(PPT) Velasco, Andrés - Employment and the Distribution of Income

7/27/2019 (PPT) Velasco, Andrs - Employment and the Distribution of Income

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DISTRIBUTION OF INCOME

Andrs Velasco

June 2011


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I. The issues


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Motivation

Chile: heated discussions on inequality. But...

Discussions on the shape of the wage distribution very

ideolo ical: enerate more heat than li ht

Little recognition that wage distribution often changes

slowly, along with its fundamental determinants (eg.

education)

Caveat: focus today on distribution of labor income.

Government transfer policy can and does have a

large impact on inequality, but that is well understood


4/41

Motivation cont.

One alternative: focus on employment performance

,

countries of similar per-capita income

Are there low hanging fruit here? Time advantage

Caveat: when thinking about improving employment

performance, also need to get away from ideological

divides

Right: make labor market flexible and everything will be ok

Left: enhance collective bargaining and everything will be ok


5/41

The issue To measure inequality we often use the distribution of per

capita household income (PCHY)

If working is a binary choice, for householdjM

Mj = number of people working in household

j

i

ij

jN

PCHY == 1

j num er o mem ers o ouse o

Yij = income of person i

If all working people receive the same income,

j

jj

jN

MYPCHY =

andNj as well.

Also in the number of hours they work, not considered here.


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Toda

andNj on the distribution of income

Nj varies negatively with Yj and

then inequality in PCHYcan be very large

More a plea for more research than a


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This issue in the literature

Present but not central in the literature on the

microdynamics of income distribution Bourguignon, Ferreira and Lustig (1998)

Bourguignon, Ferreira and Leite (2002)

Szkely and Hilgert (2000) arge y a sent rom ags p pu cat ons

2006 WDR: Equity and Development

: 2004 IDB: Good Jobs Wanted


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The road ma

I.

The issuesII. Employment rates and the distribution of

employment: cross country evidence

III. Chile: the distribution of employment and income

IV. Chile: the distributional impact of changes in

employment rates

V. Low income households with low employment

rates: what are they like?

VI.

Tentative policy implications


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. mp oymen ra es an e

distribution of em lo ment:cross country evidence


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Em lo ment rates amon the mostl richEmployment rate (25-64), OECD Countries

80

90

100

50

60

70

20

30

40

0

10

urkey

ngary

Italy

Spain

Chile

exico

oland

reece

urope

reland

lgiu

public

ntries

ion19

Korea

erica

ion15

rance

States

ntries

stonia

bourg

rtugal

public

venia

ceania

gdo

stralia

inland

ustria

r

any

anada

Japan

rlands

n

ark

aland

eden

orway

erland

eland

H B

SlovakR

OECDco

EuropeanUn

NorthA

EuropeanUn

United

G7co

Luxe P

CzechR S O

UnitedK A G

e

Neth D

e

NewZ S

Swit

Male s Fe male s TotalSource: OECD


11/41

Em lo ment rates amon the not-so richEmployment rate (25-64), Latin America

100

120

60

80

20

40

0

Male Female TotalSource: Own calculations using countrys economic surveys


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The une ual distribution of em lo mentEmployment rate by income decile

80

90

50

60

20

30

0

1 2 3 4 5 6 7 8 9 10

Mexico Uruguay Argentina Brasil Chile

Source: Own calculations using countrys economic surveys


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III. Chile: the distribution of

emp oymen an ncome


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Chile: income dist. amon those who workMonthly income those who work (dollars)

3219

3000

3500

10/10 ratio: 17.7

2000

2500

853

1180

1000

1500

181320 388

440 497 572

0

500

Source: Own calculations using CASEN 2009.

1 2 3 4 5 6 7 8 9 10


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Chile: household income distributionMonthly household income (dollars)

6150

6000

7000

10/10 ratio: 46,2

4000

5000

1701

23873000

133411 574

704 8491079 1303

1000


0

1 2 3 4 5 6 7 8 9 10


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Chile: er ca ita household income dist.Monthly household income per capita (dollars)

23992500

3000

10/10 ratio: 78,5

2000

7661000

1500

31 101144 189

236 296381 507500

1 2 3 4 5 6 7 8 9 10



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Chile: a sad distributional storMonthly income per capita, total household income and income of those

615

0

6000

7000

10/10 ratio: 17.7

19

4000

5000

10/10 ratio: 46,2

10/10 ratio: 78,5,Gini: 0.584

2399

80

3

79

303

17

01 2

387

2000

3000

31

101

144

189

236

296

381

507

766

181

320

388

440

497

57

2

667 8

5

3 1

133

411

57

4

704 8

4

9

1

0 1

0

1000


1 2 3 4 5 6 7 8 9 10

Incomeper capita Incomeofthosewhowork Householdincome


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Messa e

The number o people who work per household

make a big difference

The number o members o the household make a

big difference

n ot are very uneven y istri ute accross

income deciles


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The une ual distribution of obsHousehold size, jobs per household and jobs per capita

4.1 4.03.8

4.510/10 ratio: 3,2 10/10 ratio: 4,110/10 ratio: 0,8

. . .3.4 3.4

3.1

2.8

2.5

3.0

3.5

.

1.11.2

1.4 1.51.6 1.7 1.8 1.7 1.7

1.0

1.5

2.0

.

0.15 0.26 0.310.36 . . . .

. .

