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Many observers have noticed a sharp divergence of household incomes in the last few decades that seems unrelated to the traditional explanations of inequality like economic development. My dissertation examines the question of how the rise of neoliberalism—or the market über alles—impacts this inequality in countries around the world. High inequality is known to hinder economic growth, social mobility, democratic functioning, social capital, and to adversely affect health and education outcomes, as well as to exacerbate racial and residential inequality. Equality, meanwhile, is seen as desirable in its own right as a matter of social justice. Neoliberalism is a likely suspect because it emerged at the same time and in the same places that inequality began to rise after three postwar decades of decline. It is also a particularly competitive form of capitalism, and thus produces more winners and losers at both ends of the income distribution. With its focus on profits, it is much more beneficial to income derived from capital gains at the expense of wages, deepening the typical class divide under capitalism. Finally, neoliberalism is an elite consensus formed without any public participation, and these special interests shape the economy and society to the benefit of this privileged minority. I find four major shortcomings of existing research related to my research question. First, all but the most recent research has had to rely on sub-standard data for cross-national comparisons, which I address using Frederick Solt’s (2009) Standardized World Income Inequality Database (SWIID). Second, past analyses of cross-national data have improperly handled between-country variation, which I address using a dual fixed-effects modelling approach. Third, there are operationalization problems with neoliberalism, in which past research has failed to capture the phenomenon in its entirety. I address this by developing a new multi-dimensional measurement approach. Moreover, there is a determined failure by many to fully consider neoliberalism as a likely explanation because it contradicts the myth of liberal democracy and capitalist benevolence. Along these lines, the fourth shortcoming is that most popular explanations of rising inequality blame otherwise benign trends such as globalization and technological advancement. This obscures the political nature of neoliberalism, especially how the rich are able to dominate political economy at the expense of the masses. In doing so, it makes it appear that inequality is just a byproduct of progress, that we must accept it as inevitable, and that only palliatives are available. The reality, however, is that neoliberalism is neither inevitable nor progressive and requires systemic change to rectify. I address the research question with three research components. First, I develop a definition of neoliberalism in contrast to existing theoretical narratives, namely globalization, neo-Keynesianism, dependency theory, and economic freedom. I argue neoliberalism is a social and political project that emerged in the economic stagnation of the 1970s—a way for corporate elites to revitalize profits by whatever means necessary, regardless of the consequences. These means have included tax cuts, social spending cuts, deregulation, neoliberal monetary policy, corporate and industrial restructuring, free trade agreements and increased foreign investment, export-led growth, and the growing power of global economic institutions. I operationalize this definition using the Economic Freedom for the World Index (42 variables) and other World Bank data. Empirically, I show that many neoliberal variables correlate and thus may embody a wider phenomenon, but they also show moderate independence which supports the multi-dimensional approach rather than a single neoliberal metric. In the second part of the dissertation, I use the measurement developed in part one to analyze neoliberalism’s relationship with inequality. I find a relatively robust relationship in the expected direction, with some exceptions, and the dual-model approach underscores the importance of analyzing both between- and within-country variation. The latter is useful because it inherently controls for cross-country heterogeneity, but it comes at a substantial loss of variability. The former has regrettably been derogated, but it provides much explanatory power and complements within-country analysis well. In other words, between-country variation captures deep institutional and cultural differences across countries, while the other captures more superficial but flexible policy shifts and trends within countries at various points in time. I also explore the nonlinear effects of neoliberalism on inequality. Generally, the analysis showed that more developed countries had a stronger association between various neoliberal dimensions and greater inequality. I speculated this was because more developed countries historically have more institutional protection from the adverse effects of markets, and by weakening these, neoliberalism generates more inequality than in countries whose public intervention is already less robust, especially in unmeasurable ways. The analysis also generally showed that at low levels of neoliberalism the relationship sometimes reversed, creating a U-shaped curve that was typically centered left of the mean. I speculated this was due to the fact that very low scores of neoliberalism occur in underdeveloped countries usually suffering from serious state corruption, which translates into greater inequality. In such cases, moving away from a corrupt state and toward market institutions generates relatively less inequality. In the third part, I expand on the above model to establish competitive testing of alternative explanations of rising inequality using contingency effects. The alternatives include globalization, technological advancement, industrial restructuring, human capital/skills, and female employment. The test asks whether the effects of these alternatives are actually contingent on above average levels of neoliberalism, and thus not responsible for inequality per se. Instead neoliberalism makes globalization, technology, and the other trends more inegalitarian than they would have otherwise been. In general, the analysis showed that the alternatives are robustly contingent in the expected direction. Greater levels of neoliberalism drive many ordinarily benign trends and processes toward greater inequality. Remarkably, even basic education, long thought to be the great equalizer, can actually exacerbate inequality at high levels of neoliberalism. In fact, at average levels of neoliberalism, the alternatives mostly had weak relationships to inequality. And below the average, many alternatives actually appeared to generate less inequality—that is, inequality was lower where and when neoliberalism was less embedded. Overall, the findings demonstrate that neoliberalism is an important if not predominant explanation for rising income inequality that many countries have experienced in the last several decades. It suggests that superficial solutions like more education spending or job creation may be insufficient without addressing, at least to some extent, the deeper issue of neoliberal capitalism. I provide suggestions for this, but ultimately it means shifting our major institutions away from market logic toward public interests, control, and orientation. A future economic crisis more severe than the Great Recession could advance such systemic change, but popular protest will likely also be needed to ensure that addressing today’s challenges becomes more egalitarian. / Sociology

