Is a Minimum Wage an Appropriate Instrument for Redistribution?

We analyse the redistributional (dis)advantages of a minimum wage over income taxation in competitive labour markets without imposing assumptions on the (in)efficiency of labour rationing. Compared to a distributionally equivalent tax change, a minimum-wage increase raises involuntary unemployment, but also raises skill formation as some individuals avoid unemployment. A minimum wage is an appropriate instrument for redistribution if and only if the public revenue gains from additional skill formation outweigh both the public revenue losses from additional unemployment and the utility losses of inefficient labour rationing. We show that this critically depends on how labour rationing is distributed among workers. A necessary condition for the desirability of a minimum-wage increase is that the public revenue gains from higher skill formation outweigh the revenue losses from higher unemployment. We write this condition in terms of measurable sufficient statistics

Who Needs Good Neighbours?

Abstract: Due to the increasing spatial dispersion of social networks, the association between neighbor relationships and quality of life has become more uncertain. Our analysis used instrumental variable modelling to reduce bias associated with residual confounding and reverse causation, in order to provide a more reliable examination of the effect of interaction with neighbors on subjective well-being than previous work. While the frames of reference for individuals’ socializing may have shifted outside the neighborhood, our analysis provides robust evidence that interaction with neighbors still matters a great deal for subjective well-being. A further important question to ask is if neighboring does affect well-being, then are there certain groups in society for whom contact with neighbors matters more? Our analysis suggests that there are, namely for those in a relationship, unemployed or retired. This means that while fostering contact with neighbors has the potential to significantly improve individual well-being, such policy efforts are likely to matter a good deal more in neighborhoods with relatively large numbers of geographically constrained social groups, such as the elderly and the unemployed. Key words: subjective well-being, neighborly interaction, social capita

Can a concern for status reconcile diverse social welfare programs?

Let there be two individuals: “rich,” and “poor.” Due to inefficiency of the income redistribution policy, if a social planner were to tax the rich in order to transfer to the poor, only a fraction of the taxed income would be given to the poor. Under such inefficiency and a standard utility specification, a Rawlsian social planner who seeks to maximize the utility of the worst-off individual will select a different allocation of incomes than a utilitarian social planner who seeks to maximize the sum of the individuals’ utilities. However, when individuals prefer not only to have more income but also not to have low status conceptualized as low relative income, and when this distaste is incorporated in the individuals’ utility functions with a weight that is greater than a specified critical level, then a utilitarian social planner will select the very same income distribution as a Rawlsian social planner

Subjective Well-being in Rural India: The Curse of Conspicuous Consumption

Using data on 697 individuals from 375 rural low income households in India, we test expectations on the effects of relative income and conspicuous consumption on subjective well-being. The results of the multi-level regression analyses show that individuals who spent more on conspicuous consumption report lower levels of subjective well-being. Surprisingly an individual’s relative income position does not affect feelings of well-being. Motivated by positional concerns, people do not passively accept their relative rank but instead consume conspicuous goods to keep up with the Joneses. Conspicuous consumption always comes at the account of the consumption of basic needs. Our analyses point at a positional treadmill effect of the consumption of status goods

Positional Income Concerns: Prevalence and Relationship with Personality and Economic Preferences

This paper presents detailed evidence about who compares to whom in terms of relative income. We rely on representative survey data on the importance of income comparisons vis-á-vis seven reference groups, allowing us to exploit within-subject heterogeneity. We explore the prevalence and determinants of positional income concerns, investigating the role of personality and economic preferences. Our results establish robust relationships between positional income concerns and the personality traits agreeableness, conscientiousness, and neuroticism, some of which depend on the reference group. Furthermore, risk and fairness preferences are significantly correlated with positional income concerns

A Nonbehavioral Theory of Saving

We present a model where the saving rate of the household sector, especially households at the bottom of the income distribution, becomes the endogenous variable that adjusts in order for full employment to be maintained over time. An increase in income inequality and the current account deficit and a consolidation of the government budget lead to a decrease in the saving rate of the household sector. Such a process is unsustainable because it leads to an increase in the household debt-to-income ratio, and maintaining it depends on some sort of asset bubble. This framework allows us to better understand the factors that led to the Great Recession and the dilemma of a repeat of this kind of unsustainable process or secular stagnation. Sustainable growth requires a decrease in income inequality, an improvement in the external position, and a relaxation of the fiscal stance of the government

Gender Discrimination and Social Identity: Experimental Evidence from Urban Pakistan

Gender discrimination in South Asia is a well-documented fact. However, gender is only one of an individual's many identities. This paper investigates how gender discrimination depends on the social identities of interacting parties. We use an experimental approach to identify gender discrimination by randomly matching 2,836 male and female students pursuing bachelor's-equivalent degrees in three different types of institutions - Madrassas (religious seminaries), Islamic universities, and liberal universities - that represent distinct identities within the Pakistani society. Our main finding is that gender discrimination is not uniform in intensity and nature across the educated Pakistani society and varies as a function of the social identity of both individuals who interact. While we find no evidence of higher-socioeconomic-status men discriminating against women, men of lower socioeconomic status and higher religiosity tend to discriminate against women - but only women of lower socioeconomic status who are closest to them in social distance. Moreover, this discrimination is largely taste-based. Our findings suggest that social policies aimed at empowering women need to account for the intersectionality of gender with social identity