WHAT DOES THE OECD ALPHABET SOUP SAY?

WOUT ULTEEUNIVERSITY OF HAIFANOVEMBER 18, 2012

THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT

WAS FOUNDED IN 1961

IT WAS THE FOLLOW-UP TO THE AGENCY RESPONSIBLE FOR THE DISTRIBUTION

AND SURVEILLANCE OF THE MARSHALL AID

THE MEMBER STATES AT FIRST WERE THE RICH WESTERN COUNTRIES OF THE WORLD

NOT LONG AGO ISRAEL BECAME A MEMBER

THE OECD DID NOT HAVE ANY FORMAL

RESPONSIBILITIESIT BECAME SOMETHING LIKE A

THINK TANK

AND IT AT FIRST TESTED THEORIES OF RIGHT-WING US ECONOMISTS

SOMETIMES IT STILL DOES SO

UNEMPLOYMENT RATES AND LONG TERM UNEMPLOYMENT RATES ARE HIGHER IN THE

EUROPEAN COUNTRIES THAN IN THE USABECAUSE UNEMPLOYMENT BENEFITS LAST LONGER

IN THE EUROPEAN COUNTRIES

BUT DID THE UNEMPLOYMENT RATE IN SOME EUROPEAN COUNTRY MAINLY RISE BECAUSE

UNEMPLOYMENT BENEFITS BECAME EXTENDED?

MONEY FOR RETRAINING OF UNEMPLOYED PERSONS LOWERS UNEMPLOYMENT RATES

MONEY FOR RETRAINING PERSONS ABOVE THE AGE OF 50 YEARS DOES SO?

WHY IS NOT THE WHOLE WORLD LIKE THE USA? QUESTIONS

VERSUS

WHY ARE THERE DIFFERENCES BETWEEN EUROPEAN COUNTRIES?

