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
Inequality of Opportunity for Income in Denmark and the United States: A Comparison Based on Administrative Data Pablo Mitnik, Anne-Line Helsø, Victoria L. Bryant

Inequality of Opportunity for Income in Denmark and the United States: A Comparison Based on Administrative Data

Author: Pablo Mitnik, Anne-Line Helsø, Victoria L. Bryant
Publisher: National Bureau of Economic Research
Date: 09/2020

We carry out a comparative analysis of inequality of opportunity (IOp) for long-run income in Denmark and the United States. We adopt a luck-egalitarian understanding of IOp, use high-quality administrative data, and rely on highly improved methods. These include novel identification assumptions that allow us to produce set estimates of IOp in the United States relative to Denmark rather than just lower-bound estimates of IOp in the two countries. There are five main results. First, with types based only on gender and parental income rank as the circumstances beyond people’s control, measured IOp for income is high in the United States and far from negligible in Denmark: before taxes and transfers, the lower-bound Gini coefficients for individual earnings and family income opportunities are in the 0.21-024 range in the United States and in the 0.08–0.12 range in Denmark. Second, the tax system and the welfare state reduce measured IOp in both countries, but they do so by more than twice as much in Denmark. Third, our analyses in terms of disposable family income per adult—which factor in taxes and transfers and purge the effect of the association between parental income and the probability of marriage—entail that there is more IOp for income in the United States than overall income inequality in Denmark. Fourth, IOp for income is substantially higher in the United States than in Denmark. With opportunities defined in terms of disposable family income per adult, IOp is at the very least 68 percent higher in the United States, and this result is very robust to the inequality index employed in the analysis. Fifth, our lower-bound estimates of the unfair inequality as a share of overall inequality are much larger in both countries than typically reported for advanced economies. When we account for race and ethnicity as circumstances beyond people’s control (in addition to gender and parental income), our lower-bound estimate of that share for the U.S. reaches almost 58 percent. We conclude that the distribution of economic opportunities—and not just of economic outcomes—is substantially less unequal in Denmark than in the U.S., and that a very large share of U.S. income inequality may be tracked back to circumstances beyond people’s control.

COVID-Induced Economic Uncertainty Scott R. Baker, Nicholas Bloom, Steven J. Davis, Stephen J. Terry

COVID-Induced Economic Uncertainty

Author: Scott R. Baker, Nicholas Bloom, Steven J. Davis, Stephen J. Terry
Publisher: National Bureau of Economic Research
Date: 04/2020

Assessing the economic impact of the COVID-19 pandemic is essential for policymakers, but challenging because the crisis has unfolded with extreme speed. We identify three indicators – stock market volatility, newspaper-based economic uncertainty, and subjective uncertainty in business expectation surveys – that provide real-time forward-looking uncertainty measures. We use these indicators to document and quantify the enormous increase in economic uncertainty in the past several weeks. We also illustrate how these forward-looking measures can be used to assess the macroeconomic impact of the COVID-19 crisis. Specifically, we feed COVID-induced first-moment and uncertainty shocks into an estimated model of disaster effects developed by Baker, Bloom and Terry (2020). Our illustrative exercise implies a year-on-year contraction in U.S. real GDP of nearly 11 percent as of 2020 Q4, with a 90 percent confidence interval extending to a nearly 20 percent contraction. The exercise says that about half of the forecasted output contraction reflects a negative effect of COVID-induced uncertainty.

Income Segregation and Intergenerational Mobility Across Colleges in the United States Raj Chetty, John N Friedman, Emmanuel Saez, Nicholas Turner, Danny Yagan

Income Segregation and Intergenerational Mobility Across Colleges in the United States

Author: Raj Chetty, John N Friedman, Emmanuel Saez, Nicholas Turner, Danny Yagan
Publisher: Quarterly Journal of Economics
Date: 02/2020

