Research Programs
The Distribution of Income and Wealth
Economic inequality has been a prominent and perennial concern in economics and public policy. The rise in inequality that occurred during the 1970s and early 1980s stimulated interest in the study of its causes and consequences. Experience from the 1990s suggests that economic growth and prosperity no longer dramatically reduce economic inequality. The persistent inequalities within nations and across nations raise several key issues that demand scholarship and innovative policies to aid in their resolution.
Recognizing this, the Levy Institute has maintained, since its inception, an active research program on the distribution of earnings, income, and wealth. Research in this area includes studies on the economic well-being of the elderly, public and private pensions, well-being over the life course, the role of assets in economic well-being, and the determinants of the accumulation of wealth.
It is widely recognized that existing official measures of economic well-being need to be improved in order to generate accurate cross-sectional and intertemporal comparisons. The picture of economic well-being can vary significantly depending on the measure used. Alternative measures are also crucially important for the formulation and evaluation of a wide variety of social and economic policies. The Levy Institute Measure of Economic Well-Being and related research is aimed at bridging this gap.
Associated Programs
The Levy Institute Measure of Economic Well-Being
The Levy Institute Measure of Time and Income Poverty
Program Publications
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Working Paper No. 1037 | January 2024The post-pandemic surge in inflation was accompanied by a surge in the corporate share of profits. As a result, several economists and policy makers have given to it names such as “profit-led inflation” or “sellers’ inflation.” The present paper discusses the extent to which profit-led inflation, as an explanation for the recent surge in inflation, is compatible with what we know about the price-setting behavior of firms, income distribution, and inflation. We do that in juxtaposition to two recent critiques: that the increase in the profit share is the result of cyclical factors, and that the increase in import prices leads to higher profit shares even under constant markups. We show that there is little evidence that the recent surge in profitability is cyclical in nature. Moreover, after outlining the Structuralist/Kaleckian theories of prices and inflation we argue that profit-led inflation does not require an increase in the markup of the firms and is consistent with these theories. In the face of large import and other price shocks even under constant markups, firms are able to pass the burden of adjustment to real wages. Thus, the term profit-led emphasizes the distributional source and consequences of inflation. We also provide an empirical examination of the markups in the post-pandemic period using data from the Compustat database. We show that, on average, firms were able to increase or maintain their markups, although there is significant heterogeneity across sectors or the position of the firms in the distribution of markups.Download:Associated Program(s):Author(s):Related Topic(s):
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Working Paper No. 1028 | August 2023Using the model proposed in Krugman and Taylor’s “Contractionary effects of devaluation” (1978), we examine the macroeconomic effects of shocks to foreign prices. We show that these shocks can be contractionary for two reasons: (i) because they imply a loss of income if an economy has a trade deficit or import prices increase proportionally more than export prices; (ii) because there is a redistribution of income from wages to profits and rent, which leads to a decrease in consumption and output (as the wage earner's propensity to consume is higher than those of profit earners and rentiers). An endogenous reaction of nominal wages to the increase in the price level might lead to even higher increases in prices, but mitigates the negative macroeconomic effects of the foreign price shocks because it reduces their negative distributional effects. If the proportional increase in nominal wages is higher than that of domestic prices, the distributional effect becomes positive. The opposite is the case with markups. If they increase in reaction to higher prices, they contribute to further price increases but they also exacerbate the negative distributional effects. The paper also provides an analytical solution for a general case of the model of Krugman and Taylor.
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Working Paper No. 1026 | August 2023This paper analyzes the implications of distributional contrast for the monetary theory of distribution. The first step is to try to introduce the banking sector within Pivetti's monetary distribution theory approach. Pivetti in fact does not analyze the links between the central bank and the banking sector. It therefore seems interesting to study what role the banking sector and the financial capitalists play in this framework. Thus, an attempt is made to model the banking sector and its links to the production sector within the framework of Pivetti’s approach. As this integration does not present any particular theoretical problems, the paper discusses then the ability of the aforementioned approach to explain the coexistence of near-zero (if not negative) interest rates and low real wages. The difficulty in explaining this economic phenomenon opens the way to a more general discussion of the dynamics inherent in the contrast between workers and capitalists and between financial and productive capitalists. Thus, the analysis shows that six different distributional configurations are possible (plus two others that are unstable or unrealistic), of which only two can be explained through Pivetti's monetary theory of distribution. The other four can be explained by elaborating more recent approaches that continue, enrich, and develop Marx's approach.Download:Associated Program:Author(s):Riccardo ZoleaRelated Topic(s):
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Research Project Reports | June 2022
Time Use, Employment, and Poverty
There is broad consensus in both research and policy circles that one of the key reasons for a lack of progress in reducing gender gaps in employment and wages is the persistent gender imbalance in unpaid work, three-quarters of which is performed by women. Universal access to quality care services enables the reduction of this unpaid care work through its redistribution from the domestic sphere to the public sphere, with empirical studies from different regions and countries demonstrating that access to services (in particular, childcare services) substantially increases female labor force participation and labor market attachment. Furthermore, a series of recent empirical studies show that access to care also creates new demand for female employment: increasing public spending on care is found to generate two-to-three times the number of new jobs per dollar than spending on sectors such as construction.
