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
Increasing Inequality in Parent Incomes and Children’s Schooling Greg J. Duncan, Ariel Kalil, Kathleen M. Ziol-Guest

Increasing Inequality in Parent Incomes and Children’s Schooling

Author: Greg J. Duncan, Ariel Kalil, Kathleen M. Ziol-Guest
Publisher: Demography
Date: 08/2017

Income inequality and the achievement test score gap between high- and low-income children increased dramatically in the United States beginning in the 1970s. This article investigates the demographic (family income, mother’s education, family size, two-parent family structure, and age of mother at birth) underpinnings of the growing income-based gap in schooling using data from the Panel Study of Income Dynamics. Across 31 cohorts, we find that increases in the income gap between high- and low-income children account for approximately three-quarters of the increasing gap in completed schooling, one-half of the gap in college attendance, and one-fifth of the gap in college graduation. We find no consistent evidence of increases in the estimated associations between parental income and children’s completed schooling. Increasing gaps in the two-parent family structures of high- and low-income families accounted for relatively little of the schooling gap because our estimates of the (regression-adjusted) associations between family structure and schooling were surprisingly small for much of our accounting period. On the other hand, increasing gaps in mother’s age at the time of birth accounts for a substantial portion of the increasing schooling gap: mother’s age is consistently predictive of children’s completed schooling, and the maternal age gap for children born into low- and high-income families increased considerably over the period.

State of the Union 2017: Wealth Thomas Shapiro

State of the Union 2017: Wealth

Author: Thomas Shapiro
Publisher: Stanford Center on Poverty and Inequality
Date: 06/2017

Why should we care about wealth? It serves an insurance function by protecting against economic shocks, health and personal crises, and mishaps. It brings access to quality health care, educational opportunities, better-resourced communities, and other services. It shapes family economic mobility. It provides retirement security and a springboard for future generations’ investments in human capital and resources. And finally, social and political influence, as well as personal identity, are attached to wealth. It thus matters whether opportunities to amass wealth are equally available. The simple result that will be discussed here: Access to building wealth is vastly unequal.

State of the Union 2017: Earnings Colin Peterson, C. Matthew Snipp, Sin Yi Cheung

State of the Union 2017: Earnings

Author: Colin Peterson, C. Matthew Snipp, Sin Yi Cheung
Publisher: Stanford Center on Poverty and Inequality
Date: 06/2017

Between 1970 and 2010, the earnings gap between whites and other groups has narrowed, but most of that decline was secured in the immediate aftermath of the Civil Rights Movement. Except in the case of Asians, more recent trends are less favorable, with the post-1980 earnings gap either growing larger (e.g., Hispanics) or remaining roughly stable in size (e.g., black men).

The Fading American Dream: Trends in Absolute Income Mobility Since 1940 Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca, Jimmy Narang

The Fading American Dream: Trends in Absolute Income Mobility Since 1940

Author: Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca, Jimmy Narang
Publisher:
Date: 12/2016

We estimate rates of “absolute income mobility” – the fraction of children who earn more than their parents – by combining historical data from Census and CPS cross-sections with panel data for recent birth cohorts from de-identified tax records. Our approach overcomes the key data limitation that has hampered research on trends in intergenerational mobility: the lack of large panel datasets linking parents and children. We find that rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s. The result that absolute mobility has fallen sharply over the past half century is robust to the choice of price deflator, the definition of income, and accounting for taxes and transfers. In counterfactual simulations, we find that increasing GDP growth rates alone cannot restore absolute mobility to the rates experienced by children born in the 1940s. In contrast, changing the distribution of growth across income groups to the more equal distribution experienced by the 1940 birth cohort would reverse more than 70% of the decline in mobility. These results imply that reviving the “American Dream” of high rates of absolute mobility would require economic growth that is spread more broadly across the income distribution.

Inequality and Mobility Using Income, Consumption, and Wealth for the Same Individuals Jonathan Fisher, David Johnson, Jonathan P. Latner, Timothy Smeeding, Jeffrey Thompson

Inequality and Mobility Using Income, Consumption, and Wealth for the Same Individuals

Author: Jonathan Fisher, David Johnson, Jonathan P. Latner, Timothy Smeeding, Jeffrey Thompson
Publisher: RSF
Date: 11/2016

Recent studies of economic inequality almost always separately examine income inequality, consumption inequality, and wealth inequality, and hence, these studies miss the important synergy between the three measures explicit in the life-cycle budget constraint. Using the Panel Study of Income Dynamics (PSID), we study inequality in three dimensions, focusing on the conjoint distributions of income, consumption, and wealth for the same individuals. We find that the trends in inequality in income, consumption, and wealth similarly increase between 1999 and 2013. We examine the pairwise distributions of our measures using the average propensity to consume and the wealth-income ratios. Using the longitudinal nature of the PSID, we follow people over this period and find mobility is similar using income, consumption, and wealth. We conclude that while all three types of inequality are rising, wealth increasingly acts as a buffer to cushion income changes, which could reduce mobility—both intra- and inter-generational mobility.

income and wealth - CPI Affiliates

Emmanuel Saez's picture Emmanuel Saez Income and Wealth Research Group Leader; Professor of Economics; Director, Center for Equitable Growth
University of California, Berkeley
Nicholas Bloom's picture Nicholas Bloom Income and Wealth Research Group Leader, William D. Eberle Professor of Economics
Stanford University
Raj Chetty's picture Raj Chetty Mobility Research Group Leader, Income and Wealth Research Group Leader, Director of Opportunity Lab
Stanford University
Charles Varner's picture Charles Varner Associate Director, Center on Poverty and Inequality; Pathways Senior Editor
Stanford University
Edward Nathan Wolff's picture Edward Nathan Wolff Professor of Economics, Research Associate, NBER
New York University

