Income and Wealth Inequality

  • Nicholas Bloom
  • Raj Chetty
  • Emmanuel Saez

Leaders: Nicholas Bloom, Raj Chetty, Emmanuel Saez

The CPI is home to some of the country’s most influential analyses of the income and wealth distribution. The purpose of the Income and Wealth RG is to monitor the ongoing takeoff in income inequality, to better understand its sources, and to analyze its implications for labor market performance, educational attainment, mobility, and more. The following is a sampling of the CPI’s research projects within this area.

Trends in income and wealth inequality: What are the key trends in U.S. income and wealth inequality? The U.S. increasingly looks to Emmanuel Saez and his research team for the latest data on U.S. economic inequality.

Distributional National Accounts: In an ambitious infrastructural project, Emmanuel Saez and his team are building a “Distributional National Accounts” based on tax returns, a data set that will eliminate the current gap between (a) national accounts data based on economic aggregates and (b) inequality analysis that uses micro-level tax data to examine the distribution of income but is not consistent with national aggregates. This new data set will in turn make it possible to evaluate the extent to which economic growth, which has long been represented as a preferred poverty-reduction approach, is indeed delivering on that objective.

The rise of between-firm inequality: How much of the rise in earnings inequality can be attributed to increasing between-firm dispersion in the average wages they pay? This question can be addressed by constructing a matched employer-employee data set for the United States using administrative records.

Rent and inequality: It is increasingly fashionable to argue that “rent” accounts for much of the takeoff in income inequality. The Current Population Survey can be used to assess whether this claim is on the mark. 

Income And Wealth - CPI Research

Title Author Media
The Association Between Income and Life Expectancy in the United States, 2001-2014 Raj Chetty, Michael Stepner, Sarah Abraham, Shelby Lin, Benjamin Scuderi, Nicholas Turner, Augustin Bergeron, David Cutler

The Association Between Income and Life Expectancy in the United States, 2001-2014

Author: Raj Chetty, Michael Stepner, Sarah Abraham, Shelby Lin, Benjamin Scuderi, Nicholas Turner, Augustin Bergeron, David Cutler
Publisher: Journal of the American Medical Association
Date: 04/2016

In the United States between 2001 and 2014, higher income was associated with greater longevity, and differences in life expectancy across income groups increased over time. However, the association between life expectancy and income varied substantially across areas; differences in longevity across income groups decreased in some areas and increased in others. The differences in life expectancy were correlated with health behaviors and local area characteristics.

The Continuing Increase in Income Segregation, 2007-2012 Sean F. Reardon, Kendra Bischoff

The Continuing Increase in Income Segregation, 2007-2012

Author: Sean F. Reardon, Kendra Bischoff
Publisher: Stanford Center for Education Policy Analysis
Date: 03/2016

Income segregation in the United States grew substantially from 1970 to 2007 (Bischoff & Reardon, 2014; Jargowsky, 1996; Reardon & Bischoff, 2011a, 2011b; Watson, 2009). Income segregation grew sharply in the 1980s, changed little in the 1990s, and then grew again in the early 2000s. A primary cause of this growth in segregation has been the rise in income inequality over the last four decades (Bischoff & Reardon, 2014; Reardon & Bischoff, 2011b; Watson, 2009). Income inequality in the U.S. continued to rise in the 2000s. Although income inequality declined modestly from 2007 to 2009 during the Great Recession, it quickly rebounded, and is now higher than it was in 2007. In 2014, the top 10% of earners collectively accrued 50% of all income in the U.S. (Piketty & Saez, 2015). Has the post-recession increase in income inequality led to a continued rise in income segregation? In this report, we use the most recent data from the American Community Survey to investigate whether income segregation increased from 2007 to 2012. These data indicate that income segregation rose modestly from 2007 to 2012. This continues the trend of rising income segregation that began in the 1980s. We show that the growth in income segregation varies among metropolitan areas, and that segregation increased rapidly in places that experienced large increases in income inequality. This suggests that rising income inequality continues to be a key factor leading to increasing residential segregation by income.

