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 2019: Income and Earnings Christine Percheski

State of the Union 2019: Income and Earnings

Author: Christine Percheski
Publisher: Stanford Center on Poverty and Inequality
Date: 06/2019
  • For men, the conventional “gloomy millennial stories” have some merit, as the median income of millennials is lower than that of Gen X, and the median earnings of millennials are not any higher than those of Gen X.
  • For women, the American Dream lives on in the sense that there’s a steady generational improvement in median earnings and income, an improvement that is carrying on into the millennial generation.
State of the Union 2019: Student Debt Susan Dynarski

State of the Union 2019: Student Debt

Author: Susan Dynarski
Publisher: Stanford Center on Poverty and Inequality
Date: 06/2019
  • Relative to Generation X, millennials took out more student loans, took out larger student loans, and defaulted more frequently. 
  • Defaults increased because millennials faced higher tuition payments, took out larger loans to meet those higher costs, turned to for-profit schools that don’t offer any returns, and entered a labor market in the throes of recession.
The Intergenerational Transmission of Family-Income Advantages in the United States Mitnik, Pablo A., Bryant, Victoria, Weber, Michael

The Intergenerational Transmission of Family-Income Advantages in the United States

Author: Mitnik, Pablo A., Bryant, Victoria, Weber, Michael
Publisher: Sociological Science
Date: 05/2019

Estimates of economic persistence and mobility in the United States, as measured by the intergenerational elasticity (IGE), cover a very wide range. Nevertheless, careful analyses of the evidence suggested until recently that as much as half, and possibly more, of economic advantages are passed on from parents to children. This “dominant hypothesis” was seriously challenged by the first-ever study of family-income mobility based on tax data (Chetty et al. 2014), which provided estimates of family-income IGEs indicating that only one-third of economic advantages are transmitted across generations and claimed that previous highly influential IGE estimates were upward biased. Using a different tax-based data set, this article provides estimates of family-income IGEs that strongly support the dominant hypothesis. The article also carries out a one-to-one comparison between IGEs estimated with the two tax-based data sets and shows that Chetty et al.’s estimates were driven downward by a combination of attenuation, life-cycle, selection, and functional-form biases. Lastly, the article determines the exact relationship between parental income inequality, economic persistence, and inequality of opportunity for income. This leads to the conclusion that, in the United States, at least half of income inequality among parents is transformed into inequality of opportunity among their children.

Universal Basic Income in the US and Advanced Countries Hoynes, Hilary W., Rothstein, Jesse

Universal Basic Income in the US and Advanced Countries

Author: Hoynes, Hilary W., Rothstein, Jesse
Publisher: National Bureau of Economic Research
Date: 02/2019

We discuss the potential role of Universal Basic Incomes (UBIs) in advanced countries. A feature of advanced economies that distinguishes them from developing countries is the existence of well developed, if often incomplete, safety nets. We develop a framework for describing transfer programs, flexible enough to encompass most existing programs as well as UBIs, and use this framework to compare various UBIs to the existing constellation of programs in the United States. A UBI would direct much larger shares of transfers to childless, non-elderly, non-disabled households than existing programs, and much more to middle-income rather than poor households. A UBI large enough to increase transfers to low-income families would be enormously expensive. We review the labor supply literature for evidence on the likely impacts of a UBI. We argue that the ongoing UBI pilot studies will do little to resolve the major outstanding questions.

Do Tax Cuts Produce More Einsteins? The Impacts of Financial Incentives vs. Exposure to Innovation on the Supply of Inventors Bell, Alexander M., Chetty, Raj, Jaravel, Xavier, Petkova, Neviana, Van Reenen, John

Do Tax Cuts Produce More Einsteins? The Impacts of Financial Incentives vs. Exposure to Innovation on the Supply of Inventors

Author: Bell, Alexander M., Chetty, Raj, Jaravel, Xavier, Petkova, Neviana, Van Reenen, John
Publisher: National Bureau of Economic Research
Date: 01/2019

Many countries provide financial incentives to spur innovation, ranging from tax incentives to research and development grants. In this paper, we study how such financial incentives affect individuals' decisions to pursue careers in innovation. We first present empirical evidence on inventors' career trajectories and income distributions using de-identified data on 1.2 million inventors from patent records linked to tax records in the U.S. We find that the private returns to innovation are extremely skewed – with the top 1% of inventors collecting more than 22% of total inventors' income – and are highly correlated with their social impact, as measured by citations. Inventors tend to have their most impactful innovations around age 40 and their incomes rise rapidly just before they have high-impact patents. We then build a stylized model of inventor career choice that matches these facts as well as recent evidence that childhood exposure to innovation plays a critical role in determining whether individuals become inventors. The model predicts that financial incentives, such as top income tax reductions, have limited potential to increase aggregate innovation because they only affect individuals who are exposed to innovation and have no impact on the decisions of star inventors, who matter most for aggregate innovation. Importantly, these results hold regardless of whether the private returns to innovation are known at the time of career choice. In contrast, increasing exposure to innovation (e.g., through mentorship programs) could have substantial impacts on innovation by drawing individuals who produce high-impact inventions into the innovation pipeline. Although we do not present direct evidence supporting these model-based predictions, our results call for a more careful assessment of the impacts of financial incentives and a greater focus on alternative policies to increase the supply of inventors.