0.0

0.5

1 2 3 4 5 6 7 8 9 10


Householdsize Jobsper household Jobsper capita


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IV. Chile: the distributional

mpac o c anges n


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Simulation 1

the national average Assume that in each of them the number of eo le

(18-64) who work is equal to the national average

Those who be in workin make the avera e ofwhat people already made in that household

If there was no one working, the entrant makes the

average wage for that decile

Consider two cases: fixed wages (upper bound for

effect) and wages that adjust (lower bound)


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E uilibrium in the market for labor

S

W

highA

C

D,

lowB

D

Lhigh

Llow


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Simulation 1: Results3000

1000

15002000

0

500

1 2 3 4 5 6 7 8 9 10

Before After: Constant wages After: Non-constant wages

100%

150%

200%

0%

50%

1 2 3 4 5 6 7 8 9 10

10/10 ratio = 78,5 , Gini = 0,584 10/10 ratio = 32.3 , Gini = 0,541 10/10 ratio = 34.9, Gini = 0,567

Constant wages Non-constant wages


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Simulation 2

the national average Assume that in each of them the number of people

- w o wor s equa o e na ona average

In addition, assume that in each of these households

all workers work 45 hours a week Those who begin working make the average hourly

wage in that household

ere was no one wor ng, e en ran ma es eaverage hourly wage for that decile

Consider two cases: fixed wa es u er bound foreffect) and wages that adjust (lower bound)


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1000

15002000

0

500

1 2 3 4 5 6 7 8 9 10


200%

300%

400%

0%

100%

1 2 3 4 5 6 7 8 9 10

10/10 ratio = 78,5 , Gini = 0,584 10/10 ratio = 21.5 , Gini = 0,534 10/10 ratio = 17,5 , Gini = 0,547



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Simulation 3

Take all households with a per capita income less thanthe national average

Assume that in each of them the number of people

In addition, assume that in each of these households

all workers work 45 hours a week Those who begin working make the average hourly

wage in that household

,average hourly wage for that decile

Consider two cases: fixed wages (upper bound foreffect) and wages that adjust (lower bound)


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1000

1500

2000

0

500

1 2 3 4 5 6 7 8 9 10


200%

300%

400%

500%

0%100%

1 2 3 4 5 6 7 8 9 10

10/10 ratio = 78,5 , Gini = 0,584 10/10 ratio = 17.4 , Gini = 0,512 10/10 ratio = 15,1 , Gini = 0,531



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V. Low income households

w ow emp oymen


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Poorer workers work fewer hours

Monthly hours of work (18-65 years)

Total Males Females

1 156 170 134

2 167 176 148

3 168 178 150

4 173 180 160

6 175 183 164

7 176 183 166

8 175 180 166

9 175 183 16510 174 181 165



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Poorer deciles have especially low

Employment rate by age

Decil 18-24 25-34 35-54 55-65

1 11 25 35 22

2 21 46 56 37

3 32 55 62 41

4 40 65 66 47

6 48 75 75 54

7 49 77 79 56

9 41 84 84 7110 35 85 88 73



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Poor deciles have especially low

Female employment rate by age

Decil 18-24 25-34 35-54 55-65

1 8 18 24 15

2 17 29 34 21

3 22 38 41 21

4 30 51 46 285 34 58 53 30

6 38 63 58 33

7 43 68 65 36

9 39 76 71 53

10 29 80 77 51



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Poorer deciles have more self-employed workers,

Decil Employer Self-employed Public sectorPrivate

companiesDomesticservants

2 0.4 14.5 7.4 70.3 7.4

3 0.4 14.0 7.1 70.8 7.7

4 0.7 13.3 8.5 71.1 6.4. . . . .

6 1.3 18.0 8.6 66.8 5.4

7 1.9 18.7 10.5 64.2 4.7

8 2.8 20.9 12.7 60.4 3.3

9 3.8 26.1 16.0 52.1 2.010 11.6 21.4 18.9 47.7 0.5



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Poorer deciles have more womenFemale among population by decile (%)

58

60

54

56

48

50

44

46

1 2 3 4 5 6 7 8 9 10



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Poorer deciles have more

Percentage of households with children younger than 4 years

25.0

30.0

15.0

20.0

10.0

0.0

5.0



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Poorer deciles have more rural residents

Percentage of households in rural areas (%)

25

30

20

10

0

5

1 2 3 4 5 6 7 8 9 10



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Poorer deciles have less schoolin

Years of schooling (people age 18-65)

14

16

10

4

6

0

2

1 2 3 4 5 6 7 8 9 10



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Poorer deciles have more handicapped

Percentage of handicapped people

14.0

16.0

10.0

12.0

4.0

6.0

.

0.0

2.0



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VI. Tentative policy implications


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What keeps poor people from

Key observation: there is no one factor, andtherefore there is no one solution

You need an approach that does more than simply .


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Possible policy priorities

Child care

Urban, housing and transport policy

Demand side

Flexibility of working hours and shifts ru ence w t m n mum wages

Employment subsidies (demand side)

Anti-discrimination legislation with teeth

Bringing supply and demand together Facilitate information flows

Centralize info: bolsas de trabajo

Need more research on the subject!


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DISTRIBUTION OF INCOME

Andrs Velasco

June 2011

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(PPT) Velasco, Andrés - Employment and the Distribution of Income

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