Jonesing
Inequality, Leverage, and Crises
Michael Kumhof, Romain Ranciere & Pablo Winant
American Economic Review, March 2015, Pages 1217-1245
Abstract:
The paper studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920-1929 and 1983–2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income ratio and crisis risk for the three decades preceding the Great Recession.
---------------------
Perceptions of U.S. Social Mobility Are Divided (and Distorted) Along Ideological Lines
John Chambers, Lawton Swan & Martin Heesacker
Psychological Science, forthcoming
Abstract:
The ability to move upward in social class or economic position (i.e., social mobility) is a defining feature of the American Dream, yet recent public-opinion polls indicate that many Americans are losing confidence in the essential fairness of the system and their opportunities for financial advancement. In two studies, we examined Americans’ perceptions of both current levels of mobility in the United States and temporal trends in mobility, and we compared these perceptions with objective indicators to determine perceptual accuracy. Overall, participants underestimated current mobility and erroneously concluded that mobility has declined over the past four decades. These misperceptions were more pronounced among politically liberal participants than among politically moderate or conservative ones. These perception differences were accounted for by liberals’ relative dissatisfaction with the current social system, social hierarchies, and economic inequality. These findings have important implications for theories of political ideology.
---------------------
Americans overestimate social class mobility
Michael Kraus & Jacinth Tan
Journal of Experimental Social Psychology, May 2015, Pages 101–111
Abstract:
In this research we examine estimates of American social class mobility — the ability to move up or down in education and income status. Across studies, overestimates of class mobility were large and particularly likely among younger participants and those higher in subjective social class — both measured (Studies 1–3) and manipulated (Study 4). Class mobility overestimates were independent of general estimation errors (Study 3) and persisted after accounting for knowledge of class mobility assessed in terms of educational attainment and self-ratings. Experiments revealed that mobility overestimates were shaped by exposure to information about the genetic determinants of social class — a faux science article suggesting genetic constraints to economic advancement increased accuracy in class mobility estimates (Study 2) — and motivated by needs to protect the self — heightening the self-relevance of class mobility increased overestimates (Study 3). Discussion focused on both the costs and benefits of overestimates of class mobility for individuals and society.
---------------------
Living in the Garden of Eden: Mineral Resources and Preferences for Redistribution
Mathieu Couttenier & Marc Sangnier
Journal of Comparative Economics, forthcoming
Abstract:
This paper provides empirical evidence that mineral resources abundance is associated to preferences for redistribution in the United States. We show that individuals living in states with large mineral resources endowment are more opposed to redistribution than others. We take advantage of both the spatial and the temporal distributions of mineral resources discoveries since 1800 to uncover two mechanisms through which mineral resources can foster ones’ opposition to redistribution: either by transmission of values formed in the past, or by the exposure to mineral discoveries during individuals’ life-time. We show that both mechanisms matter to explain respondents’ preferences.
---------------------
Jacinth Tan & Michael Kraus
Personality and Social Psychology Bulletin, March 2015, Pages 446-461
Abstract:
The economic conditions of one’s life can profoundly and systematically influence health outcomes over the life course. Our present research demonstrates that rejecting the notion that social class categories are biologically determined — a nonessentialist belief — buffers lower-class individuals from poor self-rated health and negative affect, whereas conceiving of social class categories as rooted in biology — an essentialist belief — does not. In Study 1, lower-class individuals self-reported poorer health than upper-class individuals when they endorsed essentialist beliefs but showed no such difference when they rejected such beliefs. Exposure to essentialist theories of social class also led lower-class individuals to report greater feelings of negative self-conscious emotions (Studies 2 and 3), and perceive poorer health (Study 3) than upper-class individuals, whereas exposure to nonessentialist theories did not lead to such differences. Discussion considers how lay theories of social class potentially shape long-term trajectories of health and affect of lower-class individuals.
---------------------
The undervalued self: Social class and self-evaluation
Michael Kraus & Jun Park
Frontiers in Psychology, December 2014
Abstract:
Social class ranks people on the social ladder of society, and in this research we examine how perceptions of economic standing shape the way that individuals evaluate the self. Given that reminders of one’s own subordinate status in society are an indicator of how society values the self in comparison to others, we predicted that chronic lower perceptions of economic standing vis-à-vis others would explain associations between objective social class and negative self-evaluation, whereas situation-specific reminders of low economic standing would elicit negative self-evaluations, particularly in those from lower-class backgrounds. In Study 1, perceptions of social class rank accounted for the positive relationship between objective material resource measures of social class and self-esteem. In Study 2, lower-class individuals who received a low (versus equal) share of economic resources in an economic game scenario reported more negative self-conscious emotions — a correlate of negative self-evaluation — relative to upper-class individuals. Discussion focused on the implications of this research for understanding class-based cultural models of the self, and for how social class shapes self-evaluations chronically.
