the world-wide rise of within inequality ( because of globalization and technology)
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INTERNATIONAL ECONOMICS ADV. Massimo Tamberi. The world-wide rise of within inequality ( because of globalization and technology). Outline of this presentation. 1 - Inequality trends: 1.1 - general evidence 1.2 - polarization 1.3 - extreme inequality - PowerPoint PPT PresentationTRANSCRIPT
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The world-wide rise of within inequality
(because of globalization and technology)
INTERNATIONAL ECONOMICS ADV.
Massimo Tamberi
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Outline of this presentation
1 - Inequality trends:
1.1 - general evidence1.2 - polarization1.3 - extreme inequality
2 - Possible causes of inequality:
2.1 - social mobility2.2 - demography2.3 - technology2.4 – globalization (with notes)
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Inequality trends:general evidence
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Source: Cornia, Addison, Kiiski (2003), Income distribution changes and their impact in the post-war II period, UNU WIDER discussion paper 2003/28
The Kuznets world (?)……. after WW II (1950-1970)
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Source: Cornia, Addison, Kiiski (2003), Income distribution changes and their impact in the post-war II period, UNU WIDER discussion paper 2003/28
but what really happened was …..
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Source: IMF World Economic Outlook, Oct. 2007
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Source: IMF World Economic Outlook, Oct. 2007
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Source: IMF World Economic Outlook, Oct. 2007
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OECD countries …..
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Source: Oecd (2008), Growing unequal?
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Source: Cornia, Addison, Kiiski (2003), Income distribution changes and their impact in the post-war II period, UNU WIDER discussion paper 2003/28
What in the so-called Transition countries ?
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Source: Cornia, Addison, Kiiski (2003), Income distribution changes and their impact in the post-war II period, UNU WIDER discussion paper 2003/28
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Source: Cornia, Addison, Kiiski (2003), Income distribution changes and their impact in the post-war II period,, UNU WIDER discussion paper 2003/28
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Source: Cornia, Addison, Kiiski (2003), Income distribution changes and their impact in the post-war II period, UNU WIDER discussion paper 2003/28
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Source: Oecd (2008), Growing unequal
… and the impact of the state, in general …
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Source: Oecd (2008), Growing unequal
… and the impact of the state, in specific countries …
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Inequality trend:Polarization
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Source: Van Reenen (2011), Wage Inequality, Technology and Trade: 21st Century Evidence, Occasional paper,Center for Economic Performance
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Source: Autor (2011) The Polarization of Job Opportunities in the U.S. Labor Market: Implications for Employment and Earnings, Community Investments, Fall 2011 – Volume 23, Issue 2
zero relative variation!
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Source: Van Reenen (2011), Wage Inequality, Technology and Trade: 21st Century Evidence, Occasional paper,Center for Economic Performance
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Source: Van Reenen (2011), Wage Inequality, Technology and Trade: 21st Century Evidence, Occasional paper,Center for Economic Performance
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Inequality trend:extreme inequality
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US economy
Source: Piketty, Saez (2003), Income inequality in the United States, 1913–1998, Quarterly Journal of Economics, February, issue 1
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US economy
Source: Piketty, Saez (2003), Income inequality in the United States, 1913–1998, Quarterly Journal of Economics, February, issue 1
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US economy
Source: Piketty, Saez (2003), Income inequality in the United States, 1913–1998, Quarterly Journal of Economics, February, issue 1
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Source: Piketty, Saez (2003), Income inequality in the United States, 1913–1998, Quarterly Journal of Economics, February, issue 1
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Source: Oecd (2008), Growing unequal?
