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
State of the Union 2016: Income Inequality Jonathan Fisher, Timothy Smeeding

State of the Union 2016: Income Inequality

Author: Jonathan Fisher, Timothy Smeeding
Publisher: Stanford Center on Poverty and Inequality
Date: 02/2016

When disposable-income inequality is measured across 20–35 years of survey data, the consistent result is that the U.S. has the highest level of disposable-income inequality among rich countries. Some countries have experienced periods of falling, as well as rising, inequality over the last three decades. The simple, but important, conclusion to draw is that rising income inequality is not inevitable. Policy and markets can both make a difference.

Living in a High Inequality Regime

Living in a High Inequality Regime

Author:
Publisher: Annals of the American Academy of Political and Social Science
Date: 01/2016

Income inequality in the United States is the highest it has been since the roaring 20s. The rich are getting richer. The middle class is descending from the middle. The poor are getting poorer. What accounts for the increase in wealth at the top? What dynamic forces have shaped this spectacular disparity? How are Americans adjusting to life in this brave new world? What effect does the social fallout of this inequality regime have on the fabric of American society?

The effects of rising inequality have proven difficult to tease out, but as the United States enters a moment in history in which key policy decisions about inequality, mobility, and poverty are being made, it is important for researchers to examine this trend to learn why there is so much inequality in the United States. In this volume of The ANNALS experts examine the “social fallout” from this income imbalance.  They shine a light on the winners and losers, focusing on occupational inequality, racial and gender inequality, as well as inequality in veteran groups. They explore accessibility and segregation to gauge how educational and crime/punishment trends are shaped by inequality. Finally, they examine how inequality impacts Americans’ views of themselves and others; the dynamics of class and culture; and the effects of socioeconomics on marriage, health, and death.

Money and Morale: Growing Inequality Affects How Americans View Themselves and Others Michael Hout

Money and Morale: Growing Inequality Affects How Americans View Themselves and Others

Author: Michael Hout
Publisher: Annals of the American Academy of Political and Social Science
Date: 01/2016

Dozens of past studies document how affluent people feel somewhat better about life than middle-class people feel and much better than poor people do. New analyses of the General Social Surveys from 1974 to 2012 address questions in the literature regarding aggregate responses to hard times, whether the income-class relationship is linear or not, and whether inequality affects happiness. General happiness dropped significantly during the Great Recession, suggesting that the income-happiness relationship might also exist at the macro level. People with extremely low incomes are not as unhappy as a linear model expects, but there is no evidence of a threshold beyond which personal happiness stops increasing. Comparing happiness over the long term, the affluent were about as happy in 2012 as they were in the 1970s, but the poor were much less happy. Consequently, the gross happiness gap by income was about 30 percent bigger in 2012 than it was in the 1970s. A multivariate model shows that the net effect of income on happiness also increased significantly over time.

Generalized Social Marginal Welfare Weights for Optimal Tax Theory Emmanuel Saez, Stefanie Stantcheva

Generalized Social Marginal Welfare Weights for Optimal Tax Theory

Author: Emmanuel Saez, Stefanie Stantcheva
Publisher: American Economic Review
Date: 01/2016

This paper proposes to evaluate tax reforms by aggregating money metric losses and gains of different individuals using "generalized social marginal welfare weights." Optimum tax formulas take the same form as standard welfarist tax formulas by simply substituting standard marginal social welfare weights with those generalized weights. Weights directly capture society's concerns for fairness without being necessarily tied to individual utilities. Suitable weights can help reconcile discrepancies between the welfarist approach and actual tax practice, as well as unify in an operational way the most prominent alternatives to utilitarianism such as Libertarianism, equality of opportunity, or poverty alleviation.

Inequality of Income and Consumption in the U.S.: Measuring the Trends in Inequality from 1984 to 2011 for the Same Individuals Jonathan Fisher, David S. Johnson, Timothy M. Smeeding

Inequality of Income and Consumption in the U.S.: Measuring the Trends in Inequality from 1984 to 2011 for the Same Individuals

Author: Jonathan Fisher, David S. Johnson, Timothy M. Smeeding
Publisher: Review of Income and Wealth
Date: 12/2015

This paper examines the distribution of income and consumption in the U.S. using one dataset that obtains measures of both income and consumption from the same set of individuals. We develop a set of inequality measures that show the increase in inequality during the past 27 years using the 1984–2011 Consumer Expenditure Survey. We find that the trends in income and consumption inequality are similar between 1984 and 2006, and diverge during and after the Great Recession. For the entire 27-year period we find that consumption inequality increases almost as much as does income inequality.

Income And Wealth - CPI Affiliates

Daniel S. Hamermesh Professor of Economics; Research Associate, National Bureau of Economic Research Royal Holloway University of London
Daron Acemoglu Elizabeth and James Killian Professor of Economics Massachusetts Institute of Technology
David H. Autor Ford Professor of Economics; Director of National Bureau of Economic Research Disability Research Center Massachusetts Institute of Technology
David Neumark Founding Director, Economic Self-Sufficiency Policy Research Institute (ESSPRI); Professor of Economics University of California, Irvine
Dennis Gilbert Professor of Sociology Hamilton College

Pages

Income And Wealth - Other Research

Title Author Media
Age at Menarche: 50-year Socioeconomic Trends Among US-born Black and White Women Krieger N, Kiang MV, Kosheleva A, Waterman PD, Chen JT, Beckfield J

Age at Menarche: 50-year Socioeconomic Trends Among US-born Black and White Women

Author: Krieger N, Kiang MV, Kosheleva A, Waterman PD, Chen JT, Beckfield J
Publisher: American Journal of Public Health
Date: 02/2015

OBJECTIVES:

We investigated 50-year US trends in age at menarche by socioeconomic position (SEP) and race/ethnicity because data are scant and contradictory.

