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
Severe Deprivation in America: An Introduction Matthew Desmond

Severe Deprivation in America: An Introduction

Author: Matthew Desmond
Publisher: The Russell Sage Foundation Journal of the Social Sciences
Date: 11/2015

Poverty researchers from across the social sciences have the opportunity to reach collectively toward a new paradigm—not just a new way of thinking but a whole different approach to the study of vulnerability, violence, and marginality, one that carries methodological, policy-relevant, and normative implications. Most research is rooted in theories now a few decades old. These theories have stood the test of time because they are incisive, sweeping, and validated. But they also were developed before the United States began incarcerating more of its citizens than any other nation; before urban rents soared and poor families began dedicating the majority of their income to housing; before welfare reform caused caseloads to plummet; and before the crack epidemic tore apart poor minority communities. In recent years, the very nature of poverty in America has changed, especially at the very bottom. A new poverty agenda is needed for a world that is itself quite new.

Housing Tax and Transfer Programs Decrease Inequality Gregory Acs, Paul Johnson

Housing Tax and Transfer Programs Decrease Inequality

Author: Gregory Acs, Paul Johnson
Publisher: The Urban Institute
Date: 08/2015

We examine the relationships between housing subsidies, the mortgage interest and real estate tax deductions, and income inequality and find that housing subsidies to low-income families reduce income inequality while the mortgage interest and real estate tax deductions increase it. On net, the distribution of post-tax, post-transfer income is slightly more equal than it would be in the absence of these three programs.

Neighborhood Income Composition by Race and Income, 1990-2009 Sean F. Reardon, Joseph Townsend, Lindsay Fox

Neighborhood Income Composition by Race and Income, 1990-2009

Author: Sean F. Reardon, Joseph Townsend, Lindsay Fox
Publisher:
Date: 07/2015

Residential segregation, by definition, leads to racial and socioeconomic disparities in neighborhood conditions. These disparities may in turn produce inequality in social and economic opportunities and outcomes. Because racial and socioeconomic segregation are not independent of one another, however, any analysis of their causes, patterns, and effects must rest on an understanding of the joint distribution of race/ethnicity and income among neighborhoods. In this paper, we use a new technique to describe the average racial composition and income distributions in the neighborhoods of households of different income levels and race/ethnicity. Using data from the decennial censuses and the American Community Survey, we investigate how patterns of neighborhood context in the United States over the past two decades vary by household race/ethnicity, income, and metropolitan area. We find large and persistent racial differences in neighborhood context, even among households of the same annual income.

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.

income and wealth - CPI Affiliates

Solomon Polachek's picture Solomon Polachek University Distinguished Professor; IZA Research Fellow
Binghamton University
Daniel S. Hamermesh's picture Daniel S. Hamermesh Professor of Economics, Royal Holloway University of London; Sue Killam Professor Emeritus in the Foundation of Economics at the University of Texas at Austin; Research Associate, National Bureau of Economic Research
Royal Halloway University of London
Mary C. Brinton Reischauer Institute Professor of Sociology
Harvard University
Glenn Firebaugh's picture Glenn Firebaugh Roy C. Buck Professor of American Institutions, Sociology,and Demography
The Pennsylvania State University
Steven J. Davis's picture Steven J. Davis William H. Abbott Professor of International Business and Economics; Research Associate, National Bureau of Economic Research
The University of Chicago

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Income And Wealth - Other Research

Title Author Media
Class Rules: Exposing Inequality in American High Schools Peter W. Cookson, Jr.

Class Rules: Exposing Inequality in American High Schools

Author: Peter W. Cookson, Jr.
Publisher: Teachers College Press: Multicultural Education Series
Date: 08/2013

Class Rules challenges the popular myth that high schools are the “Great Equalizers.” In his groundbreaking study, Cookson demonstrates that adolescents undergo different class rites of passage depending on the social-class composition of the high school they attend. Drawing on stories of schools and individual students, the author shows that where a student goes to high school is a major influence on his or her social class trajectory. Class Rules is a penetrating, original examination of the role education plays in blocking upward mobility for many children. It offers a compelling vision of an equitable system of schools based on the full democratic rights of students.

Consumption and Income Inequality and the Great Recession Bruce D. Meyer , James X. Sullivan

Consumption and Income Inequality and the Great Recession

Author: Bruce D. Meyer , James X. Sullivan
Publisher: American Economic Review
Date: 05/2013

We examine changes in consumption and income inequality between 2000 and 2011. During the most recent recession, unemployment rose and asset values declined sharply. We investigate how the recession affected inequality while addressing concerns about underreporting in consumption data. Income inequality rose throughout the period from 2000 to 2011. The 90/10 ratio was 19 percent higher at the end of this period than at the beginning. In contrast, consumption inequality rose during the first half of this period but then fell after 2005. By 2011, the 90/10 ratio for consumption was slightly lower than it was in 2000.

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.

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