We construct publicly available statistics on parents’ incomes and students’ earnings outcomes for each college in the United States using deidentified data from tax records. These statistics reveal that the degree of parental income segregation across colleges is very high, similar to that across neighborhoods. Differences in postcollege earnings between children from low- and high-income families are much smaller among students who attend the same college than across colleges. Colleges with the best earnings outcomes predominantly enroll students from high-income families, although a few mid-tier public colleges have both low parent income levels and high student earnings. Linking these income data to SAT and ACT scores, we simulate how changes in the allocation of students to colleges affect segregation and intergenerational mobility. Equalizing application, admission, and matriculation rates across parental income groups conditional on test scores would reduce segregation substantially, primarily by increasing the representation of middle-class students at more selective colleges. However, it would have little effect on the fraction of low-income students at elite private colleges because there are relatively few students from low-income families with sufficiently high SAT/ACT scores. Differences in parental income distributions across colleges could be eliminated by giving low- and middle-income students a sliding-scale preference in the application and admissions process similar to that implicitly given to legacy students at elite private colleges. Assuming that 80% of observational differences in students’ earnings conditional on test scores, race, and parental income are due to colleges’ causal effects—a strong assumption, but one consistent with prior work—such changes could reduce intergenerational income persistence among college students by about 25%. We conclude that changing how students are allocated to colleges could substantially reduce segregation and increase intergenerational mobility, even without changing colleges’ educational programs.

Overwork, Specialization, and Wealth Brian Aronson, Lisa A. Keister

Overwork, Specialization, and Wealth

Author: Brian Aronson, Lisa A. Keister
Publisher: Journal of Marriage and Family
Date: 07/2019

Objective: This study examines how overwork and traditional household specialization—defined as households with one dedicated female homemaker and one dedicated male breadwinner—are associated with wealth across socioeconomic strata.

Background: Although overwork and household specialization are clearly associated with income, less is known about how these behaviors affect household wealth. Household wealth is only moderately correlated with household income and is influenced by many factors that do not affect income, suggesting that overwork and specialization have different associations with wealth than with income. Moreover, because wealth is so unevenly distributed, overwork and specialization likely have different associations with wealth across socioeconomic strata.

Method: With data from the Survey of Consumer Finances, a nationally representative survey of households that includes an oversample of high‐wealth households, the authors estimate unconditional quantile regression models to investigate how overwork and household specialization are associated with household wealth across socioeconomic strata and over time.

Results: Overwork has the greatest absolute benefits at the top of the wealth distribution but the greatest relative benefits in lower portions of the wealth distribution. Specialization yields distinct advantages for high‐wealth households that have grown over time, whereas specialization comes with trade‐offs for low‐wealth households that outweigh its benefits.

Conclusion: The financial trade‐offs associated with overwork and specialization vary considerably across the wealth distribution. Contrary to findings in income‐based research, overwork premiums appear most crucial to the financial well‐being of underprivileged households, whereas specialization premiums are evident only for the economic elite.

 

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.

income and wealth - CPI Affiliates

Raj Chetty's picture Raj Chetty Mobility Research Group Leader, Income and Wealth Research Group Leader, Director of Opportunity Lab
Harvard University
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
Robert M. Hauser Vilas Research Professor of Sociology, Director, Center for Demography of Health and Aging
University of Wisconsin-Madison
Timothy M. Smeeding's picture Timothy M. Smeeding Lee Rainwater Distinguished Professor of Economics and Public Adminstration, Former Director, Institute for Research on Poverty
University of Wisconsin-Madison

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Income And Wealth - Other Research

Title Author Media
Income Segregation: Up or Down, and for Whom? John R. Logan, Andrew Foster, Hongwei Xu, Wenquan Zhang

Income Segregation: Up or Down, and for Whom?

Author: John R. Logan, Andrew Foster, Hongwei Xu, Wenquan Zhang
Publisher: Demography
Date: 09/2020

Reports of rising income segregation in the United States have been brought into question by the observation that post-2000 estimates are upwardly biased because of a reduction in the sample sizes on which they are based. Recent studies have offered estimates of this sample-count bias using public data. We show here that there are two substantial sources of systematic bias in estimating segregation levels: bias associated with sample size and bias associated with using weighted sample data. We rely on new correction methods using the original census sample data for individual households to provide more accurate estimates. Family income segregation rose markedly in the 1980s but only selectively after 1990. For some categories of families, segregation declined after 1990. There has been an upward trend for families with children but not specifically for families with children in the upper or lower 10% of the income distribution. Separate analyses by race/ethnicity show that income segregation was not generally higher among Blacks and Hispanics than among White families, and evidence of income segregation trends for these separate groups is mixed. Income segregation increased for all three racial groups for families with children, particularly for Hispanics (but not Whites or Blacks) in the upper 10% of the income distribution. Trends vary for specific combinations of race/ethnicity, presence of children, and location in the income distribution, offering new challenges for understanding the underlying processes of change.

