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
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.

The Impact of Disability Benefits on Labor Supply: Evidence from the VA's Disability Compensation Program David H. Autor, Mark Duggan , Kyle Greenberg , David S. Lyle

The Impact of Disability Benefits on Labor Supply: Evidence from the VA's Disability Compensation Program

Author: David H. Autor, Mark Duggan , Kyle Greenberg , David S. Lyle
Publisher: American Economic Journal: Applied Economi
Date: 06/2016

Combining administrative data from the U.S. Army, Department of Veterans Affairs, and Social Security Administration, we analyze the effect of the VA's Disability Compensation (DC) program on veterans' labor force participation and earnings. We study the 2001 Agent Orange decision, a unique policy change that expanded DC eligibility for Vietnam veterans who served in theatre but did not expand eligibility to other veterans of this era, to assess the causal effects of DC enrollment. We estimate that benefits receipt reduced veterans’ labor force participation by 18 percentage points, though measured income net of transfer income rose on average.

Beyond Income: What Else Predicts Very Low Food Security Among Children? Patricia M. Anderson, Kristin F. Butcher, Hilary W. Hoynes, Diane Whitmore Schanzenbach

Beyond Income: What Else Predicts Very Low Food Security Among Children?

Author: Patricia M. Anderson, Kristin F. Butcher, Hilary W. Hoynes, Diane Whitmore Schanzenbach
Publisher: Southern Economic Journal
Date: 06/2016

We examine characteristics and correlates of households in the United States that are most likely to have children at risk of inadequate nutrition – those that report very low food security (VLFS) among their children. Using 11 years of the Current Population Survey, plus data from the National Health and Nutrition Examination Survey and American Time Use Survey, we describe these households in great detail with the goal of trying to understand how these households differ from households without such severe food insecurity. While household income certainly plays an important role in determining VLFS among children, we find that even after flexibly controlling for income-to-poverty rates some household characteristics and patterns of program participation have important additional explanatory power. Finally, our examination of the NHANES and ATUS data suggests an important role for both mental and physical health in determining the food security status of children.

Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data Cristobal Young, Charles Varner, Ithai Z. Lurie, Richard Prisinzano

Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data

Author: Cristobal Young, Charles Varner, Ithai Z. Lurie, Richard Prisinzano
Publisher: American Sociological Review
Date: 06/2016

A growing number of U.S. states have adopted “millionaire taxes” on top income-earners. This increases the progressivity of state tax systems, but it raises concerns about tax flight: elites migrating from high-tax to low-tax states, draining state revenues, and undermining redistributive social policies. Are top income-earners “transitory millionaires” searching for lower-tax places to live? Or are they “embedded elites” who are reluctant to migrate away from places where they have been highly successful? This question is central to understanding the social consequences of progressive taxation. We draw on administrative tax returns for all million-dollar income-earners in the United States over 13 years, tracking the states from which millionaires file their taxes. Our dataset contains 45 million tax records and provides census-scale panel data on top income-earners. We advance two core analyses: (1) state-to-state migration of millionaires over the long-term, and (2) a sharply-focused discontinuity analysis of millionaire population along state borders. We find that millionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance.

income and wealth - CPI Affiliates

Jennie Brand Professor of Sociology and Statistics
UCLA
Mark G. Kelman's picture Mark G. Kelman James C. Gaither Professor of Law; Vice Dean; Jurist
Stanford University
Noah Lewin-Epstein's picture Noah Lewin-Epstein Professor of Sociology; Dean of the Faculty of Social Science
Tel Aviv University
Tali Kristal's picture Tali Kristal Senior Lecturer, Department of Sociology and Anthropology
University of Haifa
Joanne Martin's picture Joanne Martin Fred H. Merrill Professor of Organizational Behavior (emerita); Professor of Sociology (by courtesy)
Stanford University

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Income And Wealth - Other Research

Title Author Media
Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution? Jeffrey Thompson

Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution?