QUESTIONS

THE OECD WAS PROBABLY THE FIRST INTERNATIONAL ORGANIZATION TO

PUBLISH FOR ITS MEMBER COUNTRIES TIME SERIES FOR

GROSS DOMESTIC PRODUCT PER CAPITA IN CONSTANT DOLLARS

THE OECD WAS CRITICIZED FOR THIS BECAUSE MONEY DOES NOT BUY HAPPINESS

AND BECAUSE VARIOUS STATE MEASURES LIKE SCHOOLS AND HOSPITALS CONTRIBUTE TO THE

LEVEL OF LIVING

IN THE 1980S THE UN (UNITED NATIONS) STARTED

PUBLISHING THE HUMAN DEVELOPMENT INDEX

THIS INDEX WEIGHS FOR COUNTRIES MEASURES FOR PER CAPITA GDP WITH

MEASURES FOR EDUCATION, SCHOOLING, HOSPITALS, PIPED WATER

ETC

THE RANKING OF THE COUNTRIES DOES NOT DIFFER MUCH

BUT CUBA IS MUCH HIGHER

THE OECD AND THE ILO (INTERNATIONAL LABOR ORGANIZATION) PUBLISHED TIME SERIES ON THE PERCENT

OF NATIONAL INCOME GOING TO SOCIAL SECURITY EXPENDITURES

THIS MEASURE WAS HEAVILY CRITICIZED BY THE SWEDISH SCHOOL ON WELFARE STATE RESEARCH RUN BY AT FIRST

WALTER KORPI AND LATER JOACHIM PALME

EXPENDITURES ON UNEMPLOYMENT BENEFITS IN A COUNTRY MAY RISE, NOT BECAUSE UNEMPLOYMENT

BENEIFTS BECOME MORE GENEROUSBUT BECAUSE THE UNEMPLOYMENT RATE ROSE WHILE

INDIVIDUAL UMEPLOYMENT BENEFITS WENT DOWN

THE SWEDISH SCHOOL CAME UP WITH SUCH INDIVIDUAL MEASURES FOR THE OECD COUNTRIES

THE BEST CRITICISM OF MEASURES LIKE GROSS DOMESTIC PRODUCT PER CAPITA

IS THAT IT PERTAINS TO AN AVERAGE INHABITANT OF A COUNTRY

BUT THAT THE DISPERSION AROUND THE MEAN IS NEGLECTED

IT MAY WELL BE THE CASE THAT A COUNTRY WITH A HIGHER PER CAPITA GDP

HAS A HIGHER PERCENTAGE OF INHABITANTS BELOW SOME LOW INCOME

LEVEL

THE INTERNATIONAL ORGANIZATION DOING THE MOST AT FIRST FOR MAKING MEASURES ON INCOME

INEQUALITY AND POVERTY RATES AVAILABLE WAS THE WORLD BANK

LATER THE OECD CAUGHT ON

POVERTY RATES ARE RATHER ARBITRARY

YET THE RANKING OF COUNTRIES AFTER POVERTY RATES PROBABLY IS NOT AFFECTED BY DECISIONS ABOUT

WHERE EXACTLY TO PLACE THE POVERTY LINE

THE TWO PRIME MEASURES FOR INCOME INEQUALITY ARE THE GINI AND THE QUINTILE

RATIO

THE GINI RUNS FROM ZERO TO 1, WITH ZERO STANDING FOR FULL EQUALITY AND 1 FOR ONE

UNIT GETTING ALL THE INCOME

THE QUINTILE RATIO DIVIDES THE INCOME SHARE OF THE RICHEST 20% BY THE INCOME

SHARE OF THE POOREST 20% OF UNITS

INCOME INEQUALITY USUALLY IS NOT MEASURED AT THE INDIVIDUAL LEVEL (A LOT

OF INDIVIDUALS DO NOT HAVE INCOME) BUT AT THE LEVEL OF HOUSEHOLDS, TAKING

THE INCOME OF ALL HOUSEHOLD MEMBERS INTO ACCOUNT, EVEN IF THAT IS NILL

SO, IF BOTH THE HUSBAND AND THE WIFE WORK, THEIR INCOMES ARE ADDED UP

TO DETERMINE THE INCOME OF A HOUSEHOLD MEMBER, ALSO THE NUMBER OF

NON-WORKING CHILDREN IS TAKEN INTO ACCOUNT (A CHILD OFTEN IS TAKEN FOR 0,4

ADULTS)

INCOME INEQUALITY PER HOUSEHOLD MEMBER USUALLY IS NOT MEASURED AS

TAXABLE (PRE-TAX) INCOME

BUT AS POST-TAX (DISPOSABLE )INCOME PER HOUSEHOLD MEMBER

SINCE THE 1980S THE STATISTICAL OFFICES OF MOST OF THE RICH COUNTRIES IN THE WORLD

ON A YEARLY BASIS PRODUCE DIGITAL FILES FOR THE INCOME OF THE HOUSEHOLDS IN THEIR COUNTRY

THIS OFTEN IS DONE FROM TAX REGISTERS, BUT SOMETIMES SURVEY DATA ARE USED

LIS (THE LUXEMBURG INCOME STUDY) WAS THE FIRST UNIVERSITY INSTITUTE TO USE THESE FILES AND

PRODUCE COMPARABLE INCOME INEQUALITY DATA FOR RICH COUNTRIES

IN SOME COUNTRIES INTEREST ON MORTGAGES ARE DEDUCTED FROM TAXABLE INCOME, IN OTHERS NOT

LIS AND NOW THE OECD DEAL WITH SUCH MATTERS

IN ONE OF ITS RECENT STUDIES THE OECD SHOWED THAT, MEASURED BY GINIS AND

QUINTILE RATIOS, INCOME INEQUALITY ROSE IN MOST OF THE OECD COUNTRIES BETWEEN

1985 AND 2005

ACCORDING TO THE OECD, THE RISE WAS PARTICULARLY STRONG IN THE

UNITED STATES AND THE UNITED KINGDOM

ACCORDING TO THE OECD, INCOME INEQUALITY ROSE A BIT IN THE NETHERLANDS

AND MORE IN ISRAEL

WHY DID INCOME INEQUALITY RISE IN MOST OECD COUNTRIES?

