering or have already implemented. PUBLISHED AS DP01 November 2010
6.1.4 — Conditional cash transfers in OECD countriesMárton Medgyesi
Conditional cash transfers (CCTs) make the receipt of cash transfer conditional of meeting a certain type of behavioural requirement.CCTs conditioning cash transfers on human capital accumulation of children (eg. school enrolment, regular attendance, regular medical examinations, vaccinations) are widespread in developing countries. The organisation and impact of these programmes (such as Progresa in Mexico or BolsaEscola in Brazil) have been extensively reviewed. In developed countries behavioural conditions required for cash transfer receipt concern more often labour market behaviour(such asrequirements of job search, or public works etc.)while conditions related to human capital accumulation of children are less frequent. Such conditional cash transfers are most extensively used in the Anglo-Saxon countries (USA, UK, Australia) following the liberal welfare state model. Recently however other developed countries (eg. Belgium, or new member states of the EU) introduced such programmes. This papers reviews conditional cash transfers related to human capital accumulation in developed countries. We differentiate between two types of CCT programmes. Programmes under the first type (“scholarship type”) are purportedly designed to promote participation in education through an education-specific benefit. The second type („sanction type”) relies on the threat of removing benefits within the existing social safety net if the family does not comply with the conditions related to human capital investment of the children.The paper reviews theoretical predictions about behavioural effect of the two types of CCTs. It presents CCT programmes in developed countries related to child health and schooling in pre-school, compulsory schooling and post-compulsory schooling. Finally it reviews results on the impact of these programmes on behaviour concerning human capital investments (enrolment, absenteeism from school, participation at health exams).
6.1.5 — The equality multiplier (WITHDRAWN)Erling Barth
Equality can multiply due to the complementarity between wage determination and welfare spending. A more equal wage distribution fuels welfare generosity via political competition. A more generous welfare state fuels wage equality further via its support to weak groups in the labor market. Together the two effects generate a cumulative process that adds up to an important social multiplier. We focus on a political economic equilibrium which incorporates this mutual dependence between wage setting and welfare spending. It explains how almost equally rich countries differ in economic and social equality among their citizens and why countries cluster around different worlds of welfare capitalism---the Scandinavian model, the Anglo-Saxon model and the Continental model. Using data on 18 OECD countries over the period 1976-2002 we test the main predictions of the model and identify a sizeable magnitude of the equality multiplier. We obtain additional support for the cumulative complementarity between social spending and wage equality by applying another data set for the US over the period 1945-2001.
6.1.6 — Estimating upper and lower bounds of inequality of opportunityJudith Niehues and Andreas Peichl
This paper draws upon John Roemer´s seminal work on the concept of equalityof opportunity which distinguishes between “circumstance” and “effort” variables. As opposed to the traditional notion of equality of outcomes, equality of opportunity is only determined by circumstances for which individuals should not be held accountable, such as social background and parental education. Accordingly, the concept of inequality of opportunity is not only important for comparative judgements about the distributive justice across countries but also for the fair design of national policies. The correct measurement of inequality of opportunity shares, however, is challenging since information on all relevant circumstances is rarely available in micro data sets. We rely on comprehensive panel data sets for different countries to derive new measures of heterogeneity of individuals with respect to wage differentials. We show that this new estimator can be interpreted as an upper (lower) bound for the influence of circumstances (effort) on inequality. Our preliminary results suggest that the upper bound of equality of opportunity accounts for approximately two thirds of the observed inequ ality in outcomes, which substantially higher than the lower bound estimates found in previous studies [around one third).
6.1.7 — Income inequality and solidarity in EuropeMarii Paskov and Caroline Dewilde
Several studies have found that there exists no clear-cut relationship between welfare regimes and popular attitudes concerning welfare redistribution. At the same time, somewhat counter-intuitively, many findings suggest that people in liberal and Mediterranean welfare regimes would prefer more redistribution, while people in social-democratic welfare states apparently favour a lower level of institutionalised solidarity. We want to test whether the rather small amount of explained variation found in most studies can be improved by taking into account one of the most important social changes of the last decades: the rise in income inequality that has manifested itself to a smaller or larger extent in most advanced western democracies (OECD 2008). Starting from a conceptual framework that takes account of the trends and driving factors of income inequality changes during the last decades, we formulate a hypothesis about the likely impact of these changes on public attitudes towards welfare redistribution and evaluate whether this type of longitudinal indicators add to existing knowledge. Relating past income inequality to welfare attitudes may help predicting the structure of inequality in the future. The latter is derived from an assumption that welfare attitudes represent popular ideological understanding about social justice and solidarity, which in turn determine future social welfare policies. Our micro-level data are from the European Social Survey.

