Drugs and Violence in Afghanistan: A Panel VAR with Unobserved Common Factor Analysis

This paper addresses the relationship between the level of violence and the opium market in Afghanistan’s provinces. We first provide an overview of the nature and extent of the Afghan drug trafficking. This is followed by a VAR analysis of the nexus opium-insurgency activities using monthly time-series data on opium prices and the number of security incidents for 15 Afghan provinces over the period 2004-2009. We use a multifactor error structure, the Common Correlated Effect (CCE), to include unobservable common factors; Impulse Response functions to describe the time path of the dependent variables in response to shocks; and the Mean Group Estimator to summarize our results across the provinces. Results suggest a conflict-induced reduction in opium prices, while the reverse opium-violence mechanism is mostly negligible. Moreover, unobservable common factors are the main drivers of opium prices and violence.Conflict; Opium; Afghanistan

UNDECLARED WORK AND WAGE INEQUALITY

In this paper we study how undeclared work affects the wages of undeclared and declared workers and in particular the declared wage inequality. Using individual data on Italy in the years 2000-2004, we compute a cross and own labor demand elasticity for undeclared and declared work. We provide an identification strategy relying on Italian amnesty tax laws in 2002. Such laws have changed the shape of Italian undeclared sector causing a quick emersion of undeclared workers. Our results based on a set of 2SLS regressions suggest that undeclared work: 1) decreases declared wages, 2) adversely affects undeclared wages and 3) raises wage inequality in the declared sector. Undeclared work competes more with least skilled jobs, while do not affect high skilled jobs. We found complementarity between undeclared workers and medium skills jobs. As a consequence reducing undeclared work decreases wage inequality as well as it decreases the earnings in medium skill sectors. This result suggests that undertaking reducing undeclared labor-policy might encounter resistance because of welfare loss of the medium class of workers.Elasticity of labor demand, Undeclared labor, Wage inequality

The Emersion Effect: an analysis on labor tax evasion in Italy

We analyze how different policy interventions may incentive emersion from unde-clared work. We use Italian data over the period 1998-2003 to investigate whether the 2003 Italian labor market reform was able to reach the objective to reduce the share of shadow economy. We develop a search and matching model, á la Mortensen, on the basis of our empirical investigation to determine the right mix of policy interventions which maybe effective in generating an emersion effect. Our preliminary findings show that differentiated forms of taxations and enforcement might create a good combination of incentives to achieve a significant reduction in undeclared work

The “emersion” effect: an ex post and ex ante social program evaluation on labor tax evasion in Italy

We analyze how different policy interventions may incentive the transition of workers from the informal to the formal sector. We use Italian data over the period 1998-2008 to evaluate ex post whether the 2003 Italian labor market reform was able to reach the objective to reduce the share of shadow employment. Based on our empirical results, we develop an ex ante evaluation based on a search and matching model, á la Mortensen and Pissarides to determine the right combination of policy interventions which may be effective in generating a significant reduction in undeclared work together with an expansion of the formal sector. We find that in an economy where permanent and temporary contracts coexist, the combination of lower payroll taxes for permanent jobs and higher probability of being audited generates a compression of the informal sector, leaving unemployment unchanged. A similar result can be obtained through a reduction of the firing cost associated with permanent jobs, even though this causes temporary contracts to increase relatively more than permanent contracts

Do You Think Your Risk Is Fair Paid? Evidence From Italian Labor Market

Starting from Adam Smith's intuition, compensating wage differentials are one of the most widespread explanation to describe why agents should bear occupational risk of injury and death. For nearly thirty years, economists have attempted to and empirical evidence on such wage differentials mostly relying on estimation of a simple wage equation. This paper claims to put one step forward. Using the Survey of Household Income and Wealth (SHIW) 2004 we estimate for Italy the wage premium held by workers in risky occupations by means of the matching estimator. Such technique is desirable because it attempts to remove all the differences in wage coming from heterogeneity across individuals and not directly imputable to risk. Estimates suggest that net hourly wage premium is about 3% to manual workers and nearly null to non-manual workers. When we split the sample along the employer size, our findings show a heterogeneous treatment with respect to occupational status. Small firms tend to flatten out any risk premium to manual workers, while they recognize roughly 6% to non-manual workers; the opposite occurs when we look at medium-large firms wherein manual workers gain 1.5% to 5% more with respect their counterparts. Therefore, it seems that wage-risk trade off does not always emerge as hedonic wage theory would predict.wage differentials; risky jobs; value of a statistical life; propensity score matching.

Supplying peace : participation in and troop contribution to peacekeeping missions

We explore the supply side of peacekeeping – the determinants of a country’s voluntary contributions to peacekeeping operations. We focus on troop contribution and examine a large set of operations, from UN-led missions to operations led by NATO, the African Union, the European Union, and ad hoc coalitions. We rely on a theoretical model of the private provision of public goods and a dataset on troop contribution across 102 states and 45 operations from 1999 to 2009 to explain both the conditions under which third-party actors are more or less likely to intervene in peacekeeping operations and the factors determining the size of their personnel contribution. We use the characteristics of the conflict to identify which types of conflicts attract outside intervention and the characteristics of the intervener to identify the countries more willing to provide troops. We show that at the domestic level, contributions are driven by the comparative advantage in manpower – or the relative value of labor – and constrained by the tolerance of casualties and the sustainability of multiple and concurrent missions. At the international level, the most robust explanations of when states choose to intervene are the level of threat to global and regional stability, the proximity to the conflict area, and the number of displaced people. In particular, security and humanitarian concerns trigger nation-specific responses. Our empirical findings provide further evidence of the centrality of country-specific gains in explaining the participation in peacekeeping. However, contributor-specific benefits play the same role in UN and non-UN peacekeeping missions, in contrast with previous empirical studies on the financial burden-sharing

