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 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)."

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

The Continuing Increase in Income Segregation, 2007-2012

Author: Sean Reardon, Kendra Bischoff
Date: 03/2016

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.

State of the Union - The Poverty and Inequality Report 2016: Education Anna K. Chmielewski, Sean F. Reardon

State of the Union - The Poverty and Inequality Report 2016: Education

Author: Anna K. Chmielewski, Sean F. Reardon
Publisher: Stanford Center on Poverty and Inequality
Date: 02/2016

The United States is an outlier on many measures of inequality. When compared to other well-off countries, it has unusually high levels of income inequality, unusually high levels of wealth inequality, and unusually high levels of poverty. The purpose of this article is, in part, to ask whether the “income achievement gap”—the test score gap between children from high- and lowincome families—is also unusually high in the U.S. This gap is important because it reflects (a) the extent to which students experience different socioeconomic conditions in their early childhood and different schooling conditions once they reach school age, and (b) the extent to which these socioeconomic and schooling context differences lead to different educational outcomes (test scores, in this case). It may accordingly be understood as an early (albeit obviously imperfect) measure of the extent to which opportunities are unequal. Although a main purpose of this article is simply to establish how the U.S. stacks up against its peer countries on this key measure of unequal opportunity, our follow-up objective is to cast some light on the sources of international differences in this measure. We examine, in particular, whether income inequality is an important source of the achievement gap. The evidence from the U.S. is at least suggestive of an “income inequality” effect: In the 1980s and 1990s, as income inequality in the U.S. grew sharply, so too did the academic achievement gap by family income. That family income and family socioeconomic status (SES) are related to children’s academic achievement is not surprising; that this relationship grew so rapidly in the U.S. in the last several decades, however, is rather surprising. The U.S. trends suggest that some of this growth may have been the result of rising income inequality.

Consumption Inequality and Family Labor Supply Richard Blundell , Luigi Pistaferri , Itay Saporta-Eksten

Consumption Inequality and Family Labor Supply

Author: Richard Blundell , Luigi Pistaferri , Itay Saporta-Eksten
Publisher: American Economic Review
Date: 02/2016

We examine the link between wage and consumption inequality using a life-cycle model incorporating consumption and family labor supply decisions. We derive analytical expressions for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, nonseparability, progressive taxation, and asset accumulation. The model is estimated using panel data for hours, earnings, assets, and consumption. We focus on family labor supply as an insurance mechanism and find strong evidence of smoothing of permanent wage shocks. Once family labor supply, assets, and taxes are properly accounted for there is little evidence of additional insurance.

income and wealth - CPI Affiliates

Robert Max Jackson's picture Robert Max Jackson Professor of Sociology
New York University
Lisa Catanzarite's picture Lisa Catanzarite Vice President, Research and Evaluation, Los Angeles Area Chamber of Commerce & UNITE-LA; Adjunct Professor, San Diego State University
Los Angeles Area Chamber of Commerce & UNITE-LA
Edward B. Montgomery's picture Edward B. Montgomery Dean of the McCourt School of Public Policy; Research Associate, National Bureau for Economic Research; Fellow, National Academy of Public Administration
Georgetown University
Robin Samuel's picture Robin Samuel Associate Professor of Sociology
University of Luxembourg
Magnus Nermo's picture Magnus Nermo Professor of Sociology; Head of the Sociology Department; Associate Researcher at the Swedish Institute for Social Research
Stockholm University


Income And Wealth - Other Research

Title Author Media
Has Consumption Inequality Mirrored Income Inequality? Mark Aguiar , Mark Bils

Has Consumption Inequality Mirrored Income Inequality?

Author: Mark Aguiar , Mark Bils
Publisher: American Economic Review
Date: 09/2015

We revisit to what extent the increase in income inequality since 1980 was mirrored by consumption inequality. We do so by constructing an alternative measure of consumption expenditure using a demand system to correct for systematic measurement error in the Consumer Expenditure Survey. Our estimation exploits the relative expenditure of high- and low-income households on luxuries versus necessities. This double differencing corrects for measurement error that can vary over time by good and income. We find consumption inequality tracked income inequality much more closely than estimated by direct responses on expenditures.

