Time, Money and Inequality in International Perspective

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Time, Money and Inequality in International
Perspective

• Lars Osberg
• -Dalhousie University
• -I.S.E.R. U of Essex

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Welfare gt Income

• Most discussions of inequality focus on
  distribution of money income
• consumption, wealth also studied
• Is Inequality in Income a good guide to
  inequality in welfare ?
• Is U(Y) or U(c) plausible ?
• Welfare to consume time to enjoy
• Labour Economics max U(C, L)
• Subject to C w H H L T
• Inequality in Full Income -I.e. Can Hourly
  Wage adequately capture inequality in welfare?

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Why might working time matter for Inequality ?

• Big differences in levels trends of average
  actual working hours per adult
• 1980-2000 USA 234 1476
• Germany -170 973
• Is greater inequality in income in USA longer
  work hours connected ?
• Does income inequality overstate inequality
  in (time money) ?
• USA Different (materialistic) tastes ?

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Why do working hours differ ?

• Average actual hours trends mingle
• Common entitlements to leisure (i.e. paid public
  holidays, statutory paid vacations)
• Individual participation in the paid workforce
  (extensive margin)
• Hours work of workers (intensive margin)
• Different causes decision processes
• Collective choice corner solutions poorly
  modeled by labour/leisure choice model
• Intensive margin small difference USA/Germany
• Different implications for Inequality
• Common entitlements tend to equalize returns

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Probability of Any Employment

• Major differences internationally
• Particularly for women older men
• Discrete choice implied by life style
  choices/values ?
• Involuntary Unemployment more common among low
  income households
• Correlation within households important for
  inequality trends
• Rise in workless households in UK
• Social Exclusion major impact on poverty
• Labour Force entry of well educated wives swells
  household income of upper tail (USA)
• USA greatest marketization

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Compare Inequality (,time) by standardizing
for work?

• How much would inequality change if other nations
  had Probability (job) USA ?
• What is the thought experiment ?
• Economist - If preferences same, different
  hours result from different constraints so
  model of incentives needed gt ( ,H)
• Sociologist - values can/do differ across
  nations hypothetical question change in
  preferences unchanged incentives

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Values Constraints Imply Different Prob
(employed)

• Attitudes to gender roles paid employment
  differ significantly across countries
• Some evidence of generational effects
• Under 35s always less traditional
• Macro-Economic Policy sets Job availability
• Inflation targets (ECB)
• Growth low inflation (US Fed)
• Thought experiment different but could change

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Standardize _at_ USA extensive margin of Supply

• Singles - Probit model USA prob (job)
• Any paid work in prior 12 months
• Couples Multinomial Logit (USA 97)
• both husband and wife employed
• husband employed, but not wife
• wife employed but not husband
• neither husband nor wife employed
• Predicted probability (employment) for jobless in
  other nations, if _at_ USA

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Simulations of standardized Income Inequality

• Jobless with highest ProbUSA (job) added
• Female Participation USA ?
• Male Female Participation USA ?
• Workforce Entry implies changes household
  earnings transfers taxes
• Reduced Form estimates
• Expected Net Income conditional on job
• Net Disposable Income F(age, age2, relative
  education, family status, disability, immigrant
  and labour market participation status, etc....)

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Greater Employment would

• Substantially reduce poverty in the UK
• Poverty Intensity declines from 8.4 to 3.3
• Workless households now common in UK
• Median income increase 16
• 50/10 ratio declines by half Gini by 17
• Reduce poverty in Canada by 10 Gini by 2.5
• Somewhat larger impact _at_ low end in Sweden
• Compress income distribution _at_ both ends in
  France/Germany
• 90/50 50/10 declines are comparable
• Joblessness not as closely tied to low family
  income

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But would widen inequality gap between USA /
Europe

• Europe starts from much lower base of poverty
  inequality
• Gini USA .37 Germany .27 France.29
• 90/10 USA 13.2 Germany 6.3 France
  6.6
• Differences are magnified if US workforce
  participation patterns are imposed
• UK, Canada biggest impacts _at_ low end
• Continental more general compression
• International comparisons - inequality in alone
  is misleadingly small

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