This research project report focuses on Mexico and builds on previous studies for Turkey, Ghana, and Tanzania by constructing a combined time-use and income-employment dataset for Mexico to evaluate the net effects a proposed childcare expansion could have on earnings and work hours and their concomitant impact on time and income poverty by gender, with results indicating that the employment creation achieved through increased social care spending reduces gender employment gaps while also helping to alleviate the twin deprivations of time and income poverty.Download:Associated Program(s):The Distribution of Income and Wealth Gender Equality and the Economy The Levy Institute Measure of Time and Income PovertyAuthor(s): -
Policy Note 2021/2 | May 2021
The Impact of the Emergency Benefit on Poverty and Extreme Poverty in Brazil
Research Scholar Luiza Nassif-Pires, Luísa Cardoso, and Ana Luíza Matos de Oliveira analyze the importance of the “emergency benefit” (Auxílio Emergencial) in containing the increase in poverty and extreme poverty in Brazil during the COVID-19 pandemic. They find the emergency benefit mitigated the loss of income, brought the poverty rate to historically low levels, and reduced inequality: poverty gaps in terms of gender and (to a lesser degree) race narrowed in 2020. However, their simulations show that a planned reduction in transfer levels for 2021 will result in the emergency benefit providing substantially less social protection against loss of income than its more robust 2020 version.Download:Associated Program(s):Author(s):Related Topic(s):Region(s):Latin America -
Working Paper No. 983 | February 2021
A Comparative Analysis for Sub-Saharan African Countries
In this working paper, we analyze factors that may explain gender differences in the allocation of time to household production in sub-Saharan Africa. The study uses time use survey data to analyze the determinants of time spent on household production by husbands and wives in nuclear families in Ethiopia, Ghana, Tanzania, and South Africa. We assume that the time spent by each spouse is a function of personal and household characteristics. A bivariate Tobit model is used to estimate the marginal impact of a set of key variables that figure recurrently in the literature on time allocation. We observe a high degree of variability in the results for the set of countries, which does not allow us to draw hard general conclusions. We do find some weak evidence that supports time availability and gender ideology theory as well as for the hypothesis that bargaining power plays a role in explaining the intrahousehold allocation of household production.Download:Associated Program(s):Author(s):Related Topic(s): -
Working Paper No. 967 | September 2020This paper assesses the quality of the statistical matching used in the LIMTIP estimates for Italy for 2008 and 2014. The match combines the 2008–9 and 2013–14 Italian Time Use Survey (IT-TUS) with the Italian data collected for the European Survey on Income and Living Conditions (IT-SILC) in 2009 and 2015. After the matching, the analysis of the joint distributions of the variables shows that the quality is good.
The preliminary results of the LIMTIP estimates in Italy display widespread time poverty, which translates into significant hidden poverty. The LIMTIP also reveals that the increase in the poverty rate between 2008 and 2014 was even higher that what standard poverty measures report.Download:Associated Program(s):The Distribution of Income and Wealth The Levy Institute Measure of Time and Income Poverty The State of the US and World EconomiesAuthor(s):Erica AloèRelated Topic(s):Household production Italy Levy Institute Measure of Time and Income Poverty (LIMTIP) Poverty Statistical matching Time useRegion(s):Europe -
Public Policy Brief No. 153 | September 2020After spending over 6 percent of GDP responding to the COVID-19 crisis, Brazil has suffered among the worst per capita numbers in the world in terms of cases and deaths. In this policy brief, Luiza Nassif-Pires, Laura Carvalho, and Eduardo Rawet explore how stark inequalities along racial, regional, and class lines can help account for why the pandemic has had such a damaging impact on Brazil. Although they find that fiscal policy measures have so far neutralized the impact of the crisis with respect to income inequality, the existence of structural inequalities along racial lines in particular have resulted in an unequally shared public health burden. Broader policy changes are necessary for addressing dimensions of inequality that are rooted in structural racism.Download:Associated Program(s):Author(s):Related Topic(s):Region(s):Latin America
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Press Releases | May 2020Download:Associated Program(s):Author(s):Mark PrimoffRelated Topic(s):
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Working Paper No. 954 | April 2020
A Microeconometric Analysis
This paper examines whether relative income and income inequality within reference groups affect household consumption. Using the explanations of consumption behavior based on Dusenberry’s relative income hypothesis, we test if household consumption levels in Turkey are affected by the household’s relative position and inequality in the reference group between 2005–12 by employing cross-sectional household-level data. We find that household consumption is negatively related to the relative income indicator after controlling for absolute income, and positively related to the income inequality of the reference group, as the literature suggests. The paper also shows that household indebtedness has a positive impact on household consumption when inequality in the reference group and the relative position of households are controlled for. We confirm that the results are not sensitive to chosen relative income indicators and income inequality.
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