Economic aspects of regional welfare: Income distribution and unemployment

272 Pages·1977·9.678 MB·English

by  C. P. A. Bartels (auth.)

Studies in applied regional science
This series in applied regional, urban and
environmental analysis aims to provide
regional scientists with a set of adequate tools
for empirical regional analysis and for prac
tical regional planning problems. The major
emphasis in this series will be upon the
applicability of theories and methods in the
field of regional science; these will be pre
sented in a form which can be readily used
by practitioners. Both new applications of
existing knowledge and newly developed ideas
will be published in the series.
Studies in applied
regional science
Vol. 9
Editor-in-Chief
P. Nijkamp
Free University, Amsterdam
Editorial Board
A.E Andersson
University of Gothenburg, Gothenburg
W.Isard
Regional Science Institute, Philadelphia
L.H. Klaassen
Netherlands Economic Institute, Rotterdam
I. Masser
State University, Utrecht
N. Sakashita
Osaka University. Osaka
Economic aspects of
regional welfare
Income distribution and unemployment
C. P. A. Bartels
Assistant Professor of Regional Economics.
University of Groningen
8Aartinus8Viihoff Social Sciences Division
CLeiden 1977
ISBN-13: 978-90-207-0706-9 e-ISBN-13: 978-1-4613-4249-6
DOl: 10.1007/978-1-4613-4249-6
© 1977 by H. E. Stenfert Kroese B.V .• Leiden, the Netherlands.
No part of this book may be reproduced in any form by print, photo print, microfilm
or any other means, without written permission from the publisher,
Preface
This book is the product of research which I undertook for my doc
toral thesis. The project was started whilst I was at the Free Univer
sity of Amsterdam, and the State University of Groningen gave me
ample opportunity to complete the work. At both universities I was
lucky enough to find kind colleagues who were willing to perform
some of my teaching tasks, enabling me to spend much of my time
on my research. I should like to thank Wietze Boomsma, Kees van
den Hoeven and Jan Oosterhaven for their kind help. I was also
most encouraged to discover several students at both institutions
who were interested in the research topic. This meant that some
research could be performed with their co-operation, which proved
most stimulating. Harry ter Braak and Henk van Metelen were
especially enthusiastic helpers. During the initial stage of research,
Fons Bertens did a great deal of meticulous work, with never a com
plaint. In the final stages, Arend Stemerding helped me greatly.
The completed manuscript was read by Nol Merkies and Peter
Nijkamp, who had some helpful comments on the contents. Pro
fessor Nijkamp succeeded in stimulating me during the research by
his interest in the project and subsequent edifying discussions.
Several persons helped to type the manuscript, but Yvonne van
Tuyl took the lion's share, typing a perfect final copy in record time.
I am not only grateful to those who aided me on the work side,
but also to my private friends for their support. The impact of this
all-absorbing work has been most felt by Stella Beaumont and Luuk
Houwing, who suffered my bouts of absent-mindedness with for
bearance. When I was writing the final version, my dear friend Hans
van Veen followed my activity· with concerned, critical question
marks. I should like to offer them my apologies for the time I
claimed for my intellectual pursuits -perhaps it could have been put
to better use!
Lastly, I should like to thank North-Holland Publishing Com
pany for permitting me to use material published previously in
Regional Science and Urban Economics, 1977, vol. 7, p. 103-135
again as Chapter 7 in this book.
Contents
PREFACE v
1. INTRODUCTION 1
1.1. Study of welfare aspects in economics 1
1.2. Disparities in regional welfare 3
1.3. Selection of regional welfare elements 5
1.4. Methods 8
1.5. Layout 10
2. STATISTICAL AND RELATED INCOME INEQUALITY
MEASURES, WITH NO EXPLICIT SPECIFICATION OF
A PROBABILITY DENSITY- OR WELFARE-FUNCTION 12
2.1. The concept of an inequality measure 12
2.2. Notations 14
2.3. Statistical and other non-welfare-based inequality
measures with an unspecified p.d.f. 16
2.3.1. Partial statistical indicators of dispersion 17
2.3.2. Functions of simple location parameters and ordinary
moments 17
2.3.3. The first absolute moment and related inequality measures 21
2.3.4. The mean difference and related measures· 22
2.3.5. Some general divergence measures 27
2.3.6. Some measures related to entropy 30
2.4. A partial evaluation of statistical and
related inequality measures 35
Appendix 2A. Elementary definitions 40
Appendix 2B. Partial statistical indicators of dispersion 41
Appendix 2C. Decomposition formulae 43
viii CONTENTS
3. EXPLICIT PROBABILITY DENSITY FUNCTIONS
OF INCOME 46
3.1. The usefulness of an explicit probability density
function of income 46
3.2. Alternative approaches and selection criteria for
defining a set of p.d.f.s 48
3.3. A direct definition of a skew p.d.f. of income 51
3.4. A definitiol1 of a skew p.d.f. of income using transformations 53
3.4.1. The lognormal distribution 54
3.4.2. The inverse hyperbolic sine normal distribution 55