Author: Jeffrey Thompson
Publisher: Federal Reserve Board of Governors
Date: 05/2016

One potential consequence of rising concentration of income at the top of the distribution isincreased borrowing, as less affluent households attempt to maintain standards of living with less income. This paper explores the “keeping up with the Joneses” phenomenon using data from the Survey of Consumer Finances. Specifically, it examines the responsiveness of payment-to-income ratios for different debt types at different parts of the income distribution to changes in the income thresholds at the 95th and 99th percentiles. The analysis provides some evidence indicating that household debt payments are responsive to rising top incomes. Middle and upper middle income households take on more housing-related debt and have higher housing debt payment to income ratios in places with higher top income levels. Among households at the bottom of the income distribution there is a decline in non-mortgage borrowing and debt payments in areas with rising top-income levels, consistent with restrictions in the supply of credit. The analysis also consistently shows that 95th percentile income has a greater influence on borrowing and debt payment across in the rest of the distribution than the more affluent 99th percentile level.

Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution? Jeffrey P. Thompson

Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution?

Author: Jeffrey P. Thompson
Publisher: Finance and Economics Discussion Series 2016-046
Date: 05/2016

One potential consequence of rising concentration of income at the top of the distribution is increased borrowing, as less affluent households attempt to maintain standards of living with less income. This paper explores the “keeping up with the Joneses” phenomenon using data from the Survey of Consumer Finances. Specifically, it examines the responsiveness of payment-to-income ratios for different debt types at different parts of the income distribution to changes in the income thresholds at the 95th and 99th percentiles. The analysis provides some evidence indicating that household debt payments are responsive to rising top incomes. Middle and upper-middle income households take on more housing-related debt and have higher housing debt payment to income ratios in places with higher top income levels. Among households at the bottom of the income distribution there is a decline in non-mortgage borrowing and debt payments in areas with rising top-income levels, consistent with restrictions in the supply of credit. The analysis also consistently shows that 95th percentile income has a greater influence on borrowing and debt payment across in the rest of the distribution than the more affluent 99th percentile level.

Reducing Income Inequality in Educational Attainment: Experimental Evidence on the Impact of Financial Aid on College Completion Sara Goldrick-Rab, Robert Kelchen, Douglas N. Harris, James Benson

Reducing Income Inequality in Educational Attainment: Experimental Evidence on the Impact of Financial Aid on College Completion

Author: Sara Goldrick-Rab, Robert Kelchen, Douglas N. Harris, James Benson
Publisher: American Journal of Sociology
Date: 05/2016

Income inequality in educational attainment is a long-standing concern, and disparities in college completion have grown over time. Need-based financial aid is commonly used to promote equality in college outcomes, but its effectiveness has not been established, and some are calling it into question. A randomized experiment is used to estimate the impact of a private need-based grant program on college persistence and degree completion among students from low-income families attending 13 public universities across Wisconsin. Results indicate that offering students additional grant aid increases the odds of bachelor’s degree attainment over four years, helping to diminish income inequality in higher education.

‘Membership Has Its Privileges’: Status Incentives and Categorical Inequality in Education Thurston Domina, Andrew M. Penner, Emily K. Penner

‘Membership Has Its Privileges’: Status Incentives and Categorical Inequality in Education

Author: Thurston Domina, Andrew M. Penner, Emily K. Penner
Publisher: Sociological Science
Date: 05/2016

Prizes – formal systems that publicly allocate rewards for exemplary behavior – play an increasingly important role in a wide array of social settings, including education. In this paper, we evaluate a prize system designed to boost achievement at two high schools by assigning students color-coded ID cards based on a previously low stakes test. Average student achievement on this test increased in the ID card schools beyond what one would expect from contemporaneous changes in neighboring schools. However, regression discontinuity analyses indicate that the program created new inequalities between students who received low-status and high-status ID cards. These findings indicate that status-based incentives create categorical inequalities between prize winners and others even as they reorient behavior toward the goals they reward.

American Amnesia: How the War on Government Led Us to Forget What Made America Prosper Jacob S. Hacker, Paul Pierson

American Amnesia: How the War on Government Led Us to Forget What Made America Prosper

Author: Jacob S. Hacker, Paul Pierson
Publisher: Simon & Schuster
Date: 03/2016

From the groundbreaking author team behind the bestselling Winner-Take-All Politics, a timely and topical work that examines what’s good for American business and what’s good for Americans—and why those interests are misaligned.

In Winner-Take-All Politics, Jacob S. Hacker and Paul Pierson explained how political elites have enabled and propelled plutocracy. Now in American Amnesia, they trace the economic and political history of the United States over the last century and show how a viable mixed economy has long been the dominant engine of America’s prosperity.