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
Systematic Assessment of the Correlations of Household Income With Infectious, Biochemical, Physiological, and Environmental Factors in the United States, 1999–2006 Chirag J. Patel, John P. A. Ioannidis, Mark R. Cullen, David H. Rehkopf

Systematic Assessment of the Correlations of Household Income With Infectious, Biochemical, Physiological, and Environmental Factors in the United States, 1999–2006

Author: Chirag J. Patel, John P. A. Ioannidis, Mark R. Cullen, David H. Rehkopf
Publisher: American Journal of Epidemiology
Date: 01/2015

A fuller understanding of the social epidemiology of disease requires an extended description of the relationships between social factors and health indicators in a systematic manner. In the present study, we investigated the correlations between income and 330 indicators of physiological, biochemical, and environmental health in participants in the US National Health and Nutrition Examination Survey (NHANES) (1999–2006). We combined data from 3 survey waves (n = 249–23,649 for various indicators) to search for linear and nonlinear (quadratic) correlates of income, and we validated significant (P < 0.00015) correlations in an independent testing data set (n = 255–7,855). We validated 66 out of 330 factors, including infectious (e.g., hepatitis A), biochemical (e.g., carotenoids, high-density lipoprotein cholesterol), physiological (e.g., upper leg length), and environmental (e.g., lead, cotinine) measures. We found only a modest amount of association modification by age, race/ethnicity, and gender, and there was no association modification for blacks. The present study is descriptive, not causal. We have shown in our systematic investigation the crucial place income has in relation to health risk factors. Future research can use these correlations to better inform theory and studies of pathways to disease, as well as utilize these findings to understand when confounding by income is most likely to introduce bias.

The short-term impacts of Earned Income Tax Credit disbursement on health David H. Rehkopf, Kate W Strully, William H. Dow

The short-term impacts of Earned Income Tax Credit disbursement on health

Author: David H. Rehkopf, Kate W Strully, William H. Dow
Publisher: International Journal of Epidemiology
Date: 08/2014

Background: There are conflicting findings regarding long- and short-term effects of income on health. Whereas higher average income is associated with better health, there is evidence that health behaviours worsen in the short-term following income receipt. Prior studies revealing such negative short-term effects of income receipt focus on specific subpopulations and examine a limited set of health outcomes.

Methods: The United States Earned Income Tax Credit (EITC) is an income supplement tied to work, and is the largest poverty reduction programme in the USA. We utilize the fact that EITC recipients typically receive large cash transfers in the months of February, March and April, in order to examine associated changes in health outcomes that can fluctuate on a monthly basis. We examine associations with 30 outcomes in the categories of diet, food security, health behaviours, cardiovascular biomarkers, metabolic biomarkers and infection and immunity among 6925 individuals from the U.S. National Health and Nutrition Survey. Our research design approximates a natural experiment, since whether individuals were sampled during treatment or non-treatment months is independent of social, demographic and health characteristics that do not vary with time.

Results: There are both beneficial and detrimental short-term impacts of income receipt. Although there are detrimental impacts on metabolic factors among women, most other impacts are beneficial, including those for food security, smoking and trying to lose weight.

Conclusions: The short-term impacts of EITC income receipt are not universally health promoting, but on balance there are more health benefits than detriments.

Inequality and Market Failure Kim A. Weeden, David B. Grusky

Inequality and Market Failure

Author: Kim A. Weeden, David B. Grusky
Publisher: Sage Publications
Date: 03/2014

We argue that market failure is a major and growing source of income inequality in the United States and in liberal market economies (LMEs) more generally. This market failure takes the form of occupational, educational, managerial, and capital rents that are generated by institutional barriers that restrict the free flow of capital or labor. We suggest that these four forms of rent can partly account for (a) the extreme income inequality at the very top of the LME income distribution as well as (b) the extreme income inequality that is also observed beneath the highest percentiles of the income distribution. The sharp increase in these forms of rent, when coupled with rent destruction at the bottom of the labor market, may well explain much of the takeoff in LME inequality in the past four decades. We conclude by outlining the empirical research agenda and policy prescription implied by a rent-based account.

Theoretical Models of Inequality Transmission Across Multiple Generations Gary Solon

Theoretical Models of Inequality Transmission Across Multiple Generations

Author: Gary Solon
Publisher: Elsevier Ltd.
Date: 03/2014
Why Status Matters for Inequality Cecilia L. Ridgeway

Why Status Matters for Inequality

Author: Cecilia L. Ridgeway
Publisher:
Date: 02/2014

To understand the mechanisms behind social inequality, this address argues that we need to more thoroughly incorporate the effects of status—inequality based on differences in esteem and respect—alongside those based on resources and power. As a micro motive for behavior, status is as significant as money and power. At a macro level, status stabilizes resource and power inequality by transforming it into cultural status beliefs about group differences regarding who is “better” (esteemed and competent). But cultural status beliefs about which groups are “better” constitute group differences as independent dimensions of inequality that generate material advantages due to group membership itself. Acting through micro-level social relations in workplaces, schools, and elsewhere, status beliefs bias evaluations of competence and suitability for authority, bias associational preferences, and evoke resistance to status challenges from low-status group members. These effects accumulate to direct members of higher status groups toward positions of resources and power while holding back lower status group members. Through these processes, status writes group differences such as gender, race, and class-based life style into organizational structures of resources and power, creating durable inequality. Status is thus a central mechanism behind durable patterns of inequality based on social differences.