Shared Prosperity in America's Communities

Shared Prosperity in America's Communities

Author:
Publisher: University of Pennsylvania Press
Date: 03/2016

While the nation's GDP has doubled in the last thirty years, significant increases in family income have been restricted to a small subset of the American population. This disjunct between national economic growth and stagnating incomes in all but the very top tier of the population corresponds with increasing economic inequality and a lack of social and economic mobility. As a consequence, neighborhoods and metropolitan areas have become more polarized. Stark geographic differences in levels of poverty, income, health outcomes, job opportunities, lifetime earning potential, and educational attainment highlight the degree to which place matters in terms of social and economic opportunity. Shared Prosperity in America's Communities examines this place-based disparity of opportunity and suggests what can be done to ensure that the benefits of economic growth are widely shared. Contributors' essays explore social and economic mobility throughout the country to illuminate the changing geography of inequality, offer a portfolio of strategies to address the challenges of place-based inequality, and show how communities across the nation are implementing change and building a future of shared prosperity.

The Determinants and Welfare Implications of US Workers’ Diverging Location Choices by Skill: 1980-2000 Rebecca Diamond

The Determinants and Welfare Implications of US Workers’ Diverging Location Choices by Skill: 1980-2000

Author: Rebecca Diamond
Publisher: American Economic Review
Date: 03/2016

From 1980 to 2000, the rise in the US college/high school graduate wage gap coincided with increased geographic sorting as college graduates concentrated in high wage, high rent cities. This paper estimates a structural spatial equilibrium model to determine causes and welfare consequences of this increased skill sorting. While local labor demand changes fundamentally caused the increased skill sorting, it was further fueled by endogenous increases in amenities within higher skill cities. Changes in cities' wages, rents, and endogenous amenities increased inequality between high school and college graduates by more than suggested by the increase in the college wage gap alone.

Residential Segregation is the Linchpin of Racial Stratification Douglas S. Massey

Residential Segregation is the Linchpin of Racial Stratification

Author: Douglas S. Massey
Publisher: City and Community
Date: 03/2016

"White racial attitudes toward black Americans shifted during the Civil Rights Era ... with important consequences for patterns of racial segregation. During the 1980s, principled support for segregation all but disappeared; but despite this retreat from segregationist ideology, whites nonetheless continued to harbor strong anti-black sentiments rooted in negative stereotypes about the low intelligence, lack of motivation, propensity toward criminality, and predatory sexuality of African Americans (Bobo et al. 2012). Even though whites had come to reject segregation in principle, they continued to feel uncomfortable in the presence of many African Americans in practice; and they grew progressively more uncomfortable as black numbers in the social setting rose (Charles 2003)."

Income And Wealth - CPI Affiliates

Timothy M. Smeeding Distinguished Professor of Economics and Public Adminstration; Former Director, Institute for Research on Poverty University of Wisconsin-Madison
Yu Xie Professor of Sociology Princeton University
Andrew Walder Professor of Sociology; Denise O'Leary and Kent Thiry Professor Stanford University
Anthony Giddens Professor Lord (Emeritus); Director, Center for the Study of Global Governance London School of Economics and Political Science
Barbara Fried William W. and Gertrude H. Saunders Professor of Law Stanford University

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Income And Wealth - Other Research

Title Author Media
It’s Where You Work: Increases in the Dispersion of Earnings Across Establishments and Individuals in the United States Erling Barth, Alex Bryson, James C. Davis, Richard Freeman

It’s Where You Work: Increases in the Dispersion of Earnings Across Establishments and Individuals in the United States

Author: Erling Barth, Alex Bryson, James C. Davis, Richard Freeman
Publisher: Journal of Labor Economics
Date: 02/2016

This paper analyzes the role of establishments in the upward trend in dispersion of earnings that has become a central topic in economic analysis and policy debate. It decomposes changes in the variance of log earnings among individuals into the part due to changes in earnings among establishments and the part due to changes in earnings within establishments. The main finding is that much of the 1970s–2010s increase in earnings inequality results from increased dispersion of the earnings among the establishments where individuals work. Our results direct attention to the role of establishment-level pay setting and economic adjustments in earnings inequality.