THE OECD TESTED IN ONE OF ITS REPORTS EXPLANATIONS INVOKING DEMOGRAPHIC CHANGE

IF RETIRED PEOPLE HAVE LOWER INCOME, AND IF THE RETIRED INCREASE AS A PERCENTAGE OF THE

POPPULATION, INCOME INEQUALITY WILL INCREASEWITHOUT ANY OF THE DEMOGRAHIC GROUPS OF A

COUNTRY’S POPULATION HAVING A CHANGE IN INCOME

THE MOST INTERESTING DEMOGRAPHIC EXPLANATION INVOKES INCREASED FEMALE

LABOR FORCE PARTICIPATION AND WAS PROPOSED BY THE SOCIOLOGIST GOSTA

ESPING-ANDERSEN

IF MARRIED WOMEN WITH A HIGHER LEVEL OF EDUCATION ARE LESS LIKELY TO QUIT THEIR JOB

WHEN GIVING BIRTH TO A CHILD THAN MARRIED WOMEN WITH A LOWER LEVEL OF EDUCATIONHOUSEHOLD INCOME INEQUALITY WILL RISE

AND IT WILL RISE EVEN MORE IF WOMEN WITH A HIGHER LEVEL OF EDUCATION ARE MARRIED TO

MEN WITH A HIGHER LEVEL OF EDUCATION (EDUCATIONAL HOMOGAMY)

HOWEVER, ALL THESE DEMOGRAPHIC EXPLANATIONS TAKEN TOGETHER DO NOT FULLY EXPLAIN THE RISE IN

INCOME INEQUALITY

WAGE DIFFERENTIALS HAVE BECAME LARGER

NOT ONLY WAGE DIFFERENTIAL BETWEEN PERSONS WITH A HIGHER AND A LOWER LEVEL OF EDUCATION

BUT ALSO WAGE DIFFERENTIALS BETWEEN ECONOMIC SECTORSSUCH AS FINANCE PLUS BANKING VERSUS ALL OTHER SECTORS

WHAT ARE THE WAGE DIFFERENTIALS IN ISRAEL BETWEEN THE HIGH TECH SECTOR AND THE OTHER SECTORS?

THE MOST COMMON THEORY IN SOCIOLOGY EXPLAINING INCOME INEQUALITIES

BETWEEN COUNTRIES IS GERHARD LENSKI’S SOCIAL-DEMOCRACY HYPOTHESIS:

IN COUNTRIES GOVERNED FOR A LONGER TIME BY SOCIAL DEMOCRATIC

GOVERNMENTS INCOME INEQUALITIES, EVEN AFTER TAKING

PROGRESSIVE TAXATION INTO ACCOUNT, ARE SMALLER THAN IN COUNTIRES GOVERNED

FOR A LONGER TIME BY CONSERVATIVE GOVERNMENTS

DOES THE OECD ADDRESS THIS EXPLANATION? NOT REALLY!

THERE IS ONE THEORY DOWNPLAYING THE FINDING THAT INCOME INEQUALITY,

OF ALL THE RICH COUNTRIES, IS LARGEST IN THE USA

THE USA MAY HAVE LARGE INCOME INEQUALITIES, BUT IT ALSO HAS A LOT OF

INCOME MOBILITY

INDEED, THE USA-INEQUALITIES PROVIDE THE INHABITANTS OF THE USA WITH THE

MOTIVATION TO CLIMB UP IN INCOME

DOES THE OECD ADDRESS THIS RIGHT-WING EXPLANATION? YES!