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Source: Acemoglu, Autor(2010 ), Skills, Tasks and Technologies: Implications for Employment and Earnings, MIT
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Source: Acemoglu, Autor(2010 ), Skills, Tasks and Technologies: Implications for Employment and Earnings, MIT
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US economy
income of the rich =
capital income
income of the poor
= wage income
Populationquantiles
Source: Piketty, Saez (2003), Income inequality in the United States, 1913–1998, Quarterly Journal of Economics, February, issue 1
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Source: Piketty, Saez (2003), Income inequality in the United States, 1913–1998, Quarterly Journal of Economics, February, issue 1
US economy
Income of the rich
=
mainly wage income
Populationquantiles
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A different story: France (1)
Piketty (2005), Top income shares in the long run: an overview, Journal of the European Economic Association, April–May, 3(2–3):1–11
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Piketty (2005), Top income shares in the long run: an overview, Journal of the European Economic Association, April–May, 3(2–3):1–11
A different story: France (2)
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Possible causes of inequality:
- social mobility- demography- technology- globalization
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social mobility
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SOURCE:http://www.conferenceboard.ca/hcp/details/society/intergenerational-income-mobility.aspx
EXAMPLE: if intergenerational earnings elasticity of 0.20, this means that if an individual in that country earns $10,000 less income than the average, 20 per cent of that difference (or, $2,000) will be passed on to the individual’s children. In other words, the children will earn $2,000 less than the average.
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THE GREAT GATSBY CURVE
Source: Miles Corak, (2012) Inequality from generation to generation: the United States in Comparison
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demography
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Relative Income by age of individualsselected OECD countries
Equivalised household disposable income, mid-2000s
OECD (2008), Growing unequal? …
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Relative Income of individuals by age Average household disposable income of two age groups (examples)
relative to that of people aged 41 to 50,mid-1980s and mid-2000s
OECD (2008), Growing unequal? …
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Australia 1995-2004 –0.008 –0.011Belgium 1985-2000 0.053 0.049Italy 1984-2004 0.063 > 0.069Finland 1986-2004 0.062 < 0.058Germany 1985-2005 0.044 0.045United Kingdom 1985-2005 0.051 0.049
Country period gini gini (const. age struct.)
Changes in income inequality assuming a constant age structure
Source: OECD (2008), Growing unequal?
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Technology:Inequality and the labor market
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Source: IMF WEO Oct. 2007
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Source: Autor (2011) The Polarization of Job Opportunities in the U.S. Labor Market: Implications for Employment and Earnings, Community Investments, Fall 2011 – Volume 23, Issue 2
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Source: Feenstra, Hanson, (2001), Global production sharing and rising inequality: a survey of trade and wages, Davis University
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Source: Feenstra, Hanson, (2001), Global production sharing and rising inequality: a survey of trade and wages, Davis University
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Source: Deardorff (1998), Technology, trade, and increasing inequality: does the cause matter for the cure Michigan University
Shares of Employment by Education Level,USA - 1963-1995
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Source: Deardorff (1998), Technology, trade, and increasing inequality: does the cause matter for the cure? Michigan University
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Source: Deardorff (1998), Technology, trade, and increasing inequality: does the cause matter for the cure Michigan University
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Source: Deardorff (1998), Technology, trade, and increasing inequality: does the cause matter for the cure? Michigan University
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(here Van Reenen model )
… from the CES production function …
… to relative wages …
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globalization
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Source: IMF WEO Oct. 2007
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Source: IMF WEO Oct. 2007
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Source: IMF WEO Oct. 2007
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the “trade” explanation
free trade has a surprising feature(discovered by Samuelson)
factor prices (i.e.: the wage in a country) do not depend directly on
national factor endowments.
Instead, factor prices depend on good prices,
and these are in turn determined in the world market.
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1the available quantities (“endowments”) of primary factors of production, such as
labor (or types of labor), capital, and land, whose abundance or scarcity
would, in the absence of trade, determine their factor prices, including
the wage of labor
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2with trade, these factor endowments determine instead the comparative
advantages of different countries, and thus their trade patterns (H-O)
(Canada exports timber to USA because of its endowments of big woods)
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2 (cont.)
