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
Associations of family and neighborhood socioeconomic characteristics with longitudinal adiposity patterns in a biracial cohort of adolescent girls C.M. Crespi, M.C. Wang, E. Seto, R. Mare, G. Gee

Associations of family and neighborhood socioeconomic characteristics with longitudinal adiposity patterns in a biracial cohort of adolescent girls

Author: C.M. Crespi, M.C. Wang, E. Seto, R. Mare, G. Gee
Publisher: Biodemography and Social Biology
Date: 04/2015

Although many studies have examined the relationship of adiposity with neighborhood socioeconomic context in adults, few studies have investigated this relationship during adolescence. Using 10-year annual measurements of body mass index, expressed as z-scores (BMIz), obtained from 775 black and white participants of the National Heart, Lung, and Blood Institute Growth and Health Study, a prospective cohort study of girls from pre- to postadolescence, we used multilevel modeling to investigate whether family socioeconomic status (SES) and neighborhood socioeconomic characteristics (measured by census-tract median family income) explain variation in BMIz trajectory parameters. Analyses controlled for pubertal maturation. We found that lower SES was associated with higher overall levels of BMIz for both white and black girls. Additionally, lower-SES black girls had a more sustained increase in BMIz during early adolescence and reached a higher peak compared to higher-SES black girls and to white girls. Neighborhood income was associated with BMIz trajectory for black girls only. Unexpectedly, among black girls, living in higher-income neighborhoods was associated with higher overall levels of BMIz, controlling for SES. Our findings suggest that neighborhood socioeconomic characteristics may affect adolescent BMIz trajectories differently in different racial/ethnic groups.

What Are We Weighting For? Gary Solon, Steven J. Haider, Jeffrey Wooldridge

What Are We Weighting For?

Author: Gary Solon, Steven J. Haider, Jeffrey Wooldridge
Publisher: Journal of Human Resources
Date: 03/2015

The purpose of this paper is to help empirical economists think through when and how to weight the data used in estimation. We start by distinguishing two purposes of estimation: to estimate population descriptive statistics and to estimate causal effects. In the former type of research, weighting is called for when it is needed to make the analysis sample representative of the target population. In the latter type, the weighting issue is more nuanced. We discuss three distinct potential motives for weighting when estimating causal effects: (1) to achieve precise estimates by correcting for heteroskedasticity, (2) to achieve consistent estimates by correcting for endogenous sampling, and (3) to identify average partial effects in the presence of unmodeled heterogeneity of effects. In each case, we find that the motive sometimes does not apply in situations where practitioners often assume it does. We recommend diagnostics for assessing the advisability of weighting, and we suggest methods for appropriate inference.

Can We Finish the Revolution? Gender, Work-Family Ideals, and Institutional Constraint David S. Pedulla, Sarah Thébaud

Can We Finish the Revolution? Gender, Work-Family Ideals, and Institutional Constraint

Author: David S. Pedulla, Sarah Thébaud
Publisher: American Sociological Review
Date: 02/2015

Why has progress toward gender equality in the workplace and at home stalled in recent decades? A growing body of scholarship suggests that persistently gendered workplace norms and policies limit men’s and women’s ability to create gender egalitarian relationships at home. In this article, we build on and extend prior research by examining the extent to which institutional constraints, including workplace policies, affect young, unmarried men’s and women’s preferences for their future work-family arrangements. We also examine how these effects vary across education levels. Drawing on original survey-experimental data, we ask respondents how they would like to structure their future relationships while experimentally manipulating the degree of institutional constraint under which they state their preferences. Two clear patterns emerge. First, as constraints are removed and men and women can opt for an egalitarian relationship, the majority choose this option, regardless of gender or education level. Second, women’s relationship structure preferences are more responsive than men’s to the removal of institutional constraints through supportive work-family policy interventions. These findings shed light on important questions about the role of institutions in shaping work-family preferences, underscoring the notion that seemingly gender-traditional work-family decisions are largely contingent on the constraints of current workplaces.