3.4.3. The log logistic or sech distribution 57
3.4.4. The Champernowne distribution 59
3.4.5. The log Student p.d.f. 60
3.4.6. The Box Cox Champernowne distribution 61
3.4.7. The Beta distribution 63
3.5. A preliminary evaluation of some p.d.f.s 65
3.6. Methods of parameter estimation 66
3.7. Aspects of goodness of fit 68
3.8. Concluding remarks 69
Appendix 3A. The Pareto distribution 73
4. INCOME INEQUALITY MEASURES AND WELFARE
FUNCTIONS OF INCOME 76
4.1. The use of a welfare function of income 76
4.2. A partial group welfare function of incomes 77
4.3. An additive individualistic welfare approach to
income inequality measurement 80
4.4. Non-additivity of individual welfare levels
and inequality measurement 85
4.5. An evaluation of the welfare approach 89
5. INEQUALITY MEASURES WITH EXPLICIT STATEMENTS
ON WEIGHTS AND REFERENCE DISTRIBUTION 93
5.1. Introduction 93
5.2. Specification of a target income distribution 94
5.3. Indices of divergence from a target distribution 98
5.4. Relevance of the approach 100
CONTENTS ix
6. INTRA· REGIONAL INCOME DISTRIBUTIONS IN THE
NETHERLANDS 103
6.1. Introduction 103
6.2. Personal income data for COROP regions 105
6.3. Some location parameters for intra-regional
income distributions 109
6.4. Inequality measures for intra-regional income
distributions: some general remarks 115
6.5. Statistical and related inequality measures:
empirical results 118
6.6. Inequality measures based on a welfare function:
empirical results 120
6.7. Selection of a p.d.f. of income: empirical results 121
6.8. Associations between inequality measures:
empirical results 140
6.9. Selection of attractive inequality measures 147
6.10. Interpretations of results of inequality measures 148
Appendix 6A. Definition of taxable income 1969 152
7. AN EXPLORATORY STATISTICAL ANALYSIS OF
REGIONAL UNEMPLOYMENT 154
7.1. Indicators of unemployment as elements of the
regional welfare profile 154
7.2. Unemployment data and concepts 156
7.3. Statistical assumptions 159
7.4. An elementary statistical analysis 162
7.5. Auto-spectral analysis 169
7.6. Cross-spectral analysis 173
7.7. Principal components analysis of the spectral estimates 178
7.8. Evaluation of the results 184
8. YA RIABLES ASSOCIATED WITH INTRA·REGIONAL
INCOME DISTRIBUTIONS 191
8.1. An empirical analysis of associated variables 191
8.2. Variables influencing personal incomes 193
8.3. Economic theories to explain personal incomes 195
8.4. Estimation of a relation for the level of regional income 198
x CONTENTS
8.5. Estimation of a relation for intra-regional
income inequality 206
8.6. An attempt to reveal implicit social norms simultaneously 212
8.7. Some final remarks 216
Appendix 8A. Data on selected intra-regional variables 221
9. AN EXPLANATORY MODEL OF LABOUR MARKET
AND INCOME DISTRIBUTION 225
9.1. Integration of welfare elements in a comprehensive
framework 225
9.2. Specification of labour market relations 226
9.2.1. Demand for labour 226
9.2.2. Labour supply 232
9.2.3. Discrepancies on the labour market 233
9.3. Regional income and its distribution 234
9.4. The availability of data 237
9.5. Some final remarks 239
BIBLIOGRAPHY 245
INDEX 259
1. Introduction
1.1. STUDY OF WELFARE ASPECTS IN ECONOMICS
The aim of this monograph is to investigate the ways of measuring
and connecting some specific economic aspects of regional welfare
and to present empirical results for regions in the Netherlands. In
this respect the study belongs to the field of applied economics,
while statistical and econometric techniques have been used on the
empirical side. We shall be discussing these techniques in con
siderable detail, at least if they are relevant to the analysis of the
selected economic phenomena. Let us first explain the place of this
monograph within economics as a whole.
Economics is concerned with the study of several aspects of the
behaviour of economic agents, and can therefore be regarded
primarily as an empirical social science. The aspects which are
specifically selected for further study depend partly on contem
porary problems. We do not aim at elaborating further on how
current problems delimit the field of study of economics. We shall
merely try to point out the necessity of studying the phenomena
selected here, i.e. income distribution and unemployment, within
economICS.
An important point to note is that the behaviour of economic
agents will be conditioned to a considerable extent by the specific
positions they occupy in the social system. These positions differ
in several aspects, the result being a heterogeneous system which
can be described and analysed by economic science. Traditionally
economics only reflects this observation to a very limited extent.
Economic science has quite often abstracted from this heterogeneity
by analysing, for example, the behaviour of a 'homo economicus'
in conditions resembling those in controlled laboratory experiments.
Take, for instance, the assumptions that together specify some 'neo
classical' world, although this will hardly be found in reality. To
my mind an approach which uses restrictive and unrealistic assump
tions mainly for analytical convenience is of little value if the