SINCE A BOOK BY WERNER SOMBART FROM 1906

IT IS A COMMON THEORY THAT THE USA HAS MORE SOCIAL MOBILITY THAN

EUROPEAN COUNTRIESPARTICULARLY FATHER-SON OCCUPATIONAL MOBILITY

THE SOCIOLOGIST SAYMOUR MARTIN LIPSET REPEATED THIS THEORY IN A

BOOK IN 1959, AND EVER SINCE

HOWEVER, LIPSET FOUND IN 1959 THAT MOBILITY RATES ARE

PRETTY MUCH THE SAME IN INDUSTRIAL COUNTRIES

IN 1978 JOHN GOLDTHORPE FROM BRITAIN AND ROBERT HAUSER

FROM THE USA TOOK SOMBART’S THESIS NOT TO BE ABOUT ABSOLUTE MOBILITY RATES ,

BUT ABOUT RELATIVE MOBILITY CHANCES

RECENT DATA OF SOCIOLOGISTS SHOW THAT RELATIVE MOBILITY CHANCES ARE

HIGHEST IN THE SCANDINAVIAN COUNTRIES AND QUITE LOW IN THE USA

HOWEVER, SOCIOLOGISTS MEASURE MOBILITY WITHIN A SYSTEM OF

CLASSES OR ALONG AN OCCUPATIONAL PRESTIGE SCALE

ECONOMISTS LIKE TO STUDY INCOME MOBILITY

THE FIRST STUDIES ON FATHER-SON INCOME MOBILITY FOR

UNREPRESENTATIVE SAMPLES FOR THE USA FOUND CORRELATIONS OF AT

MOST 0.2 FOR FATHER’S YEARLY INCOME AND SON’S YEARLY INCOME

SOME DECADES LATER

THIS WAS MUCH LOWER THAN THE CORRELATION OF AT LEAST 0.4 THAT

SOCIOLOGISTS FOUND WITH RANDOM SAMPLES BETWEEN

THE OCCUPATIONAL PRESTIGE OF FATHERS AND SONS

LATER STUDIES BY ECONOMISTS ON INCOME MOBILITY COMPUTED THE CORRELATION BETWEEN FATHER’S

INCOME AVERAGED OVER THREE YEARS AND SON’S INCOME AVERAGED OVER

THREE YEARS

THEN THE CORRELATION ROSE TO ABOUT 0.4

THE SOCIOLOGISTS HAD COME UP WITH THE RIGHT VALUE

OCCUPATIONAL PRESTIGE STANDS FOR LONG-RUN INCOME

THIS IS THE OECD RESULT ON INCOME INEQUALITY AND

INCOME MOBILITY

FORGET THE RIGHT PART OF THE FIGURE

HIGHER INCOME INEQUALITY GOES TOGETHER WITH LESS

INCOME MOBILITY

OF LATE, THE OECD HAS BEEN MAKING THE HEADLINES WITH PISA

PISA = THE PROGRAM FOR INTERNATIONAL STUDENT ASSESSMENT

FOR PISA, LARGE NUMBERS OF STUDENTS AGED 15 YEARS FROM THE OECD MEMBER COUNTRIES MAKE STANDARDIZED TESTS ON LANGUAGE COMPREHENSION AND

MATHEMATICS

PISA ALSO COLLECTS DATA ON THE SCHOOLS OF THESE STUDENTS, ON THEIR

TEACHERS, AND ON THEIR PARENTS

THE RANKINGS OF COUNTRIES AFTER THE SCORES OF THEIR STUDENTS TEND

TO CAUSE POLITICAL UPROARS IN SEVERAL COUNTIRES

FOR INSTANCE, GERMANY WAS SHOCKED TWO YEARS AGO ABOUT ITS

LOW RANKINGS

THE HIGH RANKING OF FINLAND BELIED THE HYPOTHESIS THAT IF TEACHER’S PAY

IS HIGHER, STUDENT’S SCORES ARE HIGHER TOO

FINNISH TEACHERS ARE NOT PAID A LOT

PISA’S BOSS ANDREAS SCHLEICHER ANSWER TO A QUESTION OF A JOURNALIST IN THE INTERNATIONAL HERALD TRIBUNE OF

NOVEMBER 12, 2012

Q: I WANT TO ASK YOU ABOUT A RESULT OF YOURS ON CLASS SIZE

A: IT IS CLEAR THAT IF EVERYTHING ELSE IS EQUAL, A SMALLER CLASS IS BETTER THAN A LARGER CLASS. BUT THAT IS NOT THE RIGHT QUESTION. THE RIGHT QUESTION IS: IF YOU HAVE ONE

DOLLAR EXTRA TO SPEND, DO YOU PUT IT INTO A SMALLER CLASS, A BETTER TEACHER, MORE LEARNING TIME? WHAT OUR

RESEARCH VERY CLEARLY SHOWS IS THAT IF YOU HAVE TO MAKE A CHOICE BETWEEN A GREAT TEACHER AND A SMALL CLASS,

CHOOSE THE GREATER TEACHER .