METHODS:

We analyzed data by income and education for US-born non-Hispanic Black and White women aged 25 to 74 years in the National Health Examination Survey (NHES) I (1959-1962), National Health Examination and Nutrition Surveys (NHANES) I-III (1971-1994), and NHANES 1999-2008.

RESULTS:

In NHES I, average age at menarche among White women in the 20th (lowest) versus 80th (highest) income percentiles was 0.26 years higher (95% confidence interval [CI] = -0.09, 0.61), but by NHANES 2005-2008 it had reversed and was -0.33 years lower (95% CI = -0.54, -0.11); no socioeconomic gradients occurred among Black women. The proportion with onset at younger than 11 years increased only among women with low SEP, among Blacks and Whites (P for trend < .05), and high rates of change occurred solely among Black women (all SEP strata) and low-income White women who underwent menarche before 1960.

CONCLUSIONS:

Trends in US age at menarche vary by SEP and race/ethnicity in ways that pose challenges to several leading clinical, public health, and social explanations for early age at menarche and that underscore why analyses must jointly include data on race/ethnicity and socioeconomic position. Future research is needed to explain these trends.

The Counter-Cyclical Character of the Elite Shamus Khan

The Counter-Cyclical Character of the Elite

Author: Shamus Khan
Publisher: Research in the Sociology of Organizations
Date: 02/2015

This paper begins by outlining the basic attitudinal differences between the elite and the rest of society. Understanding these divergent views does not require resorting to arguments that reply upon error, ignorance, manipulation, or differences in individual character. Instead, both elites and others are correct in their understanding of these processes because they overgeneralize from their own experience. The major proposition of this paper is that if we compare the economic conditions of the average American and to that of the elite, we find that they are, in important ways, the inverse of one another. During times when Americans as a whole were experiencing economic advancement and mobility, elites were comparatively stagnant. And today, as most Americans are locked in place, elites observe tremendous mobility. The counter-cyclical character of the elite has important implications for our understanding of elite culture, and elite response to inequality and redistribution.

A Comparison of Official Poverty Estimates in the Redesigned Current Population Survey Annual Social and Economic Supplement Joshua Mitchell, Trudi Renwick

A Comparison of Official Poverty Estimates in the Redesigned Current Population Survey Annual Social and Economic Supplement

Author: Joshua Mitchell, Trudi Renwick
Publisher: U.S. Census Bureau
Date: 01/2015

This paper presents a descriptive analysis of the poverty estimates from the 2014 Current Population Survey Annual Social and Economic Supplement (CPS ASEC) redesigned and traditional survey questionnaires. The 2014 CPS ASEC utilized a probability split panel design to test a new redesigned set of income questions. The income questions were redesigned with the goals of improving income reporting, increasing response rates, reducing reporting errors by taking better advantage of an automated questionnaire environment, and updating questions on retirement income and the income generated from retirement accounts and all other assets. Our main finding is that, among the demographic subgroups examined, most differences between the poverty estimates for the samples assigned to the traditional and redesigned survey instruments were not statistically significant but child (people under age 18) and elderly (people age 65 and older) poverty were higher in the sample assigned to the redesigned questionnaire despite the higher aggregate, mean, and median income collected in the sample with the redesigned questions compared to the sample with the traditional questions.

Is the Corporate Elite Fractured, or is there Continuing Corporate Dominance? Two Contrasting Views G. William Domhoff

Is the Corporate Elite Fractured, or is there Continuing Corporate Dominance? Two Contrasting Views

Author: G. William Domhoff
Publisher: Class, Race and Corporate Power
Date: 01/2015

This article compares two recent analyses of continuity and change in the American power structure since 1900, with a main focus on the years after World War II. The first analysis asserts that the “corporate elite” has fractured and fragmented in recent decades and no longer has the unity to have a collective impact on public policy. The second analysis claims that corporate leaders remain united, albeit with moderate-conservative and ultra-conservative differences on several issues, and continue to have a dominant collective impact on public policies that involve their major goals. After comparing the two perspectives on key issues from 1900 to 1945, the article analyzes the fractured-elite theory’s three claims about the postwar era: an activist government constrained the corporate elite, the union movement negotiated a capital-labor accord; and bank boards created policy cohesion among corporations. Finally, it compares the two perspectives on tax issues, health-care policies, and trade expansion between 1990 and 2010.

Household Wealth Trends in the United States, 1962-2013: What Happened Over the Great Recession? Edward N. Wolff

Household Wealth Trends in the United States, 1962-2013: What Happened Over the Great Recession?

Author: Edward N. Wolff
Publisher: The National Bureau of Economic Research
Date: 12/2014

Asset prices plunged between 2007 and 2010 but then rebounded from 2010 to 2013. The most telling finding is that median wealth plummeted by 44 percent over years 2007 to 2010, almost double the drop in housing prices. The inequality of net worth, after almost two decades of little movement, was also up sharply. Relative indebtedness expanded, particularly for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. The sharp fall in median net worth and the rise in overall wealth inequality over these years are traceable primarily to the high leverage of middle class families and the high share of homes in their portfolio. The racial and ethnic disparity in wealth also widened considerably. Households under age 45 saw their relative and absolute wealth declined sharply. Rather remarkably, there was virtually no change in median wealth from 2010 to 2013 despite the rebound in asset prices. The proximate cause was the high dissavings of the middle class, though their debt continued to fall. Wealth inequality and the racial and ethnic wealth gap also remained largely unchanged, though there was some recovery of net worth for young households.