Inequality, intergenerational mobility and redistributive policies under endogenous information

This paper presents a dynamic model to study how different levels of information about the root determinants of wealth (luck versus effort) can impact inequality and intergenerational mobility through societal beliefs, individual choices and redistributive policies. To my knowledge, the model presented is the first dynamicmodel in which skills are stochastic and both beliefs and voted redistribution are determined endogenously. The model is able to explain a number of empirical facts. Large empirical evidence shows that the difference in the political support for redistribution appears to reflect differences in the social perceptions regarding the determinants of individual wealth and the underlying sources of income inequality. Moreover the beliefs about the determinants of wealth impact individual choices of effort and therefore the beliefs about the determinants of wealth impact inequality and mobility both through choices of effort and redistributive policies. The model generates multiple equilibria (US versus Europe-type) which may account for the observed features not only in terms of societal beliefs and redistribution but also in terms of perceived versus real mobility and inequality.

Coordination, inclusiveness and wage inequality between median and bottom income workers

What explains cross-national variation in wage inequality? Research in comparative political economy stresses the importance of the welfare state and wage coordination in reducing not only disposable income inequality but also gross earnings inequality. However, the cross-national variation in gross earnings inequality between median and low income workers is at odds with this conventional wisdom: the German coordinated market economy is now more unequal in this type of inequality than the UK, a liberal market economy. To solve this puzzle, I argue that non-inclusive coordination benefits median but not bottom income workers and is as a result associated with higher – rather than lower - wage inequality. I find support for this argument using a large N quantitative analysis of wage inequality in a panel of Western European countries. Results are robust to the inclusion of numerous controls, country fixed effects, and also hold with a sample of OECD countries. Taken together these findings force us to reconsider the relationship between coordination and wage inequality at the bottom of the income distribution.