STUDIES LIKE PISA, STUDIES COLLECTING SCORES FOR STUDENTS, CHARACTERISTICS THEIR

PARENTS, THE SIZE OF THE CLASS THEY ATTEND, THE FINANCING OF THEIR SCHOOL ,

WERE UNDERTAKEN IN THE USA IN THE 1960S

ACCORDING TO HAUSER, THEIR MODEL IS NOT TO BE FOLLOWED, WHILE PISA DOES

HAUSER SAID SO AT SENATE HEARINGS

HE REPEATED THIS AT THE MEETING OF THE RESEARCH COMMITTEE ON SOCIAL

STRATIIFICATION AND MOBILITY IN YALE IN 2009

HAUSER’S ARGUMENT IS THAT PISA IS CROSS-SECTIONALWHILE DYNAMIC DATA ON THE SAME STUDENT ARE

NEEDED

A STUDENT THAT MOVED FROM A BAD SCHOOL TO A GOOD ONE IS TREATED IN THE CROSS SECTIONAL

ANALYSIS AS A STUDENT WHO HAS ATTENDED ALL HIS LIFE THIS SCHOOL

BUT EXPOSURE TO FIVE YEARS OF A BAD SCHOOL IS NOT WASHED OUT BY ONE YEAR AT A GOOD SCHOOL

SCHOOL EFFECTS SHOW UP GRADUALLY: THEY ARE WEAK IN THE FIRST YEAR, AND BECOME STRONGER LATER

PISA’S STUDENTS ARE ALL IN THE SAME CLASS AND OF THE SAME AGE

TO PARAPHRASE SCHLEICHER:

IF YOU AS A RESEARCH SOCIOLOGIST HAVE ONE DOLLAR EXTRA TO SPEND

WOULD YOU SPEND IT ON REPEATING CROSS SECTIONAL RESEARCH FOR OTHER STUDENTSOR WOULD YOU SPEND IT ON RESEARCH FON

THE SAME STUDENTS SOME YEARS LATER?

ACCORDING TO METHODOLOGY TEXTBOOKS THE ANSWER IS CLEAR: FOLLOW BEGINNING

STUDENTS THROUGH THEIR EDUCATIONAL CAREER

UNCLARITIES AND ERRORS OF PISA AND THE OECD

THIS IS THE MAIN DIAGONAL OF A MOBILITY TABLE

A CURIOUS READER WOULD ALSO LIKE TO SEE THE OFF-DIAGONAL CELLS

MEN FROM THE BOTTOM FIFTH HAVE FOUR STEPS TO

TAKE TO THE HIGHEST FIFTH, MEN FROM THE MIDDLE

FIFTH TWO STEPS

THERE IS LESS MOBILITY OF FOUR STEPS THAN OF TWO STEPS IN BOTH COUNTRIES

IS THIS ENLIGHTENING?

MOBILITY OF FOUR STEPS IS LESS COMMON IN THE USA

THAN IN DENMARK

HOW ABOUT MOBILITY OF ONE STEP UP AND ONE STEP DOWN?

IS IT POSSIBLE FOR A PERSON IN THE TOP QUINTILE TO GO ONE STEP UP?

IS IT POSSIBLE FOR A PERSON IN THE BOTTOM QUINTILE TO GO ONE STEP

DOWN?

OECD, EDUCATION AT A GLANCE 2012, PAGE 104CHART 6.1

PROPORTION OF 20-34 YEAR OLD STUDENTS IN HIGHER EDUCATION WHOSE PARENTS HAVE LOW

LEVELS OF EDUCATION

PROPORTION OF PARENTS WITH LOW LEVELS OF EDUCATION IN THE TOTAL POPULATION

THE ODDS OF BEING A STUDENT IN HIGHER EDUCATION IF PARENTS HAVE LOW LEVELS OF

EDUCATION

WHAT ARE ODDS?COMPUTE ODDS

RATIOS!