Teacher Quality Policy When Supply Matters Jesse Rothstein

Teacher Quality Policy When Supply Matters

Author: Jesse Rothstein
Publisher: American Economic Review
Date: 01/2015

Teacher contracts that condition pay and retention on demonstrated performance can improve selection into and out of teaching. I study alternative contracts in a simulated teacher labor market that incorporates dynamic self-selection and Bayesian learning. Bonus policies create only modest incentives and thus have small effects on selection. Reductions in tenure rates can have larger effects, but must be accompanied by substantial salary increases; elimination of tenure confers little additional benefit unless firing rates are extremely high. Benefits of both bonus and tenure policies exceed costs, though optimal policies are sensitive to labor market parameters about which little is known.

Feeling at Home in College: Fortifying School-Relevant Selves to Reduce Social Class Disparities in Higher Education Nicole M. Stephens, Tiffany N. Brannon, Hazel Rose Markus, Jessica E. Nelson

Feeling at Home in College: Fortifying School-Relevant Selves to Reduce Social Class Disparities in Higher Education

Author: Nicole M. Stephens, Tiffany N. Brannon, Hazel Rose Markus, Jessica E. Nelson
Publisher: Social Issues and Policy Review
Date: 01/2015

Social class disparities in higher education between working-class students (i.e., students who are low income and/or do not have parents with four-year college degrees) and middle-class students (i.e., students who are high income and/or have at least one parent with a four year-degree) are on the rise. There is an urgent need for interventions, or changes to universities' ideas and practices, to increase working-class students' access to and performance in higher education. The current article identifies key factors that characterize successful interventions aimed at reducing social class disparities, and proposes additional interventions that have the potential to improve working-class students' chances of college success. As we propose in the article, effective interventions must first address key individual and structural factors that can create barriers to students' college success. At the same time, interventions should also fortify school-relevant selves, or increase students' sense that the pursuit of a college degree is central to “who I am.” When students experience this strong connection between their selves and what it means to attend and perform well in college, they will gain a sense that they fit in the academic environment and will be empowered to do what it takes to succeed there.

Income And Wealth - CPI Affiliates

Elijah Anderson The Charles and William Day Distinguished Professor of the Social Sciences; Professor of Sociology University of Pennsylvania
Emily Ryo Graduate Student, Sociology Stanford University
Fiona Devine Professor of Sociology The University of Manchester
Francisco O. Ramirez Professor of Education; Professor of Sociology (by courtesy) Stanford University
Gary N. Marks Principal Research Fellow Australian Council for Educational Research (ACER)

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Income And Wealth - Other Research

Title Author Media
Consumption and Income Inequality in the U.S. Since the 1960s Bruce D. Meyer, James X. Sullivan

Consumption and Income Inequality in the U.S. Since the 1960s

Author: Bruce D. Meyer, James X. Sullivan
Publisher: University of Chicago manuscript
Date: 04/2013

Official income inequality statistics indicate a sharp rise in inequality over the past four decades. These statistics, however, may not accurately reflect inequality in well-being for a number of reasons. Income is likely to be poorly measured, particularly in the tails of the distribution. Also, current income may differ from permanent income, failing to capture the enjoyment of past and future income through borrowing and saving and the consumption of durables such as houses and cars. This paper examines inequality in economic well-being in the U.S. since the 1960s using consumption and income based measures of inequality. We advance the literature on inequality by constructing improved measures of consumption over a long time period. We examine income inequality between 1963 and 2011 using data from the Current Population Survey and consumption inequality between 1960 and 2011 using data from the Consumer Expenditure Survey. We investigate inequality patterns in different parts of the distribution by reporting ratios of percentiles, focusing on the 90/10, 90/50, and 50/10 ratios. In general, accounting for taxes considerably reduces the rise in income inequality since 1963, while accounting for non-cash benefits has only a small effect on changes in income inequality. Consumption
inequality is less pronounced than income inequality, particularly for the bottom half of the distribution. Income inequality fell in the 1960s while consumption inequality rose. In the 1980s, inequality for both measures rose, but the increase was much greater for income than for consumption. After 2005 these measures moved in opposite directions as income inequality rose sharply while consumption inequality fell. Over the period from 1980 to 2011, both income and consumption inequality rose, but the rise was much more noticeable for income (45 percent) than for consumption (19 percent). Furthermore, until 2005 differences
between the two are only apparent in the bottom half of the distribution.
 