Synthesis report on the ‘Pilot projects to carry out ESF related counterfactual impact evaluations’

In order to measure the causal effect of a policy, a specific approach called ‘counterfactual impact evaluation’ is needed. This report highlights that data access, networking, capacity building and taking evaluation requirements into account during the policy implementation are key for shifting to a culture of causal evaluation of policies.These results derive from eight pilot projects funded by DG Employment, Social Affairs and Inclusion to foster themeasurement of causal effects of European Social Fund policie

Literature review on income inequality and the effects on social outcomes

In 2009, two epidemiologists, Wilkinson and Pickett, published a book entitled “The Spirit Level, Why More Equal Societies Almost Always Do Better” in which they claim that inequality and its acute perception by the average EU citizen is a toxic element of today’s European societies and one that seems to be associated with decreased levels of trust, civic engagement and participation, as well as to a host of other social challenges from poor health to crime, to underage pregnancies. Despite Wilkinson and Pickett’s intuitively convincing story of the link between higher income inequality and worse social outcomes, the empirical tests are based on simple bivariate correlations, implying that the authors fail to control for all the other numerous factors, which might have had an impact on both the social outcomes and income inequality. In doing so, the empirical associations reported in their book are likely to lead to misleading causal inferences. Nonetheless, Wilkinson and Pickett’s book attracted a lot of attention and called for a more careful analysis of the consequences of rising income inequality. The aim of this report is, hence, to look into sound empirical studies - based on multivariate analysis - which examine the effect of income inequality on important social outcomes related to (i) well-being, (ii) criminality, (iii) health, (iv) social capital, (v) education, (vi) political participation and (vii) female labor market participation. The upshot of this literature review is that higher criminality, reduced political agency and, to some extent, lower social capital formation and well-being appear to be tangible illustrations of the wastage produced by rising income inequality. In addition, there are a number of self-reinforcing loops linked to inequality. A clear illustration of this is the role of inequality in reducing the voting participation of the low income groups and the concomitant consequences in terms of redistributive policies and therefore on income disparities.JRC.G.3-Econometrics and applied statistic

Multivariate analysis of the effect of income inequality on health, social capital, and happiness

The last two decades have seen a growing concern about rising inequality. In a recent book (2012), Economics Nobel laureate Joseph Stiglitz argues that rising income inequality is one of the main factors underlying the economic and financial crisis in the United States. Wilkinson and Pickett (2009) similarly assert that higher inequality has harmful social consequences. This trend of growing inequality has furthermore been condemned in public arenas, where protests in the United States (the “Occupy Wall Street” movement) and in Spain (the “indignados”) show the extent of widespread public dissatisfaction with the present system which is denounced as being fundamentally flawed and unfair. The “We are the 99%” slogan and the associated web blog “We are the 99 percent” are direct references to this growing unequal distribution of wealth. A common rallying point of these movements is the argument that bankers who have benefited from large bonuses have been protected by bailout measures, while the victims of the crisis brought on by these very same bankers are faced with the reality of rising unemployment. This has also recently led the EU to agree on capping bonuses to bankers. Within this context, the European Commission decided last year to undertake a comprehensive study on the social and economic challenges associated with rising income inequality in Europe. This report constitutes the third deliverable of this global study. The first report includes a literature review on the relationship between income inequality and social outcome variables in the areas of happiness, criminality, health, social capital, education, voting behavior and female labor participation (d'Hombres, Weber, & Elia, 2012). The second report complements the literature review by examining the bivariate correlations on NUTS1 level between income inequality and the social outcomes mentioned above (Elia, d'Hombres, Weber, & Saltelli, 2013). However, since the analysis in the second report relied on bivariate correlations, none of the statistical associations could be regarded as evidence of a causal relationship. In this third report, we carry out a multivariate analysis on a selected number of social outcomes while controlling for a multitude of individual and country level specificities. The social outcomes are social capital, i.e. trust and participation in organizations, happiness and health. This study suggests that the adverse effect of income inequality on a plurality of societal development challenges as proposed by Wilkinson and Pickett (2009) cannot be confirmed by the data, except for the case of trust. In particular, our analysis cannot confirm the hypothesis of a strong and significant effect of income inequality on health, happiness and participation in associational activities. However, we show that income inequality has a potential damaging effect on trust in Europe. A negative association between income disparities and generalized trust is reported in all estimations presented in this report. Though these findings need to be considered with care given that they might be specific to the countries sampled or the time period covered, the implication of a significant effect of inequality on trust should not be discounted. According to a variety of scholars, trust is critical for the functioning of societies (Putnam, 2000). Social capital and trust are factors which are linked to cooperative behaviors and investment decisions as well as to the quality of institutions, which in turn are all key factors of economic performance (Knack and Keefer, 1996, and Guiso et al 2004).JRC.G.3-Econometrics and applied statistic

Synthesis report on the call ‘Pilot projects to carry out ESF related counterfactual impact evaluations’

In order to measure the causal effect of a policy, a specific approach called ‘counterfactual impact evaluation’ is needed. This report highlights that data access, networking, capacity building and taking evaluation requirements into account during the policy implementation are key for shifting to a culture of causal evaluation of policies. These results derive from eight pilot projects funded by DG Employment, Social Affairs and Inclusion to foster the measurement of causal effects of European Social Fund policies.JRC.DDG.01-Econometrics and applied statistic