Economics and Information Theory

In the current context of the COVID-19 pandemic, working from home (WFH) became of great importance for a large share of employees since it represents the only option to both continue working and minimise the risk of virus exposure. Uncertainty about the duration of the pandemic and future contagion waves even led companies to view WFH as a 'new normal' way of working. Based on influence function regression methods, this paper explores the potential consequences in the labour income distribution related to a long-lasting increase in WFH feasibility among Italian employees. Results show that a positive shift in WFH feasibility would be associated with an increase in average labour income, but this potential benefit would not be equally distributed among employees. Specifically, an increase in the opportunity to WFH would favour male, older, high-educated, and high-paid employees. However, this 'forced innovation' would benefit more employees living in provinces have been more affected by the novel coronavirus. WFH thus risks exacerbating pre-existing inequalities in the labour market, especially if it will not be adequately regulated. As a consequence, this study suggests that policies aimed at alleviating inequality, like income support measures (in the short run) and human capital interventions (in the long run), should play a more important compensating role in the future.

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Working from home and income inequality: risks of a 'new normal' with COVID-19.

This paper uses data from the Luxembourg Income Study to examine some of the forces that have driven changes in household income inequality over the last three decades of the twentieth century. We decompose inequality for six countries (Canada, Germany, Norway, Sweden, the U.K., and the U.S.) into the three sources of market income (earnings, property income, and income from self-employment) and taxes and transfers. Our findings indicate that although changes in the distribution of earnings are an important force behind recent trends, they are not the only one. Greater earnings dispersion has in some cases been accompanied by a reduction in the share of earnings which dampened its impact on overall household income inequality. In some countries the contribution of self-employment income to inequality has been on the rise, while in others, increases in inequality in capital income account for a substantial fraction of the observed distributional changes.

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Factor Components of Inequality: A Cross‐Country Study

Using for the first time household survey data from 26 post-Communist countries, covering the period 1990-2005, this paper examines correlates of unprecedented increases in inequality registered by most of the economies. The analysis shows, after controlling for country fixed effects and type of survey used, that economic reform is strongly negatively associated with the income share of the bottom decile, and positively with the income shares of the top two deciles. However, breaking economic reform into its component parts, the picture is more nuanced. Large-scale privatization and infrastructure reform (mostly consisting of privatization and higher fees) are responsible for the pro-inequality effect; small-scale privatization tends to raise the income shares of the bottom deciles. Acceleration in growth is also pro-rich. But democratization is strongly pro-poor, as is lower inflation. Somewhat surprisingly, the analysis finds no evidence that greater government spending as share of gross domestic income reduces inequality.

https://www.gc.cuny.edu/CUNY_GC/media/CUNY-Graduate-Center/PDF/Centers/LIS/Milanovic/papers/2012/Milanovic_Ersado_final.pdf

the Transition: An Analysis Using Panel Household Survey Data, 1990-2005

Inequality can be addressed through a combination of social service provision, social transfers and taxation. Looking at the past two decades, this paper examines the extent to which inequality has been affected by changes in national tax systems and government expenditure on social transfers. Using secondary data, this paper discusses the trends in the composition and levels of social transfers and taxes, and explores how these trends relate to income inequality. It also looks into the extent to which taxes and social transfers are effective in redistributing income. And finally it shows how different government policy frameworks have been able to limit growth in income inequality and at the same time foster economic growth and job creation.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1358237_code337838.pdf?abstractid=1358237&mirid=1

Policies for redistribution: The use of taxes and social transfers

This paper examines inequality patterns in the 1990s in Poland, Russia and Hungary. We consider three different definitions of income and analyse the contributions to inequality of their main components using LIS micro data. Inequality is measured using the Gini and Theil indices, which in turn are decomposed by source using two alternative approaches (the Shorrocks’ axiomatic approach and the Theil-based decomposition). The role of transfers and taxes in mitigating total inequality during the transition period is highlighted, as are the contributions of market factors.

Inequality in Transition Countries: The Contribution of Markets and Government Taxes and Transfers.

Using four waves of data from the Participation Labour Unemployment Survey, a database of information on the Italian labour market supply, we address the question of earnings dispersion by applying a ‘nested’ decomposition procedure of the Theil inequality measure, which combines into a unified framework the standard decompositions by population subgroups and income sources. The empirical evidence obtained points to the key role played by the self-employees in shaping labour income inequality, especially at the upper extreme of the earnings distribution, and the emergence of non-standard forms of employment as an important feature of the contemporary workplace.

/pdf/the-labour-market-and-the-distribution-of-earnings-an-2z59jc2qth.pdf

The labour market and the distribution of earnings: an empirical analysis for Italy

In this paper we propose a nested inequality decomposition by income sources and population subgroups derived by the Theil index. We firstly motivate our preference for its associated decomposition by income sources with respect to the axiom-based proposal of Shorrocks (1982) and the Gini-based decomposition of Lerman and Yitzhaki (1985). Then we enhance the set of desirable proprieties able to sustain that choice with the additional requirement of subgroup decomposability. The nested decomposition of the Theil index allows the overall level of inequality to be function of only three types of factors: source-group income and population shares; source-group inequality. Finally, using LIS micro data on incomes, we apply it to the case of geographical disaggregation of inequality in Italy between 1989 and 2000.

/pdf/the-bidimensional-decomposition-of-inequality-a-nested-theil-1ptm4py2eh.pdf

The bidimensional decomposition of inequality: A nested Theil approach

This paper provides an empirical examination of the distribution of labour earnings in Italy. Using data drawn from the 2005 and 2006 waves of the Participation Labour Unemployment Survey, a database of information on the Italian labour market supply, we find the shape of the observed distributions to be right-skewed and display a long right tail, which is adequately described by a Pareto-type model. We also address the question of earnings dispersion by applying a nested decomposition procedure of the Theil inequality measure, which combines into a unified framework the standard decompositions by population subgroups and income sources. The empirical evidence obtained points to the key role played by the self-employees in shaping labour income inequality, especially at the upper extreme of the earnings distribution, and the emergence of non-standard forms of employment as an important feature of the contemporary workplace.

/pdf/the-pareto-law-and-the-distribution-of-labour-income-in-3cm7bzpfb5.pdf

Michele Giammatteo

Papers

Inequality in Transition Countries: The Contribution of Markets and Government Taxes and Transfers.

The labour market and the distribution of earnings: an empirical analysis for Italy

The bidimensional decomposition of inequality: A nested Theil approach

The Pareto law and the distribution of labour income in Italy