CHAIR OF

PUBLIC ECONOMICS

The authors investigate the importance of reference effects in the estimation of equivalence scales from data on income satisfaction.

 The study shows that the separation of needs-based and reference effects helps to overcome a potential bias that causes an overestimation of adults' and an underestimation of children's needs. This result is confirmed by conducting an empirical analysis of data from the German Socio-Economic Panel, where controlling for income comparisons eliminates the gap between equivalence scale parameters for adults and children.

The working paper can be found here.

Stewart (2007, JAE) finds that being employed at low wages (compared to higher wages) increases the risk of future unemployment. The risk of unemployment does not differ significantly between current low-wage employment and current unemployment. The author concludes that 'in terms of future employment prospects, low wages are closer to unemployment than to higher-paid jobs' (p. 529). Alexander Plum shows in this paper that the result depends strongly on the thershold used to distinguish between high and low wages: applying this widely used OECD (1997) definition of low-wages substantially changes the findings of Steward (2007). With this threshold, Plum finds that low wages are helpful for significantly reducing the risk of future unemployment compared to unemployment. Moreover, the categorization of the unemployed, the included variables with reference to the educational background, the age and the age restrictions imposed on the sample and switching from gross hourly wages in nominal terms to real terms have an impact on the findings

The publication can be found here.

In this new paper, Andreas Knabe (together with colleagues from Halle and Merseburg) analyzes how social well-being “beyond GDP” can be measured at the regional level. Using data from the OECD Regional Well-Being Index, the paper discusses various aggregation mechanisms to obtain well-being rankings and analyzes their potential implications for the allocation of EU regional funds.

The paper can be found here.

Alexander Plum presents the bireprob command, which fits a bivariate random-effects probit model. Bireprob enables a researcher to estimate two (seemingly unrelated) nonlinear processes and to control for interrelations between their unobservables. The estimator uses quasirandom numbers (Halton draws) and maximum simulated likelihood to estimate the correlation between the error terms of both processes. The application of bireprob is illustrated in two examples: the first one uses artificial data, and the second one uses real data. Finally, in a simulation, the performance of the estimator is tested and compared with the official Stata command xtprobit.

The publication can be found here.

There is considerable debate on whether the employment and earnings prospects are better for those on low pay or for the unemployed. Alexander Plum und Gundi Knies use Understanding Society data for England and estimate dynamic random effects panel models which show robust evidence that the future unemployment risk is lower for those who are currently on low pay compared to those who are currently unemployed and the low-paid also have a higher chance than the unemployed of becoming higher-paid. These findings are most marked in neighbourhoods with high unemployment which is attributable to the much poorer prospects of the unemployed in these neighbourhoods.

The working paper can be found here.