Time, Money and Inequality in International Perspective Lars Osberg -Dalhousie University -I.S.E.R. U of Essex

Welfare > $ Income Most discussions of “inequality” focus on distribution of money income $ consumption, $ wealth also studied Is Inequality in $ Income a good guide to inequality in welfare ? Is U(Y) or U(c) plausible ? Welfare: $ to consume + time to enjoy Labour Economics: max:U(C, L) Subject to C = w H ; H + L = T Inequality in “Full Income” -I.e. Can Hourly Wage adequately capture inequality in welfare?

Why might working time matter for Inequality ? Big differences in levels & trends of average actual working hours per adult : USA = 1476 Germany -170 = 973 Is greater inequality in $ income in USA & longer work hours connected ? Does $ income inequality “overstate” inequality in (time & money) ? USA – Different (materialistic) tastes ?

Why do working hours differ ? Average actual hours trends mingle: Common entitlements to leisure (i.e. paid public holidays, statutory paid vacations) Individual participation in the paid workforce (extensive margin) Hours work of workers (intensive margin) Different causes & decision processes Collective choice & corner solutions poorly modeled by labour/leisure choice model Intensive margin – small difference USA/Germany Different implications for Inequality Common entitlements tend to equalize returns

Probability of Any Employment Major differences internationally Particularly for women & older men Discrete choice – implied by life style choices/values ? Involuntary Unemployment more common among low income households Correlation within households important for inequality trends Rise in % workless households in UK “Social Exclusion” + major impact on poverty Labour Force entry of well educated wives swells household income of upper tail (USA) USA – greatest “marketization”

Compare Inequality ($,time) by “standardizing” for work? How much would inequality change if other nations had Probability (job) = USA ? What is the “thought experiment” ? “Economist” - If preferences same, different hours result from different constraints – so model of incentives needed [ => ($,H) ] “Sociologist” - values can/do differ across nations – hypothetical question = change in preferences + unchanged incentives

Values + Constraints Imply Different Prob (employed) Attitudes to gender roles & paid employment differ significantly across countries Some evidence of generational effects Under 35s always less “traditional” Macro-Economic Policy sets Job availability Inflation targets (ECB) Growth + “low” inflation (US Fed) Thought experiment = “different but could change”

USA “extensive margin” of Supply Singles - Probit model USA [prob (job)] Any paid work in prior 12 months Couples – Multinomial Logit (USA 97) both husband and wife employed husband employed, but not wife wife employed but not husband neither husband nor wife employed Predicted probability (employment) for jobless in other nations, USA

Simulations of “standardized” Income Inequality Jobless with highest Prob USA (job) added Female Participation = USA ? Male + Female Participation = USA ? Workforce Entry implies changes household earnings – transfers – taxes Reduced Form estimates Expected Net Income conditional on job Net Disposable Income = F(age, age 2, relative education, family status, disability, immigrant and labour market participation status, etc....)

Greater Employment would… Substantially reduce poverty in the UK Poverty Intensity declines from 8.4 to 3.3 Workless households now common in UK Median income increase = 16% 50/10 ratio declines by half; Gini by 17% Reduce poverty in Canada by 10%; Gini by 2.5% Somewhat larger low end in Sweden Compress income both ends in France/Germany 90/50 & 50/10 declines are comparable Joblessness not as closely tied to low family income

But would widen inequality gap between USA / Europe Europe starts from much lower base of poverty & inequality Gini: USA =.37; Germany=.27; France=.29 90/10: USA =13.2Germany = 6.3 France =6.6 Differences are magnified if US workforce participation patterns are imposed UK, Canada – biggest low end Continental – more general compression International comparisons - inequality in $ alone is misleadingly small