Decomposing Trends in Inequality in Earnings into Forecastable and Uncertain Components Flávio Cunha, James Heckman

Decomposing Trends in Inequality in Earnings into Forecastable and Uncertain Components

Author: Flávio Cunha, James Heckman
Publisher: Journal of Labor Economics
Date: 02/2016

A substantial empirical literature documents the rise in wage inequality in the American economy. It is silent on whether the increase in inequality is due to components of earnings that are predictable by agents or whether it is due to greater uncertainty facing them. These two sources of variability have different consequences for both aggregate and individual welfare. Using data on two cohorts of American males, we find that a large component of the rise in inequality for less skilled workers is due to uncertainty. For skilled workers, the rise is less pronounced.

The Gender Wage Gap: Extent, Trends, and Explanations Francine D. Blau, Lawrence M. Kahn

The Gender Wage Gap: Extent, Trends, and Explanations

Author: Francine D. Blau, Lawrence M. Kahn
Publisher: Journal of Economic Literature
Date: 01/2016

Using PSID microdata over the 1980-2010, we provide new empirical evidence on the extent of and trends in the gender wage gap, which declined considerably over this period. By 2010, conventional human capital variables taken together explained little of the gender wage gap, while gender differences in occupation and industry continued to be important. Moreover, the gender pay gap declined much more slowly at the top of the wage distribution that at the middle or the bottom and by 2010 was noticeably higher at the top. We then survey the literature to identify what has been learned about the explanations for the gap. We conclude that many of the traditional explanations continue to have salience. Although human capital factors are now relatively unimportant in the aggregate, women’s work force interruptions and shorter hours remain significant in high skilled occupations, possibly due to compensating differentials. Gender differences in occupations and industries, as well as differences in gender roles and the gender division of labor remain important, and research based on experimental evidence strongly suggests that discrimination cannot be discounted. Psychological attributes or noncognitive skills comprise one of the newer explanations for gender differences in outcomes. Our effort to assess the quantitative evidence on the importance of these factors suggests that they account for a small to moderate portion of the gender pay gap, considerably smaller than say occupation and industry effects, though they appear to modestly contribute to these differences.

Social Mobility in a High-Inequality Regime Pablo A. Mitnik, Erin Cumberworth, David B. Grusky

Social Mobility in a High-Inequality Regime

Author: Pablo A. Mitnik, Erin Cumberworth, David B. Grusky
Publisher: Annals of the American Academy of Political and Social Science
Date: 01/2016

Are opportunities to get ahead growing more unequal? Using data from the General Social Survey (GSS), it is possible to provide evidence on this question, evidence that is suggestive but must be carefully interpreted because the samples are relatively small. The GSS data reveal an increase in class reproduction among young and middle-age adults that is driven by the growing advantage of the professional-managerial class relative to all other classes. This trend is largely consistent with our new “top-income hypothesis” that posits that rising income inequality registers its effects on social mobility almost exclusively in the divide between the professional-managerial class and all other classes. We develop a two-factor model in which the foregoing effects of the inequality takeoff are set against the countervailing effects of the expansion of mass education. As the model implies, the trend in intergenerational association takes on a convex shape in the younger age groups, with the change appearing to accelerate in the most recent decade. These results suggest that the takeoff in income inequality may account in part for the decline in mobility.

Compounded Deprivation in the Transition to Adulthood: The Intersection of Racial and Economic Inequality Among Chicagoans, 1995–2013 Kristin L. Perkins, Robert J. Sampson

Compounded Deprivation in the Transition to Adulthood: The Intersection of Racial and Economic Inequality Among Chicagoans, 1995–2013

Author: Kristin L. Perkins, Robert J. Sampson
Publisher: RSF: The Russell Sage Foundation Journal of the Social Sciences
Date: 11/2015

This paper investigates acute, compounded, and persistent deprivation in a representative sample of Chicago adolescents transitioning to young adulthood. Our investigation, based on four waves of longitudinal data from 1995 to 2013, is motivated by three goals. First, we document the prevalence of individual and neighborhood poverty over time, especially among whites, blacks, and Latinos. Second, we explore compounded deprivation, describing the extent to which study participants are simultaneously exposed to individual and contextual forms of deprivation—including material deprivation (such as poverty) and social-organizational deprivation (for example, low collective efficacy)—for multiple phases of the life course from adolescence up to age thirty-two. Third, we isolate the characteristics that predict transitions out of compounded and persistent poverty. The results provide new evidence on the crosscutting adversities that were exacerbated by the Great Recession and on the deep connection of race to persistent and compounded deprivation in the transition to adulthood.