Less Than Equal: Racial Disparities in Wealth Accumulation Signe-Mary McKernan, Caroline Ratcliffe, Eugene Steuerle, Sisi Zhang

Less Than Equal: Racial Disparities in Wealth Accumulation

Author: Signe-Mary McKernan, Caroline Ratcliffe, Eugene Steuerle, Sisi Zhang
Publisher: Urban Institute
Date: 04/2013

When it comes to economic gaps between whites and communities of color in the United States, income inequality tells part of the story. But let's not forget about wealth. Wealth isn't just money in the bank, it's insurance against tough times, tuition to get a better education and a better job, savings to retire on, and a springboard into the middle class. In short, wealth translates into opportunity.

Disability, Earnings, Income and Consumption Bruce D. Meyer, Wallace K.C. Mok

Disability, Earnings, Income and Consumption

Author: Bruce D. Meyer, Wallace K.C. Mok
Publisher: The National Bureau of Economic Research Working Paper 18869
Date: 03/2013

Using longitudinal data for 1968-2009 for male household heads, we determine the prevalence of pre-retirement age disability and its association with a wide range of outcomes, including earnings, income, and consumption. We then employ some of these quantities in the optimal social insurance framework of Chetty (2006) to study current compensation for the disabled. Six of our findings stand out. First, disability rates are high. We divide the disabled along two dimensions based on the persistence and severity of their work-limiting condition. We estimate that a person reaching age 50 has a 36 percent chance of having been disabled at least temporarily once during his working years, and a 9 percent chance that he has begun a chronic and severe disability. Second, the economic consequences of disability are frequently profound. Ten years after disability onset, a person with a chronic and severe disability on average experiences a 79 percent decline in earnings, a 35 percent decline in after-tax income, a 24 percent decline in food and housing consumption and a 22 percent decline in food consumption. Third, economic circumstances differ sharply across disability groups. The outcome decline for the chronically and severely disabled is often more than twice as large as that for the average disabled head. Fourth, our findings show the partial and incomplete roles that individual savings, family support and social insurance play in reducing the consumption drop that follows disability. Fifth, time use and detailed consumption data further indicate that disability is associated with a decline in well-being. Sixth, using the quantities we have estimated, we provide the range of behavioral elasticities and preference parameters consistent with current disability compensation being optimal within the Chetty framework.

Lost Generations? Wealth Among Young Americans Eugene Steuerle, Signe-Mary McKernan, Caroline Ratcliffe, Sisi Zhang

Lost Generations? Wealth Among Young Americans

Author: Eugene Steuerle, Signe-Mary McKernan, Caroline Ratcliffe, Sisi Zhang
Publisher: Urban Institute
Date: 03/2013

Despite the Great Recession and the fragile economic recovery, the wealth of Americans has grown significantly when a longer-term view is considered. Average household wealth approximately doubled from 1983 to 2010, and average incomes rose similarly. For many, the American dream of working hard, saving more, and becoming wealthier than one's parents holds true.

How Much Protection Does a College Degree Afford? The Impact of the Recession on Recent College Graduates The Pew Charitable Trusts

How Much Protection Does a College Degree Afford? The Impact of the Recession on Recent College Graduates

Author: The Pew Charitable Trusts
Publisher: The Pew Charitable Trusts
Date: 01/2013

Past research from Pew’s Economic Mobility Project has shown the power of a college education to both promote upward mobility and prevent downward mobility. The chances of moving from the bottom of the family income ladder all the way to the top are three times greater for someone with a college degree than for someone without one. Moreover, when compared with their less-credentialed counterparts, college graduates have been able to count on much higher earnings and lower unemployment rates. Even during the Great Recession, college graduates maintained higher rates of employment and higher earnings compared with less educated adults. However, the question of how recent college graduates have fared has remained largely unexamined, and many in the popular media have suggested that the advantageous market situation of college graduates is beginning to unravel under the pressure of the economic downturn. This study examines whether a college degree protected these recent graduates from a range of poor employment outcomes during the recession, including unemployment, low-skill jobs, and lesser wages.

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