Task 6.2. The effectiveness of redistributing income and work

6.2.1 — Coverage and adequacy of minimum income schemes in the European UnionFrancesco Figari, Tina Haux, Manos Matsaganis and Holly Sutherland
Using the EU tax-benefit microsimulation model EUROMOD, this paper will compare the first round distributional and budgetary effects of some standardised EU minimum wage and minimum income schemes in a range of countries.
6.2.2 — Targeting, universalism and poverty alleviation: a re-examinationIve Marx and Gerlinde Verbist
While in principle low or moderate levels of social spending would produce low poverty rates if resources were well-targeted, there is a strong relationship at country level between the level of social spending and the incidence of poverty. No advanced economy achieves a low (relative) poverty rate with a low level of social spending, regardless of how well it does at maximizing employment - arguably one of the most robust findings of comparative poverty research (see for example Bradbury and Jäntti, 2001, Cantillon et al, 2003, Förster and d'Ercole, 2005). The direct effect of taxes and transfers on poverty differs substantially across countries. The best-performing countries succeed in lifting about two-thirds of their pre-tax/transfer poor above the threshold, while others only manage to move one-quarter above (Föster and d'Ercole, 2005). Some countries achieve better 'efficiency' (i.e. poverty is reduced more for each Euro spent) through targeting more on low-income groups, and at the margin, means-tested systems are more efficient if it comes to reducing poverty. However, 'effort' and 'targeting' are negatively related, so targeted systems tend to have a weaker overall effect than universal systems (Korpi and Palme, 1998). In a study looking specifically at child-related benefits, Corak et al (2005) show that the best performing countries tend to have systems of universal child benefits and tax concessions that are not particularly strongly targeted at low income children. Indeed, in the best performing countries more tends to be spent on non-poor children than on the poor. We propose to examine this issue more generally, and also within a wider geographical scope, considering transfers (including negative income taxes) aimed at providing minimum income protection, particularly for those at working age.
6.2.3 — The redistributive effect and progressivity of taxes revisited: An International Comparison across the EU with EUROMODGerlinde Verbist
Progressivity of taxes is one of the major determinants of the equalizing capacity of taxes. Verbist (2004) presented an international comparison of the redistributive effect of personal income taxes in the 15 countries of the EU in 1998, using the European tax-benefit model EUROMOD. It compared the equalising effect of personal income taxes with that of social security contributions, as well the effect of the various types of tax concessions (i.e. exemptions, deductions, allowances and credits). This study found a wide variety among countries in the level of inequality reduction as well as in the instruments used to achieve this reduction. Personal income taxes were in all countries the most important source for inequality reduction, which was to a large extent, though not solely, due to the progressive rate schedule. Countries with a high degree of pre-tax inequality did not systematically redistribute more through their taxes; the results indicated rather the opposite. Over the past ten years, many countries have introduced major tax reforms. In this paper we want to update the analysis to the most recent available EUROMOD-version for the 15 pre-2004 EU countries, which will allow for a comparison over time. Moreover, we will incorporate also the post-2004 member states, whose personal tax systems have often different characteristics compared to the EU-15 (e.g. flat tax systems). Hence, also the geographical scope will be enlarged, allowing better insight in redistributive working of tax systems.
6.2.4 — Is the “Neighbour’s” Lawn Greener? Comparing Family Support in Lithuania and four other (new title)Lina Salanauskaite and Gerlinde Verbist
Combating child poverty is seen as one of the most important national and cross-national policy goals in the EU, and especially in the new EU member states (NMS). Single parent families, large families, and children with special needs are almost in all cases at increased risk of poverty and in need of targeted action. A number of studies (e.g. Levy et al. (2005), Matsaganis et al. (2005)) have explored the impact of public policies in selected ‘old’ EU members. However, research on public policy effectiveness to combat children poverty in the NMS is not highly prevalent. This paper has two aims. On the one hand it evaluates the impact of Lithuanian family policies in terms of their capacity to eradicate child poverty. On the other hand, this paper assesses the effectiveness of Lithuanian family policies compared to the ones used in other NMS (Hungary, Slovenia, Estonia). The first aim will be met by developing a static microsimulation model for Lithuania, which allows assessing the effect of Lithuanian family policies on the income position of households. This model will then be integrated in EUROMOD, the European tax-benefit microsimulation model. EUROMOD is the tool for the second aim: by swapping policies between Lithuania and other NMS (namely Estonia, Hungary and Slovenia) we will be able to put Lithuanian family policy efforts into an international perspective. The swap of the policies allows us to draw conclusions about the effectiveness of selected policies given different demographic and socio-economic characteristics of the population.