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Income And Wealth - Other Research

Title Author Media
Income and Poverty in the United States: 2016 Jessica L. Semega, Kayla R. Fontenot, Melissa A. Kollar

Income and Poverty in the United States: 2016

Author: Jessica L. Semega, Kayla R. Fontenot, Melissa A. Kollar
Publisher: U.S. Census Bureau
Date: 09/2017

Summary of findings:

Real median household income increased 3.2 percent between 2015 and 2016.2 This is the second consecutive annual increase in median household income.

The number of full-time, year-round workers increased by 2.2 million in 2016.

The 2016 female-to-male earnings ratio was 0.805, a 1.1 percent increase from the 2015 ratio. This is the first time the female-to-male earnings ratio has experienced an annual increase since 2007.

The official poverty rate decreased by 0.8 percentage points between 2015 and 2016. At 12.7 percent, the 2016 poverty rate is not statistically different from 2007 (12.5 percent), the year before the most recent recession.

The number of people in poverty fell by 2.5 m

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: NBER
Date: 08/2017

Official income inequality statistics indicate a sharp rise in inequality over the past five decades. These statistics do not accurately reflect inequality because income is poorly measured, particularly in the tails of the distribution, and current income differs from permanent income, failing to capture the consumption paid for through borrowing and dissaving and the consumption of durables such as houses and cars. We examine income inequality between 1963 and 2014 using the Current Population Survey and consumption inequality between 1960 and 2014 using the Consumer Expenditure Survey. We construct improved measures of consumption, focusing on its well-measured components that are reported at a high and stable rate relative to national accounts. While overall income inequality (as measured by the 90/10 ratio) rose over the past five decades, the rise in overall consumption inequality was small. The patterns for the two measures differ by decade, and they moved in opposite directions after 2006. Income inequality rose in both the top and bottom halves of the distribution, but increases in consumption inequality are only evident in the top half. The differences are also concentrated in single parent families and single individuals. Although changing demographics can account for some of the changes in consumption inequality, they account for little of the changes in income inequality. Consumption smoothing cannot explain the differences between income and consumption at the very bottom, but the declining quality of income data can. Asset price changes likely account for some of the differences between the measures in recent years for the top half of the distribution.

 

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

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

Author: Edward N. Wolff
Publisher: RSF
Date: 11/2016

I look at wealth trends from 1962 to 2013, particularly for the middle class. 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 between 2007 and 2010, almost double the drop in housing prices. Wealth inequality, after almost two decades of little movement, was up sharply from 2007 to 2010. This sharp fall in median net worth and rise in overall wealth inequality are traceable primarily to the high leverage of middle-class families, the high share of homes in their portfolio, and the plunge in house prices. Rather remarkably, median (and mean) wealth did not essentially change from 2010 to 2013 despite the rebound in asset prices. The proximate cause was the high dissavings of the middle class. Wealth inequality also remained largely unchanged.

Inequality in Children’s Contexts: Income Segregation of Households with and without Children Ann Owens

Inequality in Children’s Contexts: Income Segregation of Households with and without Children

Author: Ann Owens
Publisher: American Sociological Review
Date: 06/2016

Past research shows that income segregation between neighborhoods increased over the past several decades. In this article, I reexamine income segregation from 1990 to 2010 in the 100 largest metropolitan areas, and I find that income segregation increased only among families with children. Among childless households—two-thirds of the population—income segregation changed little and is half as large as among households with children. I examine two factors that may account for these differences by household composition. First, I find that increasing income inequality, identified by past research as a driver of income segregation, was a much more powerful predictor of income segregation among families with children, among whom income inequality has risen more. Second, I find that local school options, delineated by school district boundaries, contribute to higher segregation among households with children compared to households without. Rising income inequality provided high-income households more resources, and parents used these resources to purchase housing in particular neighborhoods, with residential decisions structured, in part, by school district boundaries. Overall, results indicate that children face greater and increasing stratification in neighborhood contexts than do all residents, and this has implications for growing inequalities in their future outcomes.

Asset Limits, SNAP Participation, and Financial Stability Caroline Ratcliffe, Signe-Mary McKernan, Laura Wheaton, Emma Cancian Kalish, Catherine Ruggles, Sara Armstrong, Christina Oberlin

Asset Limits, SNAP Participation, and Financial Stability

Author: Caroline Ratcliffe, Signe-Mary McKernan, Laura Wheaton, Emma Cancian Kalish, Catherine Ruggles, Sara Armstrong, Christina Oberlin
Publisher: The Urban Institute
Date: 06/2016

Asset limits in means-tested programs are designed to target benefits to the neediest people, but they can discourage low-income households from saving and can increase program costs when participants leave and reenter the program (i.e., churn) for administrative reasons. Using Survey of Income and Program Participation data from 1997 to 2013, we find that relaxing Supplemental Nutrition Assistance Program (SNAP) asset limits through broad-based categorical eligibility increases the likelihood that low-income people live in a household with a bank account (by 5 percent) and at least $500 in that bank account (by 8 percent). We also find that relaxed asset limits reduce SNAP churn by 26 percent.