Magnus Gustavsson

Inequality and Crime: Separating the Effects of Permanent and Transitory Income

Earlier studies on income inequality and crime have typically used total income or total earnings. However, it is quite likely that it is changes in permanent rather than in transitory income that affects crime rates. The purpose of this paper is therefore to disentangle the two effects by, first, estimating region-specific inequality in permanent and transitory income and, second, estimating crime equations with the two separate income components as explanatory variables. The results indicate that it is important to separate the two effects; while an increase in the inequality in permanent income yields a positive and significant effect on total crimes and three different property crimes, an increase in the inequality in transitory income has no significant effect on any type of crime. Using a traditional, aggregate, measure of income yields mainly insignificant effects on crime.

The evolution of the Swedish wage structure: new evidence for 1992-2001

Changes in the Swedish wage structure from 1992 to 2001 are investigated and placed in a longer-term perspective. The results show that the increase in overall wage dispersion that began in the early 1980s have continued during the 1990s, and that the increase during the 1990s is driven by increased wage differentials in both the lower and upper half of the wage distribution. The results also show that the university wage premium in Sweden has exhibited a clearly positive trend since the early 1980s whilst the returns to lower levels of education have been constant since the mid 1970s. Unlike the 1980s, relative supply changes do not appear to have been responsible for the rise in the university wage premium over the most recent decade.

The 1990s rise in Swedish earnings inequality -- persistent or transitory?

This article decomposes the rise in the cross-sectional variance of male annual earnings in Sweden between 1991 and 1999 into its persistent and transitory components. The results show that the persistent component accounts for basically all of the increase in earnings dispersion. This implies that the answer to the 1990s trend reversal in Swedish earnings inequality is to be found in explanations that focus on persistent changes in the labour market, such as changes in the price of skills.

Hysteresis and non-linearities in unemployment rates

This study tests whether there is evidence of mean reversion in unemployment rates using the recently developed unit root test of Kapetanios et al. (2003). In this framework, the null hypothesis of a unit root process is tested against the alternative of a globally stationary exponential smooth transition autoregressive process. Applying the test to monthly data for Australia, Canada, Finland, Sweden and the USA, it is concluded that unemployment hysteresis finds less support when non-linearities are allowed for compared to the benchmark of using a standard Augmented Dickey–Fuller test.

A NEW PICTURE OF SWEDISH EARNINGS INEQUALITY: PERSISTENT AND TRANSITORY COMPONENTS, 1960–1990

Using a large individual longitudinal database, I decompose the cross-sectional variance of male annual earnings in Sweden between 1960 and 1990 into persistent and transitory components. The persistent variance displays a downward trend during the whole sample period, but with the rate of decline more rapid up until the early 1980s than afterwards. The transitory variance has increased from 1960 until the early 1970s, decreased slightly until the late 1970s, and then risen again during the second half of the 1980s. An important lesson from these results concern the interpretation of the rise in cross-sectional inequality observed after the 1983 breakdown of centralized bargaining in Sweden. While it has often been presumed that this growth reflected increased returns to skills, this study shows that it was in fact due to increased transitory earnings fluctuations.

Does Unemployment Hysteresis Equal Employment Hysteresis

This paper investigates if conclusions regarding labour market hysteresis differ depending on whether employment or unemployment rates are studied. Applying a range of unit-root tests to monthly data from Australia, Austria, Canada, Finland, Sweden, the UK and the USA, we find results for employment rates that contrast those based on unemployment rates. In particular, rather than the mixed evidence for hysteresis found using unemployment rates, employment rates result in unequivocal evidence of hysteresis in Australia, Canada and the USA. These findings cast doubt on previous conclusions in the literature.

Inequality and Trust: Some Inequalities are More Harmful than Others

We present new evidence on the influence of income inequality on generalized trust. Using individual panel data from Swedish counties together with an instrumental variable strategy we find that differences in disposable income, and especially differences among people in the bottom half of the income distribution, are associated with lower trust. The relationship between income inequality and trust is particularly strong for people with a strong aversion against income differentials. We also find that the proportion of people born in a foreign country is negatively associated with trust.

Mean reversion in the US unemployment rate - evidence from bootstrapped out-of-sample forecasts

This article investigates whether the US unemployment rate is best described as a unit-root or mean-reverting process. An out-of-sample forecast exercise is conducted in which the performance of an autoregressive (AR) model with an imposed unit root is compared with that of a mean-reverting AR model. A bootstrap distribution for the relative root mean square forecast error is generated and provides strong support for mean reversion in the US unemployment rate.