6.2.5 — Towards more adequate indicators of income supportIve Marx and Natascha Van Mechelen
Comparative welfare state research has relied heavily on social expenditure data as an indicator of income support generosity. While the relationship between expenditure levels and poverty outcomes is strong at the country level, social expenditure remains a quite inadequate reflection of policy intent since it is as much determined by benefit generosity as it by the size of the dependent population, the latter factor often being the more important driving factor of differences. When we are interested in measuring actual policy intent, institutional data is more appropriate, for example in the form of replacement and coverage rates of social benefits. But the explanatory power of such indicators, too, tends to be weak too. One reason is that income protection packages increasingly draw on various sources: social security, social assistance and (negative) taxation. What increasingly matters is how social security policies, social assistance and fiscal policies interact to provide a certain level of protection. Financial poverty and economic well-being are not the only relevant outcomes in this respect. We also need more information about the relationship between social benefits and behavioural requirements, given that notions of social citizenship are moving away from a static notions of distributive justice (benefit adequacy) towards an increased emphasis on reciprocal obligations. This requires a detailed, micro-level analysis of how particular segments of society, are treated. What is needed, therefore, is a social risk-oriented approach that gauges the combined impact of policies on families as they are confronted with old and new social risks. The purpose of this paper is twofold. First, to provide a state-of the-art on the indicators that are currently available, with a focus on such issues as validity, reliability, timeliness, geographical scope, explanatory power etc. Second, to develop and assess the feasibility of alternative indicators that capture the combined impact of policies more adequately.
6.2.6 — Shifting funds between services and cash benefits? A comparison of the redistributive effects of cash versus in-kind child benefits in EU countriesMichael Förster & Gerlinde Verbist
There is increasing interest in the distributive implications of publicly provided services (see e.g. OECD, 2008; Sutherland and Tsakloglou, 2009; Tsakloglou et al., 2009; and literature overview in Marical et al. 2006 & 2008). While most of the comparative evidence of the size and evolution of income inequalities in European countries relies on the concept of household disposable income, integrating government services is important for both conceptual and practical reasons: first, as the tax burden levied on households represents a deduction from their disposable income, it is important to account for the services which governments provide to households through these taxes; and second, because of the large differences that exist across EU countries in the share of cash transfers and publicly provided services to households within government spending. Until now most of the comparative research has focused on cash and on non-cash benefits separately. In this paper we want to look at the joint redistributive impact of both types of benefits: e.g. how do housing allowances compare to social housing, or public education services to study allowances? That will be the first step in the analysis. In a second step we will simulate the distributive effects of shifting from non-cash to cash incomes. Economists generally assume that in-kind benefits are worth less to recipients than their cash equivalent: in-kind benefits restrict consumption choices while cash allows for full choice (Garfinkel et al. 2006). This may be an argument for shifting from in-kind to cash benefits. We will simulate this shift for a selection of policy sectors using the microsimulation model EUROMOD, making different assumptions on the monetary valuation of in-kind benefits. By doing this we hope to contribute to a better understanding of incorporating in-kind transfers into the analysis of welfare state spending and inequality and of the possible trade-offs involved.
6.2.7 — Can Higher Employment Levels Bring Down Poverty in the EU?Ive Marx, Pieter Vandenbroucke & Gerlinde Verbist
At the European level and in most EU member states, higher levels of labour market participation are seen as key to better social inclusion and cohesion. But what is the likely impact on income inequality and poverty? In the literature shift-share analysis has been used to address this issue (Whiteford and Adema, 2007; Fritzell and Ritakallio, 2004). This essentially consists of changing the weight of population segments, keeping their poverty rates constant, and has serious limitations. We propose a more sophisticated analysis which starts by estimating the probability of labour-force participation by a probabilistic regression, using the relevant individual (e.g. sex, age, education) and household determinants (e.g. household composition, partner’s labour income, young children) available in EU-SILC. We use these probabilities to rank inactive individuals according to their chances of becoming active and finding work so that in simulations of higher participation rates those most likely to work are moved into a hypothetical job first. In a next step we estimate the wages of the newly active individuals (taking account of selection bias). In a last stage we use EUROMOD to simulate net income, including the possible repercussions of the predicted labour income on all kinds of benefits (e.g. unemployment benefits, old-age benefits). We can then simulate alternative scenarios, for example the attainment of the 70% Lisbon objective. We can assess the effect on the income distribution and on poverty. We can also see whether newly active individuals/households have a labour income high enough to escape poverty. Comparing outcome differences across countries under similar scenarios can shed light on the impact of policy.