Improving the Measurement of Consumer Expenditures

Improving the Measurement of Consumer Expenditures

Publisher: University of Chicago Press
Date: 06/2015

Robust and reliable measures of consumer expenditures are essential for analyzing aggregate economic activity and for measuring differences in household circumstances. Many countries, including the United States, are embarking on ambitious projects to redesign surveys of consumer expenditures, with the goal of better capturing economic heterogeneity. This is an appropriate time to examine the way consumer expenditures are currently measured, and the challenges and opportunities that alternative approaches might present.      

Improving the Measurement of Consumer Expenditures begins with a comprehensive review of current methodologies for collecting consumer expenditure data. Subsequent chapters highlight the range of different objectives that expenditure surveys may satisfy, compare the data available from consumer expenditure surveys with that available from other sources, and describe how the United States’s current survey practices compare with those in other nations.

What Money Doesn't Buy: Class Resources and Children's Participation in Organized Extracurricular Activities Elliot B. Weininger, Annette Lareau, Dalton Conley

What Money Doesn't Buy: Class Resources and Children's Participation in Organized Extracurricular Activities

Author: Elliot B. Weininger, Annette Lareau, Dalton Conley
Publisher: Social Forces
Date: 05/2015

Recent research suggests that participation in organized extracurricular activities by children and adolescents can have educational and occupational payoffs. This research also establishes that participation is strongly associated with social class. However, debate has ensued—primarily among qualitative researchers—over whether the association between class and activities stems exclusively from inequalities in objective resources and constraints or whether differing cultural orientations have a role. We address this debate using a nationally representative sample of children's time diaries, merged with extensive information on their families, to model participation in, and expenditures on, organized activities. While we cannot directly observe cultural orientations, we account for a substantially wider array of resources and constraints than previous studies. We find that, above and beyond these factors, maternal education has a consistently large effect on the outcomes we study. We discuss the plausibility of a cultural interpretation of this result, as well as alternative interpretations.

New Perspectives on the Declining Significance of Race: A Rejoinder William Julius Wilson

New Perspectives on the Declining Significance of Race: A Rejoinder

Author: William Julius Wilson
Publisher: Ethnic and Racial Studies
Date: 04/2015

In sharp contrast to many earlier studies, the articles in this symposium encompass a careful discussion of the two major underlying themes of my book, The Declining Significance of Race: (1) the effect of fundamental economic and political shifts on the changing relative importance of race and class in black occupational mobility and job placement; and (2) the swing in the concentration of racial conflict from the economic sector to the sociopolitical order. In my rejoinder I reflect on their arguments, including those that relate these themes to more recent developments in American race and ethnic relations featuring other groups, including whites and Latinos.

Effect of Neighborhood Stigma on Economic Transactions Max Besbris, Jacob William Faber, Peter Rich, Patrick Sharkey

Effect of Neighborhood Stigma on Economic Transactions

Author: Max Besbris, Jacob William Faber, Peter Rich, Patrick Sharkey
Publisher: Proceedings of the National Academy of Sciences of the United States of America
Date: 04/2015

The hypothesis of neighborhood stigma predicts that individuals who reside in areas known for high crime, poverty, disorder, and/or racial isolation embody the negative characteristics attributed to their communities and experience suspicion and mistrust in their interactions with strangers. This article provides an experimental test of whether neighborhood stigma affects individuals in one domain of social life: economic transactions. To evaluate the neighborhood stigma hypothesis, this study adopts an audit design in a locally organized, online classified market, using advertisements for used iPhones and randomly manipulating the neighborhood of the seller. The primary outcome under study is the number of responses generated by sellers from disadvantaged relative to advantaged neighborhoods. Advertisements from disadvantaged neighborhoods received significantly fewer responses than advertisements from advantaged neighborhoods. Results provide robust evidence that individuals from disadvantaged neighborhoods bear a stigma that influences their prospects in economic exchanges. The stigma is greater for advertisements originating from disadvantaged neighborhoods where the majority of residents are black. This evidence reveals that residence in a disadvantaged neighborhood not only affects individuals through mechanisms involving economic resources, institutional quality, and social networks but also affects residents through the perceptions of others.