Income And Wealth - CPI Affiliates

Gary Sandefur Professor of Sociology University of Wisconsin-Madison
George Farkas Professor of Sociology and Demography The Pennsylvania State University
Glenn Firebaugh Distinguished Professor of Sociology and Demography The Pennsylvania State University
Gosta Esping-An... Full Professor Universitat Pompeu Fabra
Hannah Brueckner Associate Professor of Sociology; Associate Director, Center for Research on Inequalities and the Life Course Yale University

Pages

Income And Wealth - Other Research

Title Author Media
Identifying the Disadvantaged: Official Poverty, Consumption Poverty, and the New Supplemental Poverty Measure Bruce D. Meyer, James X. Sullivan

Identifying the Disadvantaged: Official Poverty, Consumption Poverty, and the New Supplemental Poverty Measure

Author: Bruce D. Meyer, James X. Sullivan
Publisher: Journal of Economic Perspectives
Date: 06/2012

We discuss poverty measurement, focusing on two alternatives to the current official measure: consumption poverty, and the Census Bureau's new Supplemental Poverty Measure (SPM) that was released for the first time last year. The SPM has advantages over the official poverty measure, including a more defensible adjustment for family size and composition, an expanded definition of the family unit that includes cohabitors, and a definition of income that is conceptually closer to resources available for consumption. The SPM's definition of income, though conceptually broader than pre-tax money income, is difficult to implement given available data and their accuracy. Furthermore, income data do not capture consumption out of savings and tangible assets such as houses and cars. A consumption-based measure has similar advantages but fewer disadvantages. We compare those added to and dropped from the poverty rolls by the alternative measures relative to the current official measure. We find that the SPM adds to poverty individuals who are more likely to be college graduates, own a home and a car, live in a larger housing unit, have air conditioning, health insurance, and substantial assets, and have other more favorable characteristics than those who are dropped from poverty. Meanwhile, we find that a consumption measure compared to the official measure or the SPM adds to the poverty rolls individuals who are more disadvantaged than those who are dropped. We decompose the differences between the SPM and official poverty and find that the most problematic aspect of the SPM is the subtraction of medical out-of-pocket expenses from SPM income. Also, because the SPM poverty thresholds change in an odd way over time, it will be hard to determine if changes in poverty are due to changes in income or changes in thresholds. Our results present strong evidence that a consumption-based poverty measure is preferable to both the official income-based poverty measure and to the Supplemental Poverty Measure for determining who are the most disadvantaged.

The Material Well-Being of the Poor and the Middle Class Since 1980 Bruce D. Meyer, James X. Sullivan

The Material Well-Being of the Poor and the Middle Class Since 1980

Author: Bruce D. Meyer, James X. Sullivan
Publisher: American Enterprise Institute
Date: 10/2011

In this paper, we provide a more accurate assessment of how the material circumstances of the middle class and the poor have changed over the past three decades. We consider several different measures of material well-being. We examine how improved measures of income, which better reflect the resources families have to consume, have changed between 1980 and 2009 for the middle class and the poor, accounting for the overstatement of inflation in standard price indices. Similarly, we analyze patterns of family consumption, which our research suggests is a better indicator of economic well-being than family income. For both middle-class and poor families, we also examine independent indicators of well-being such as housing and car characteristics.

Further Results on Measuring the Well-being of the Poor Using Income and Consumption Bruce D. Meyer, James X. Sullivan

Further Results on Measuring the Well-being of the Poor Using Income and Consumption

Author: Bruce D. Meyer, James X. Sullivan
Publisher: Canadian Journal of Economics
Date: 02/2011

We evaluate the relative merits of income- and consumption-based measures of well-being. Our results provide evidence that consumption better captures well-being for those with few resources. The bottom deciles of expenditures exceed those of income, suggesting under-reporting of income. The under-reporting rate for government transfers is high and rising. Overall non-response is more severe in U.S. income data than in expenditure data. Furthermore, a consumption data set requires fewer observations than an income data set to obtain the same level of precision for typical estimates. Finally, very low consumption is more strongly related to other bad outcomes than very low income.

 

Consumption and Income Poverty over the Business Cycle Bruce D. Meyer, James X. Sullivan

Consumption and Income Poverty over the Business Cycle

Author: Bruce D. Meyer, James X. Sullivan
Publisher: Research in Labor Economics
Date: 01/2011

We examine the relationship between the business cycle and poverty for the period from 1960 to 2008 using income data from the Current Population Survey and consumption data from the Consumer Expenditure Survey. This new evidence on the relationship between macroeconomic conditions and poverty is of particular interest given recent changes in anti-poverty policies that have placed greater emphasis on participation in the labor market and in-kind transfers. We look beyond official poverty, examining alternative income poverty and consumption poverty, which have conceptual and empirical advantages as measures of the well-being of the poor. We find that both income and consumption poverty are sensitive to macroeconomic conditions. A one percentage point increase in unemployment is associated with an increase in the after-tax income poverty rate of 0.9 to 1.1 percentage points in the long-run, and an increase in the consumption poverty rate of 0.3 to 1.2 percentage points in the long-run. The evidence on whether income is more responsive to the business cycle than consumption is mixed. Income poverty does appear to be more responsive using national level variation, but consumption poverty is often more responsive to unemployment when using regional variation. Low percentiles of both income and consumption are sensitive to macroeconomic conditions, and in most cases low percentiles of income appear to be more responsive than low percentiles of consumption.

Earnings Inequality and Mobility in the United States: Evidence from Social Security Data since 1937 Wojciech, Kopczuk, Emmanuel Saez and Jae Song

Earnings Inequality and Mobility in the United States: Evidence from Social Security Data since 1937

Author: Wojciech, Kopczuk, Emmanuel Saez and Jae Song
Publisher:
Date: 12/2010

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