Downward wage rigidity in Europe: A new flexible parametric approach and empirical results

We suggest a new parametric approach to estimate the extent of downward nominal wage rigidity in ten European countries between 1994 and 2001. The data base used throughout is the User Data Base (UDB) of the European Community Household Panel (ECHP). The proposed approach is based on the very flexible generalized hyperbolic distribution which allows to model wage change distributions characterized by thick tales, skewness and leptokurtosis. Significant downward nominal wage rigidity is found in all countries under analysis, but the extent varies considerably across countries. Yearly estimates reveal increasing rigidity in Italy, Greece and Portugal, while rigidity is declining in Denmark and Belgium. The results imply that the costs of price stability differ substantially across Europe. --

Competitive and Segmented Informal Labor Markets

It has been recently argued that the informal sector of the labor market in a developing economy shows a dual structure with one part of it being competitive to the formal sector and another part being the result of market segmentation. To test this hypothesis we formulate an econometric model which allows for a heterogeneous informal sector with unobserved individual a?liation and which takes into account selection bias induced by the employment decision of individ- uals. Our test results for the urban labor market in C^ote d'Ivoire indeed show existence of both competitive and segmented employment in the informal sector. --developing economy,informal labor market,segmentation,comparative advantage,selection bias,latent structure,finite mixture models

Competitive and Segmented Informal Labor Markets

It has recently been argued that the informal sector of labor markets in de- veloping economies shows a dual structure with part of the informal sector being competitive to the formal sector and part of the informal sector being the result of market segmentation. To test this hypothesis, we formulate an econometric model which allows for a heterogeneous informal sector with unobserved individ- ual sector a±liation in the informal sector and which takes into account selection bias induced by the employment decision of individuals. Our empirical results for the urban labor market in C^ote d\'Ivoire show the existence of both competitive and segmented employment in the informal sector.developing economy, informal labor market, segmentation, comparative advantage, selection bias, latent structure, finite mixture models

Gender Wage Gap: A Semi-Parametric Approach With Sample Selection Correction

Sizeable gender differences in employment rates are observed in many countries. Sample selection into the workforce might therefore be a relevant issue when estimating gender wage gaps. This paper proposes a new semi-parametric estimator of densities in the presence of covariates which incorporates sample selection. We describe a simulation algorithm to implement counterfactual comparisons of densities. The proposed methodology is used to investigate the gender wage gap in Italy. It is found that when sample selection is taken into account gender wage gap widens, especially at the bottom of the wage distribution. Explanations are offered for this empirical finding.gender wage gap;hazard function;sample selection;glass ceiling;sticky floor

Gender Wage Gap : A Semi-parametric Approach with Sample Selection Correction

Sizeable gender differences in employment rates are observed in many countries. Sample selection into the workforce might therefore be a relevant issue when estimating gender wage gaps. This paper proposes a new semi-parametric estimator of densities in the presence of covariates which incorporates sample selection. We describe a simulation algorithm to implement counterfactual comparisons of densities. The proposed methodology is used to investigate the gender wage gap in Italy. It is found that when sample selection is taken into account gender wage gap widens, especially at the bottom of the wage distribution. Explanations are offered for this empirical finding.gender wage gap, hazard function, sample selection, glass ceiling, sticky floor

Designing Optimal Taxes With a Microeconometric Model of Household Labour Supply

This paper is concerned with the empirical analyses of optimal taxation, adopting Equality of Outcome (EO) as well as Equality of Opportunity (EOp) as evaluation criteria. The EOp- and EO-criteria provide alternative methods for summarizing the efficiency-equality trade-off in the distribution of individual welfare. We also compare the results depending on whether we use income or money-metric utility as a measure of individual welfare. We estimate micro-econometric models of household labour supply and corresponding individual welfare measures based on 1995 Norwegian data for both married couples and singles. We then use these models to simulate behavioural responses and welfare gains and losses of various constant-revenue four-parameter tax rules, i.e. the tax rules defined by a lump-sum transfer (positive or negative), two marginal tax rates and a “kink point” that produces the same revenue collected with the observed 1995 rules. Using the various EOp- and EO- critera as a basis for evaluating and comparing these tax rules, EOp- and EO-optimal tax rules are identified.Optimal Taxation, Labour Supply, Microeconometric Models

Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply

The purpose of this paper is to present an exercise where we identify optimal income tax rules under the constraint of fixed tax revenue. To this end, we estimate a microeconomic model with 78 parameters that capture heterogeneity in consumption-leisure preferences for singles and couples as well as in job opportunities across individuals based on detailed Norwegian household data for 1994. For any given tax rule, the estimated model can be used to simulate the choices made by single individuals and couples. Those choices are therefore generated by preferences and opportunities that vary across the decision units. Differently from what is common in the literature, we do not rely on a priori theoretical optimal taxation results, but instead we identify optimal tax rules – within a class of 6-parameter piece-wise linear rules - by iteratively running the model until a given social welfare function attains its maximum under the constraint of keeping constant the total net tax revenue. We explore a variety of social welfare functions with differing degree of inequality aversion and also two alternative social welfare principles, namely equality of outcome and equality of opportunity. All the social welfare functions turn out to imply an average tax rate lower than the current 1994 one. Moreover, all the optimal rules imply – with respect to the current rule – lower marginal rates on low and/or average income levels and higher marginal rates on relatively high income levels. These results are partially at odds with the tax reforms that took place in many countries during the last decades. While those reforms embodied the idea of lowering average tax rates, the way to implement it has typically consisted in reducing the top marginal rates. Our results instead suggest to lower average tax rates by reducing marginal rates on low and average income levels and increasing marginal rates on very high income levels.Labour supply, optimal taxation, random utility model, microsimulation.

Competitive and Segmented Informal Labor Markets

It has recently been argued that the informal sector in developing countries shows a dual structure, with part of the informal sector being competitive to the formal sector and part of the informal sector being the result of market segmentation. We formulate an econometric model to test this hypothesis. The model allows for sector multiplicity with unobserved sector affiliation in the informal sector and takes into account sample selection bias induced by the employment decision of individuals. An estimation of the model for the urban labor market in C^ote d'Ivoire shows that the informal labor market is indeed composed of two segments with both competitive as well as segmented employment.informal labor market,segmentation,comparative advantage,selection bias,latent structure,finite mixture

Stock-flow consistent macroeconomic model with nonuniform distributional constraint

We report on results concerning a partially aggregated Stock Flow Consistent (SFC) macroeconomic model in the stationary state where the sectors of banks and firms are aggregated, the sector of households is dis-aggregated, and the probability density function (pdf) of the wealth of households is exogenous, constrained by econometric data. It is shown that the equality part of the constraint can be reduced to a single constant-sum equation, which relates this problem to the study of continuous mass transport problems, and to the sum of iid random variables. Existing results can thus be applied, and provide marginal probabilities, and the location of the critical point before condensation occurs. Various numerical experiments are performed using Monte Carlo sampling of the hit-and-run type, using wealth and income data for France