Redistribution policies

  • Income inequality and social origins Updated

    Promoting intergenerational mobility makes societies more egalitarian

    Lorenzo Cappellari, May 2021
    Income inequality has been on the rise in many countries. Is this bad? One way to decide is to look at the degree of change in incomes across generations (intergenerational mobility) and, more generally, at the extent to which income differences among individuals are traceable to their social origins. Inequalities that reflect factors largely out of an individual’s control—such as parents’ education, local schools, and communities—require attention in order to reduce income inequality. Evidence shows a negative association between income inequality and intergenerational mobility, and a positive relationship between mobility and economic performance.
  • Tax evasion, market adjustments, and income distribution Updated

    Market adjustments to tax evasion alter factor and product prices, which determine the true impacts and beneficiaries of tax evasion

    James AlmMatthias Kasper, February 2020
    How does tax evasion affect the distribution of income? In the standard analysis of tax evasion, all the benefits are assumed to accrue to tax evaders. However, tax evasion has other impacts that determine its true effects. As factors of production move from tax-compliant to tax-evading (informal) sectors, these market adjustments generate changes in relative prices of products and factors, thereby affecting what consumers pay and what workers earn. As a result, at least some of the gains from evasion are shifted to consumers of goods produced by tax evaders, and at least some of the returns to tax evaders are competed away via lower wages.
  • The effect of early retirement schemes on youth employment Updated

    Keeping older workers in the workforce longer not only doesn’t harm the employment of younger workers, but might actually help both

    René BöheimThomas Nice, October 2019
    The fiscal sustainability of state pensions is a central concern of policymakers in nearly every advanced economy. Policymakers have attempted to ensure the sustainability of these programs in recent decades by raising retirement ages. However, there are concerns that keeping older workers in the workforce for longer might have negative consequences for younger workers. Since youth unemployment is a pressing problem throughout advanced and developing countries, it is important to consider the impact of these policies on the employment prospects of the young.
  • Equal pay legislation and the gender wage gap Updated

    Despite major efforts at equal pay legislation, gender pay inequality still exists—how can this be put right?

    Solomon W. Polachek, October 2019
    Despite equal pay legislation dating back 50 years, American women still earn 18% less than their male counterparts. In the UK, with its Equal Pay Act of 1970, and France, which legislated in 1972, the gap is 17% and 10% respectively, and in Australia it remains around 14%. Interestingly, the gender pay gap is relatively small for the young but increases as men and women grow older. Similarly, it is large when comparing married men and women, but smaller for singles. Just what can explain these wage patterns? And what can governments do to speed up wage convergence to close the gender pay gap? Clearly, the gender pay gap continues to be an important policy issue.
  • Impact of privatization on employment and earnings Updated

    Workers and policymakers may fear that privatization leads to job losses and wage cuts, but what’s the empirical evidence?

    Conventional wisdom and prevailing economic theory hold that the new owners of a privatized firm will cut jobs and wages. But this ignores the possibility that new owners will expand the firm’s scale, with potentially positive effects on employment, wages, and productivity. Evidence generally shows these forces to be offsetting, usually resulting in small employment and earnings effects and sometimes in large, positive effects on productivity and scale. Foreign ownership usually has positive effects, and the effects of domestic privatization tend to be larger in countries with a more competitive business environment.
  • Short-time work compensation schemes and employment Updated

    Temporary government schemes can have a positive economic effect

    Pierre Cahuc, May 2019
    Government schemes that compensate workers for the loss of income while they are on short hours (known as short-time work compensation schemes) make it easier for employers to temporarily reduce hours worked so that labor is better matched to output requirements. Because the employers do not lay off these staff, the schemes help to maintain permanent employment levels during recessions. However, they can create inefficiency in the labor market, and might limit labor market access for freelancers and those looking to work part-time.
  • Is unconditional basic income a viable alternative to other social welfare measures? Updated

    Countries give basic education and health care to everyone, and for good reasons—why not basic income?

    Ugo Colombino, March 2019
    Globalization and automation have brought about a tremendous increase in productivity, with enormous benefits, but also a dramatic reallocation of jobs, skills, and incomes, which might jeopardize the full realization of those benefits. Current social policies may not be adequate to successfully redistribute the gains from automation and globalization or to advance the reallocation of jobs and skills. Under certain circumstances, an unconditional basic income might be a better alternative for achieving these goals. It is simple, transparent, and has low administrative costs, though it may require higher taxes or a cut/reallocation of other public expenditures.
  • Happiness as a guide to labor market policy Updated

    Happiness is key to a productive economy, and a job remains key to individual happiness, also under robotization

    Jo Ritzen, January 2019
    Measures of individual happiness, or well-being, can guide labor market policies. Individual unemployment, as well as the rate of unemployment in society, have a negative effect on happiness. In contrast, employment protection and un-employment benefits or a basic income can contribute to happiness—though when such policies prolong unintended unemployment, the net effect on national happiness is negative. Active labor market policies that create more job opportunities increase happiness, which in turn increases productivity. Measures of individual happiness should therefore guide labor market policy more explicitly, also with substantial robotization in production.
  • Employment effects of minimum wages Updated

    When minimum wages are introduced or raised, are there fewer jobs?

    David Neumark, December 2018
    The potential benefits of higher minimum wages come from the higher wages for affected workers, some of whom are in poor or low-income families. The potential downside is that a higher minimum wage may discourage firms from employing the low-wage, low-skill workers that minimum wages are intended to help. If minimum wages reduce employment of low-skill workers, then minimum wages are not a “free lunch” with which to help poor and low-income families, but instead pose a trade-off of benefits for some versus costs for others. Research findings are not unanimous, but especially for the US, evidence suggests that minimum wages reduce the jobs available to low-skill workers.
  • Does increasing the minimum wage reduce poverty in developing countries? Updated

    Whether raising minimum wages reduces—or increases—poverty depends on the characteristics of the labor market

    T. H. Gindling, November 2018
    Raising the minimum wage in developing countries could increase or decrease poverty, depending on labor market characteristics. Minimum wages target formal sector workers—a minority in most developing countries—many of whom do not live in poor households. Whether raising minimum wages reduces poverty depends not only on whether formal sector workers lose jobs as a result, but also on whether low-wage workers live in poor households, how widely minimum wages are enforced, how minimum wages affect informal workers, and whether social safety nets are in place.
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