6.2.8 — Unequal Inequality in Europe: differences between East and WestAndreas Peichl (with C. Fuest and J. Niehues)
How do different components of the tax and transfer systems affect disposable income inequality? This paper explores the redistributive effects of different tax benefit instruments in the enlarged EU based on two approaches. Inequality analysis based on the standard approach suggests that benefits are the most important factor reducing inequality in the majority of countries. The factor source decomposition approach, however, suggests that benefits play a negligible role and sometimes even contribute slightly positive to inequality. On the contrary, here taxes and social contributions are by far the most important contributors to income inequality reduction. We explain these partly contradictory results with the different normative focus of the two approaches and show that benefits have other aims than redistribution. Finally, our country clustering shows that the Eastern European countries do not form a distinguished group. The Central Eastern European countries group together with the Continental European countries and the Baltic States show similarities with some Southern European countries.
6.2.9 — Inequality neutral flat tax reforms in Europe: differences between East and WestAndreas Peichl (with A. Paulus)
The flat tax idea is becoming increasingly popular, especially in transition countries in Eastern Europe. The introduction of a flat tax is supposed to have several advantages. However, flat taxes can have a serious drawback in terms of their impact on the distribution of tax burdens. The aim of this paper is to analyse the effects of flat tax reforms that do not change the inequality of the income distribution. We undertake a systematic approach for choosing flat tax parameters for a comparative analysis of different flat tax designs for selected Western European countries. Our analysis yields the following results. The revenue and inequality neutral flat tax rates tend to be higher in Continental than in Southern European countries, while being little affected by different measures of income inequality. The high marginal rates imply that revenue and inequality neutral flat reforms are not feasible in most countries, however, there might be scope for non-revenue or non-inequality neutral reforms depending on political preferences.
6.2.10 — Economic crisis, automatic stabilization and income distributionAndreas Peichl (with M. Dolls and C. Fuest)
It is the purpose of this paper to analyze the effects of economic crisis on the income distribution and the role of automatic stabilizers to cushion these impacts. We use microsimulation models for 19 European countries (EUROMOD) and the US (TAXSIM). We run two controlled experiments of macro shocks to income and employment. The first is a proportional decline in household gross income by five per cent (income shock). This is the usual way of modeling shocks in simulation studies analyzing automatic stabilizers. But economic downturns typically affect households asymmetrically, with some households losing their jobs and suffering a sharp decline in income and other households being much less affected, as wages are usually rigid in the short term. We therefore consider a second macro shock where some households become unemployed, so that the unemployment rate increases by five percentage points (unemployment shock). For both scenarios, we compute several measures of inequality, poverty, richness and polarization in order to assess the distributional impact of economic crisis. This analysis enables us to explore how different groups of the society (according to income as well as other socio demographic variables) are affected by different downturn scenarios. Further on, we identify how much weight existing pre-crisis tax benefit systems put on different income groups to protect them from income and job losses. In the next step, we compare the effects across countries in order to evaluate the cushioning effect of different welfare state regimes and to cluster the countries according to their stabilizing effect on the income distribution.
6.2.11 — Conditionality and generosity of social assistance benefitsIve Marx and Natascha Van Mechelen
This paper deals with the conditionality and generosity of social assistance benefits for working-age people. The purpose of this paper is twofold. First, this article focuses on cross-country differences in activation approaches for social assistance recipients in 24 EU countries. There have been several attempts to classify activation models. Such classifications often suggest that in the so-called liberal welfare states the main objective is reducing individualised dependency and strengthening labour market attachment while in the Nordic welfare states the emphasis is on human resource development and overcoming skills and experience deficits. In this article we ask whether and to what extend the observed cross-country patterns in activation measures actually fit such classifications. To this end, we have gathered information both on the regulatory framework concerning, for example, work measures and sanctions, and on its actual implementation, by means of a network of national expert informants. Also, we posses not only information on the national/regional regulatory framework. For countries where this framework is limited and consequently where municipalities are relatively free to set their own work requirements, sanctions, etc. we have gathered information on the regulations in a specific municipality. Second, we assess the view that generous social assistance benefits can go together with a well-functioning of the labour market and high levels of labour market integration only if benefit adequacy goes accompanied with strictly enforced training, job search and work requirements as well as stimuli to accept a job if it is actually offered. We try to shed some light on the empirical relationships between the conditionality of social assistance benefits, their generosity and labour market conditions. Questions include, among others, whether cross-country patterns of activation provide an explanation for the relative generosity of social assistance benefit packages in countries like Denmark and the UK and for the relative large gaps between means-tested benefits, contributory benefits and minimum wages in welfare states like France and Belgium.