Past research has been divergent about perceived income inequality among diversely positioned members of the Chinese population. Several scholars have suggested that persistent earnings disparity results in societal unrest while others claim that most Chinese citizens view existing disparities as relatively reasonable. In this dissertation I argue that individuals with different socioeconomic status possess different perceptions of income inequality which reflect differences in legitimating income inequality and wealth rearrangement preferences. Implementing the survey data from the China General Social Survey (CGSS), I developed a new measurement of perceived earnings disparity and a Structural Equation Model (SEM) to analyze perceived earnings disparity among the Chinese population. This analysis is integrated with psychological and cultural approaches in order to understand why it is that Chinese people seem relatively unresponsive to persistent income inequality. Results show that: (1) People with high socioeconomic status believe that income inequality is the normal result of competition in the market economy and those with low socioeconomic status tolerate income inequality for government’s good economic performance; (2) socioeconomic status differentials in perceived income inequality diverge as higher earnings disparity becomes evident in contemporary China; and (3) the people within the lowest economic strata are sensitive to the intensified income inequality, and have stronger demands for redistributive policies while those in the highest strata express attitudes that suggest indifference to this issue. The divergence in perceptions of income inequality and redistributive preferences between people from the elite and the bottom can be seen as a sign of social as well as economic polarization in Chinese society. The research partly supports the existing statement that the members in privileged group turn into oligarch while those in disadvantaged group are amenable to populist expressions. The policy implication is that the government should implement an institutional approach to solve the persistent income inequality.

Trust is a good approach to explain the functioning of markets, institutions or society as a whole. It is a key element in almost every commercial transaction over time and might be one of the main explanations of economic success and development. Trust diminishes the more we perceive others to have economically different living realities. In most of the relevant contributions, scholars have taken a macro perspective on the inequality-trust linkage, with an aggregation of both trust and inequality on a country level. However, patterns of within-country inequality and possibly influential determinants, such as perception and socioeconomic reference, remained undetected. This paper offers the opportunity to look at the interplay between inequality and trust at a more refined level. A measure of (generalized) trust emerges from ESS 5 survey which asks "...generally speaking, would you say that most people can be trusted, or that you can't be too careful in dealing with people?". With the use of 2009 EU-SILC data, measurements of income inequality are developed for age-specific groups of society in 22 countries. A sizable variation in inequality measures can be noticed. Even in low inequality countries, like Sweden, income imbalances within certain age groups have the potential to undermine social trust.

This thesis investigates income inequality and poverty in urban China using survey data from 2002. It shows that in urban China, income in the coastal region is less equally distributed than in the interior region, although social welfare is higher. Developed cities have more inequality than less developed cities, but they also have a higher level of social welfare. Further decomposition analysis indicates that intragroup inequality accounts for the dominant part of overall inequality no matter how groups are categorized - by region, by city level, by gender, or by education. There is a significant difference in the incidence of poverty between interior regions and coastal regions, with the interior region having a higher headcount ratio and a greater poverty gap ratio. It is also found that developed cities have lower poverty than less developed cities.