Trade has a first direct consequence:
Traded goods will have the same price (convergence in good prices)
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3Factor price equalization theorem:
under free trade, if countries share the same technologies and face
the same international prices of traded goods, then they will also have the same prices of factors
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When countries exchange goods, in reality they are (indirectly) exchanging
factors of production
If a country A exports goods whose production is intensive of factor Ls, and it imports goods that
are intensive of factor Lu, it means that its exports contain more Ls (less Lu) than the
imported goods.
As a consequence country A is indirectly exporting Ls
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The opposite is true for country B
it exports goods whose production is intensive of factor Lu, and imports goods
that are intensive of factor Ls: its exports contain more Lu (less Ls)
than the imported goods.
As a consequence country B is indirectly exporting Lu
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From this point of view
Trade in goods is trade in factors
Trade leads to factor price equalization
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The importance of this for the discussion here is that it means that the demandcurve for a country’s labor, when we draw it as a function of wages, is not downwardsloping after all, but is instead horizontal at a level that depend on prices of goods
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A possible consequence of the FPE:
Since the 70s poor countries began to export manufactured goods, especially goods
intensive of unskilled labor
They also imported, from advanced countries, goods intensive of skilled labour
Many concluded that the rising inequality was a consequence of the FPE process:
increase in wages of skill workers and decrease in wages of unskilled workers
in rich countries
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Does this interpretation hold?
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FPE depends on some hypothesis:
1) All countries produce all goods
2) All countries share the same technologies
3) Traded goods prices should completely converge
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1
FPE should imply a rise in prices of goods with intensive of skill labor
(relative to prices of goods intensive of unskilled labor).
Not true?
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Weighted changes in domestic prices
Source: Feenstra, Hanson, (2001), Global production sharing and rising inequality: a survey of trade and wages, Davis University
This suggests that some of the industries that use most production (less skilled) workers are those with the highest price increases
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2
Factor prices should CONVERGE:
increase (decrease) of skill (unskill) workers wage in advanced countries …
… and the opposite in developing countries (especially: increase in unskill workers wage).
Not true (example: Mexico after NAFTA)
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3
Trade between advanced and emerging countries is growing but still is
a small percentage of total trade flows of advanced countries
(at least untill very recent times).
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In conclusion …….
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Source: Krugman (2008), Trade and wages, reconsidered, Princeton University
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Decomposition of the Change in the Share of Employment and Wages of Non-Production Workers
USA - 1973-79 and 1979-87
NB:trade explanation: mainly between sectors changestech explanation: mainly within sector changes
Source: Feenstra, Hanson, (2001), Global production sharing and rising inequality: a survey of trade and wages, Davis University
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However …..
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USA: import penetration 1989-2006
Source: Krugman (2008), Trade and wages, reconsidered, Princeton University
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Source: Krugman (2008), Trade and wages, reconsidered, Princeton University
1geographical composition of US trade changed: more
weight of emerging countries means ….
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Anther possibility is that trade and technology, as reasons for the change in
skill demand, interrelate
TRADE INDUCED TECHNOLOGICAL PROGRESS
i.e. tech. progress as a response to trade pressure
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TECH AND TRADE DEBATE: A PRACTICAL
SOLUTION
An empirical estimation of relative contributions
(tech. and glob.)
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IMF empirical analysis based on this equation to be estimated:
They also added per capita income (kuznets curve)
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IMF empirical results (log GINI as dependent variable)
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Source: Jaumotte, Lall, Papageorgiou (2009), Rising Income Inequality: Technology, or Trade and Financial Globalization?, ” IMF WP/08/185
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Source: Jaumotte, Lall, Papageorgiou (2009), Rising Income Inequality: Technology, or Trade and Financial Globalization?, ” IMF WP/08/185
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Source: Jaumotte, Lall, Papageorgiou (2009), Rising Income Inequality: Technology, or Trade and Financial Globalization?, ” IMF WP/08/185