The Decline of Intergenerational Income Mobility in Denmark: Returns to Education, Demographic Change, and Labor Market Experience David J Harding, Martin D Munk

The Decline of Intergenerational Income Mobility in Denmark: Returns to Education, Demographic Change, and Labor Market Experience

Author: David J Harding, Martin D Munk
Publisher: Social Forces
Date: 06/2020

Although there is some evidence of declining intergenerational mobility in wealthy countries, the sources of these changes are not well understood. This paper examines the changes in intergenerational mobility in Denmark, which has one of the highest levels of intergenerational mobility in the world. We show that mobility has been declining for both men and women since the late 1950s across the most recent cohorts who are now old enough to measure permanent adult income, and that these changes were concentrated among children born into the middle three-fifths of the income distribution. We examine the sources of this decline by testing hypotheses related to demographic processes, returns to education, and work experience. Our results highlight the importance of both parent and child work experience and family structure in the family of origin among both men and women as well as, to a lesser degree, marital status, assortative mating, and childbearing among women. Although education was an important driver of parent-child income rank associations (IRA) in each cohort, it played little role in accounting for increases in those associations across cohorts.

Distributing Personal Income: Trends Over Time Dennis Fixler, Marina Gindelsky, David Johnson

Distributing Personal Income: Trends Over Time

Author: Dennis Fixler, Marina Gindelsky, David Johnson
Publisher: National Bureau of Economic Research
Date: 04/2020

This paper constructs a distribution of Personal Income for the United States (2007-2016) to investigate the relationship between inequality and macroeconomic growth. We extend a perspective first presented in Fixler and Johnson (2014) and further developed in Fixler et al. (2017) and Fixler, Gindelsky, and Johnson (2018, 2019) to develop a national account-based measure using a decade of publicly available survey, tax, and administrative data. By using (equivalized) households as the base unit of analysis and focusing on a more inclusive definition of income than most inequality studies (i.e., including health, transfers, and financial assets), we improve on existing economic measures of inequality in a meaningful way and bridge the gap between micro data and macro statistics. We produce a wide set of inequality results over the period, drawing a comparison with other studies (including Auten and Splinter (2019) and Piketty, Saez, and Zucman (2018)).

Income and Wealth Volatility: Evidence from Italy and the U.S. in the Past Two Decades Conchita D'Ambrosio, Giorgia Menta, Edward N. Wolff

Income and Wealth Volatility: Evidence from Italy and the U.S. in the Past Two Decades

Author: Conchita D'Ambrosio, Giorgia Menta, Edward N. Wolff
Publisher: National Bureau of Economic Research
Date: 12/2019

Income volatility and wealth volatility are central objects of investigation for the literature on income and wealth inequality and dynamics. Here we analyse the two concepts in a comparative perspective for the same individuals in Italy and the U.S. over the last two decades. Contrary to our expectations, we find that in both countries wealth volatility reaches significantly higher values than income volatility, the effect being mostly driven by changes in the market value of real estate assets. We also show that there is more volatility in both dimensions in the United States and that the overall trend in both countries is increasing over time. We conclude by exploring volatility in consumption.

Educational Variations in Cohort Trends in the Black-White Earnings Gap Among Men: Evidence From Administrative Earnings Data Siwei Cheng, Christopher R. Tamborini, ChangHwan Kim, Arthur Sakamoto

Educational Variations in Cohort Trends in the Black-White Earnings Gap Among Men: Evidence From Administrative Earnings Data

Author: Siwei Cheng, Christopher R. Tamborini, ChangHwan Kim, Arthur Sakamoto
Publisher: Demography
Date: 12/2019

Despite efforts to improve the labor market situation of African Americans, the racial earnings gap has endured in the United States. Most prior studies on racial inequality have considered its cross-sectional or period patterns. This study adopts a demographic perspective to examine the evolution of earnings trajectories among white and black men across cohorts in the United States. Using more than 40 years of longitudinal earnings records from the U.S. Social Security Administration matched to the Survey of Income and Program Participation, our analyses reveal that the cohort trends in the racial earnings gap follow quite different patterns by education. Race continues to be a salient dimension of economic inequality over the life course and across cohorts, particularly at the top and the bottom of the educational distribution. Although the narrowing of the racial gap among high school graduates is in itself a positive development, it unfortunately derives primarily from the deteriorating economic position for whites without a college degree rather than an improvement in economic standing of their black counterparts.