# ECON 139 set 8

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## ECON 139 set 8

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Lecture number:
8
Pages:
16
Type:
Lecture Note
School:
University of California, San Diego
Course:
Econ 139 - Labor Economics
Edition:
1
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Page 1 of 16 May 19th 2015 See what is happening at every point in earning distribution For both men and women, large growth on top earnings Usegul for seeing the time frame of increased inequality between 1979 – 1981, inequality starts to skyrocket ECON 139 SP ‘15 Antonovics 8 5-19-15 1 Page 2 of 16 If there is no inequality, then it will be the blue straight line with points (0.2, 0.2), (0.4, 0.4) etc. The further away to the 45 degree (slope) line the Lorenz Curve is, the more is the inequality. The Gini Coefficient Gini Coeeficient = Area of the shaded region / (1/2) It’s a comprehensive measure of inequality. • The Gini Coefficient = 0 if there is no inequality. • The Gini Coefficient = 1 if there is perfect inequality (all of the income goes to the top quintile). • In the U.S. the Gini Coefficient is about .43. Page 3 of 16 Latest Numbers: l In 2012, top 1% of households earned 19.3% of the total household income. l In 2012, t op 10% of households earned 48.2% of the total household income. l 95% of the income since 2009 have gone to gains go to the top 1% l In 2012, n top 1% is > \$393,000 n top 10% is > \$114,000 n Pre-tax household income including realized capital gains. Inequality There’s one good thing about inequality is that it give people incentive to work harder • We’ve seen that inequality has been increasing in the U.S. • How does the U.S. compare to other countries? • Has inequality increased because of increased mobility? • Has there been an increase in equality for other labor market outcomes (besides wages)? Page 4 of 16 Is the Increase in Inequality Explained by an Increase in Earnings Mobility? • Earnings Mobility: reflects the covariance of earnings across years. – If the covariance in income across years is low (how much is my earnings over the years), then earnings mobility is high. • Even if there has been an increase dispersion of annual earnings, it doesn’t mean that there has been an increase in the dispersion of lifetime income—maybe people’s incomes are just bouncing around more from year to year. • Thus, is increased inequality in the United States simply due to an increase in mobility? • First, what does mobility look like in the United States? The likelihood of people stay below (decrease), they have more mobility. Page 5 of 16 Earnings Mobility, Continued • One way to examine whether the increase in inequality can be explained by an increase in mobility is to average income over multiple years to get a measure of permanent income. • Then you can assess the extent to which there has been an increase in inequality for permanent income . . . Little evidence that the rise in inequality can be explained by an increase in mobility The Gini coefficients are higher in annual earnings curve. Has There Been ...

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