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
Harvard University
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

Pages

Income And Wealth - Other Research

Title Author Media
Does Condominium Development Lead to Gentrification? Leah Platt Boustan, Robert A. Margo, Matthew M. Miller, James M. Reeves, Justin P. Steil

Does Condominium Development Lead to Gentrification?

Author: Leah Platt Boustan, Robert A. Margo, Matthew M. Miller, James M. Reeves, Justin P. Steil
Publisher: National Bureau of Economic Research
Date: 08/2019

The condominium structure, which facilitates ownership of units in multi-family buildings, was only introduced to the US during the 1960s. We ask whether the subsequent development of condominiums encouraged high-income households to move to central cities. Although we document a strong positive correlation between condominium density and resident income, this association is entirely driven by endogenous development of condos in areas otherwise attractive to high-income households. When we instrument for condo density using the passage of municipal regulations limiting condo conversions, we find little association between condo development and resident income, education or race.

The Uptick in Income Segregation: Real Trend or Random Sampling Variation? John R. Logan, Andrew Foster, Jun Ke, Fan Li

The Uptick in Income Segregation: Real Trend or Random Sampling Variation?

Author: John R. Logan, Andrew Foster, Jun Ke, Fan Li
Publisher: American Journal of Sociology
Date: 07/2018

Recent trends in income segregation in metropolitan regions show that, after a decline in the 1990s, there was an increase in 2000–2010 that reinforced concerns about the overall growth in U.S. income inequality since the 1970s. Yet the evidence may be systematically biased to exacerbate the upward trend because the effective sample for the American Community Survey (ACS) is much smaller than it was for the 2000 census to which it is being compared. Apparent changes in disparities across census tracts may result partly from a higher level of sampling variation and bias due to the smaller sample. This study uses 100% microdata from the 1940 census to simulate the impact of different sampling rates and applies those approaches to publicly available data for 2000 and 2007–11. The reduction in sample sizes associated with the ACS appears to exaggerate the evidence for increasing income segregation for all measures tested here.

Children and the Elderly: Wealth Inequality Among America’s Dependents Christina M. Gibson-Davis, Christine Percheski

Children and the Elderly: Wealth Inequality Among America’s Dependents

Author: Christina M. Gibson-Davis, Christine Percheski
Publisher: Demography
Date: 06/2018

Life cycle theory predicts that elderly households have higher levels of wealth than households with children, but these wealth gaps are likely dynamic, responding to changes in labor market conditions, patterns of debt accumulation, and the overall economic context. Using Survey of Consumer Finances data from 1989 through 2013, we compare wealth levels between and within the two groups that make up America’s dependents: the elderly and child households (households with a resident child aged 18 or younger). Over the observed period, the absolute wealth gap between elderly and child households in the United States increased substantially, and diverging trends in wealth accumulation exacerbated preexisting between-group disparities. Widening gaps were particularly pronounced among the least-wealthy elderly and child households. Differential demographic change in marital status and racial composition by subgroup do not explain the widening gap. We also find increasing wealth inequality within child households and the rise of a “parental 1 %.” During a time of overall economic growth, the elderly have been able to maintain or increase their wealth, whereas many of the least-wealthy child households saw precipitous declines. Our findings suggest that many child households may lack sufficient assets to promote the successful flourishing of the next generation.

Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered? Edward N. Wolff

Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered?

Author: Edward N. Wolff
Publisher: NBER
Date: 11/2017

Asset prices plunged between 2007 and 2010 but then rebounded from 2010 to 2016. The most telling finding is that median wealth plummeted by 44 percent over years 2007 to 2010. The inequality of net worth, after almost two decades of little movement, went up sharply from 2007 to 2010, and relative indebtedness for the middle class expanded. The sharp fall in median net worth and the rise in overall wealth inequality over these years are largely traceable to the high leverage of middle class families and the high share of homes in their portfolio. Mean and median wealth rebounded from 2010 to 2016, by 17 and 28 percent, respectively. While mean wealth surpassed its previous peak in 2007, median wealth was still down by 34 percent. More than 100 percent of the recovery in both was due to a high return on wealth but this factor was offset by negative savings. Relative indebtedness continued to fall for the middle class from 2010 to 2016, and wealth inequality increased somewhat. The racial and ethnic disparity in wealth holdings widened considerably between 2007 and 2016, and the wealth of households under age 45 declined in relative terms.

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