6.2.12 — The impact of decentralisation on the generosity and conditionality of social assistanceNatascha Van Mechelen
The idea that decentralisation is detrimental to the generosity of poor relief finds its origin, among others, in the theory of fiscal federalism. This paper empirically assesses the relationship between cross-country patterns of regional and local government involvement in social assistance delivery and the generosity of the social safety net. The generosity of the social safety net is defined here rather broadly, including not only the level but also the conditionality of social assistance benefits. Therefore, countries are classified into several groups, based on levels of net social assistance benefit packages as well as on work requirements, insertion and integration programmes and related sanctions for social assistance recipients. The paper also deals with the trade-off between benefit levels and the degree to which self-sufficiency and independence is promoted through activation measures. We draw on data gathered by means of a network of national expert informants. We posses information on typical levels of the net social assistance benefit package in 24 EU-countries. As far as conditionality is concerned, we have gathered information both on the regulatory framework concerning, for example, work measures and sanctions, and on its actual implementation by means of a network of national expert informants.
6.2.13 — Social protection and multiple deprivation in 23 European countriesTommy Ferrarini, Kenneth Nelson and Ola Sjöberg
6.2.14 — The unequal benefits of activation: an analysis of the social distribution of family policy among families with young childrenJoris Ghysels and Wim Van Lancker
6.2.15 — Recent trends in minimum income protection for Europe’s elderlyTom Goedemé
6.2.16 — The evolution of Europe’s final safety netsNatascha Van Mechelen and Sarah Marchal
6.2.17 — Who benefits? Patterns of active age benefit receipt across EU Member StatesTim Van Rie and Ive Marx
6.2.18 — Minimum income protection for Europe’s workersIve Marx and Brian Nolan

Task 6.3 Towards an integrated approach

6.3.1 — Successful policy mixes to tackle the impact of rising inequality on children: an EU-wide comparisonAndrás Gábos
The development of presently young generations and their coming performances as adults strongly determine the future outcomes of the societies: socially and financially sustainable economic growth, quality and quantity of employment, social cohesion and maintainable welfare systems. It reinforces the EU objective of promoting sustainable development by combining economic growth and more and better jobs with a strong emphasis on social cohesion. Poverty and social exclusion can be seen as an obstacle for children in achieving their full potential, over which they do not have any control. Therefore, societies would clearly benefit as a whole by investing public resources to alleviate child poverty, to promote the social inclusion of children and to foster their human capital. One of the most striking challenges of the present economic crisis is the expected increase in child poverty and therefore in income and social inequalities due to decreasing public and private investments in children. Parents with weak labour market attachment are especially vulnarable to economic and labour market shocks. Member States of the European Union show a great variation in terms of both poverty risk of children, its main factors and the performance of policies aimed at reduce child poverty and improving child well-being among children. This allow us to comparatively evaluate the performance of countries and their outcomes in terms of child poverty and well-being. We suggest to form a country typology based on the following dimensions: income poverty risk outomes, main factors lying behind the poverty of children (mostly household composition and labour market participation of parents) and performance of related policies. As a result of the analysis, successful policy combinations will be identified. EU-SILC will be used as a main datasource for the analytical assessment.
6.3.2 — Inequality, policy and economic integrationGiuseppe Bertola
How do international linkages of economic activity bear on the impact of educational and other inequalities, and on the feasibility and efficacy of policies that redress economic inequality? Bertola (2008a,b) documents the extent to which, within the EU, Economic and Monetary Union has been associated with higher inequality across households as well as with higher employment rates, and lower social spending. The proposed paper would inspect the relevant mechanisms in more detail and extend the empirical analysis to other countries. To this end it would combine with country-specific indicators of internationalization and social policy reforms the information collected by the FP7 project regarding the role of education systems in shaping the distribution of skills in various countries, the impact of labor market trends on the earnings implications of worker skills, and household structure developments.

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