This dissertation consists of three essays in Macroeconomics. The first essay assesses the impact of offshoring on aggregate productivity and on labour market outcomes by developing a dynamic general equilibrium model in which workers acquire task-specific human capital. The dynamic nature of the model allows for differentiation between short and long run effects. While the welfare effects are unambiguously positive and independent of the skill-content of the offshored and inshored tasks, the distribution of the gains from trade critically depends on the time horizon. Workers with human capital specific to the inshored tasks gain over those performing offshored tasks in the short term. In the long run, the gains from trade are equally distributed among ex-ante identical agents. The model is calibrated to the U.S. economy; welfare gains from increased offshoring are found to be substantial even after taking into account losses in specific human capital for workers in the offshored occupations along the transition path. The second essay integrates the insight that exporting firms are typically more productive and employ higher skilled workers into a directed search model of the labour market. The model generates a skill premium as well as residual wage inequality among identical workers. Trade liberalization will cause a reallocation of workers both within and across industries, which will affect both types of inequality in a way that is consistent with findings from the empirical literature on trade and inequality. A calibrated version of the model can account for much of the effect of the Canada-U.S. Free Trade Agreement on the Canadian labour market. The final essay incorporates a distortionary tax into the microfoundations of money framework and revisits the optimum quantity of money. An optimal policy may consist of both a positive tax rate and a positive nominal interest rate: if the buyer's surplus share is inefficiently small, the intensive margin is distorted and the constrained optimal policy combines a sales tax with a money growth rate above that prescribed by the Friedman rule. Monetary, but not fiscal, policy alters the agent's bargaining position, leaving a special role for a deviation from the Friedman rule.

This dissertation consists of three essays in Macroeconomics. The first essay assesses the impact of offshoring on aggregate productivity and on labour market outcomes by developing a dynamic general equilibrium model in which workers acquire task-specific human capital. The dynamic nature of the model allows for differentiation between short and long run effects. While the welfare effects are unambiguously positive and independent of the skill-content of the offshored and inshored tasks, the distribution of the gains from trade critically depends on the time horizon. Workers with human capital specific to the inshored tasks gain over those performing offshored tasks in the short term. In the long run, the gains from trade are equally distributed among ex-ante identical agents. The model is calibrated to the U.S. economy; welfare gains from increased offshoring are found to be substantial even after taking into account losses in specific human capital for workers in the offshored occupations along the transition path. The second essay integrates the insight that exporting firms are typically more productive and employ higher skilled workers into a directed search model of the labour market. The model generates a skill premium as well as residual wage inequality among identical workers. Trade liberalization will cause a reallocation of workers both within and across industries, which will affect both types of inequality in a way that is consistent with findings from the empirical literature on trade and inequality. A calibrated version of the model can account for much of the effect of the Canada-U.S. Free Trade Agreement on the Canadian labour market. The final essay incorporates a distortionary tax into the microfoundations of money framework and revisits the optimum quantity of money. An optimal policy may consist of both a positive tax rate and a positive nominal interest rate: if the buyer's surplus share is inefficiently small, the intensive margin is distorted and the constrained optimal policy combines a sales tax with a money growth rate above that prescribed by the Friedman rule. Monetary, but not fiscal, policy alters the agent's bargaining position, leaving a special role for a deviation from the Friedman rule.

The purpose of this research is to examine the impact of income inequality on individual creativity. Specifically, it is hypothesized that an individual’s creative performance (via a remote associatives test) is affected negatively in a high income inequality condition. Theoretical research suggests that the mechanism that enables this is self-regulation. As such self-regulation is measured as a mediator in this relationship. Two online-panel experiments were designed and conducted to test these relationships. The results did not show significant results for the mediation relationship. Self-regulation does have a positive relationship with creative performance, and income inequality shows a negative relationship with creativity in some conditions, however there is no relationship between income inequality and self-regulation. This research develops the theoretical background for the relationship between income inequality, self-regulation, and creativity. It also provides some lessons-learned from an experimental mediation design with an independent variable that has multiple categorical variables. / October 2015

Thesis advisor: Paul Cichello / As inequality continues to grow, scholars remain conflicted on solutions to diminish the gaps in earnings. Mexico is an upper-middle income country, however it is also among the high inequality countries. This study uses data from the Mexican Intercensal Survey to analyze the relationship of the dispersion of education on the amount of earnings inequality. Regions with higher educational inequality and educational attainment tend to have higher earnings inequality. The research was expanded to explore how inequality has changed over the course of the 21st century. The results concluded that the mean educational attainment and average earnings increased as the GINI and EGINI coefficients notably decreased over the fifteen year timespan. From a policy perspective, this finding sets the tone for a bottom-up approach. While not hindering the attainment of the top, ideal policy would incentivize opportunity for bottom achievers. Furthermore, the results clearly contradicted Kuznets’ hypothesis with a U-shaped distribution between earnings and inequality. This paper explores alternative development theories as well as policy action focusing on education to reduce inequality. / Thesis (BA) — Boston College, 2022. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Departmental Honors. / Discipline: Economics.