---------------------
Unionization and the partisan effect on income inequality
Eric Graig Castater
Business and Politics, forthcoming
Abstract:
Does partisanship matter for income inequality? The empirical evidence is notably mixed. I argue that these inconsistent findings are partly the result of scholars not (properly) modeling the relationship between unionization and the partisan composition of government. If we accept that union members favor greater government intervention to reduce economic inequalities than non-union members, politicians desire to hold elected office and be popular but also to implement particular public policies, and left party politicians share union members’ policy preferences to a greater extent than center and right party politicians, then partisan differences should be greatest at moderate levels of unionization, a condition that allows all politicians to pursue their policy preferences while maintaining electoral viability. The empirical analysis examines 16 wealthy democracies between 1970 and 2010. The results of error-correction models confirm the theoretical expectation and hold regardless of whether there is a majoritarian or proportional representation electoral system.
---------------------
Wade Cole
American Sociological Review, forthcoming
Abstract:
Much research finds that human rights treaties fail to improve domestic practices unless governments are held accountable in some fashion. The implication is that noncompliance can be attributed to insincere commitments and willful disobedience. I challenge this claim for a core but overlooked treaty: the International Covenant on Economic, Social, and Cultural Rights (ICESCR). Few analysts have studied the ICESCR because its terms are difficult to implement and suitable measures for judging compliance are hard to find. I analyze its association with income inequality, using data for more than 100 countries (1981 to 2005) and methods that account for the possibility of reverse causality. ICESCR membership reduces inequality in both developed and developing countries, although the relationship is stronger for developed countries — precisely those with the greatest capacity to implement their obligations. Other key determinants of income inequality and treaty compliance — left partisanship, union density, workers’ rights, and democracy — do not systematically condition the effects of ICESCR membership. The ICESCR is therefore quite effective in reducing inequality, an outcome likely explained by renewed global attention to socioeconomic rights during the neoliberal era.
---------------------
Long-Term Intergenerational Persistence of Human Capital: An Empirical Analysis of Four Generations
Mikael Lindahl et al.
Journal of Human Resources, Winter 2015, Pages 1-33
Abstract:
Most previous studies of intergenerational transmission of human capital are restricted to two generations: how parents influence their children. In this study, we use a Swedish data set that links individual measures of lifetime earnings for three generations and data on educational attainment for four generations. We find that estimates obtained from data on two generations severely underestimate long-run intergenerational persistence in both labor earnings and educational attainments. Long-run social mobility is hence much lower than previously thought. We attribute this additional persistence to “dynastic human capital” — the influence on human capital of more distant family members than parents.
---------------------
Tali Kristal & Yinon Cohen
Columbia University Working Paper, January 2015
Abstract:
Most inequality scholars view skill-biased technological change – the computerization of workplaces that favors high-skilled workers – as the main cause of rising wage inequality in America, while institutional factors are generally relegated to a secondary role. The evidence presented in this paper, however, does not support this widely held view. Using direct measures for computers and pay-setting institutions at the industry level, this paper provides the first rigorous analysis of the independent effect of technological and institutional factors on rising wage inequality. Analyzing data on 43 U.S. industries between 1968 and 2012, we find that declining unions and the fall in the real value of the minimum wage explain about half of rising inequality, while computerization explains one fifth. This suggests that much of rising inequality in the U.S. is driven by worker disempowerment rather than by market forces – a finding that can resolve the puzzle on the diverging inequality trends in U.S. and Europe.
---------------------
National patterns of income and wealth inequality
Nora Skopek, Sandra Buchholz & Hans-Peter Blossfeld
International Journal of Comparative Sociology, December 2014, Pages 463-488
Abstract:
The aim of this article is to show that wealth must be treated as a distinct dimension of social stratification alongside income. In a first step, we explain why social stratification researchers have largely overlooked wealth in the past and present a detailed definition of wealth by differentiating it from income. In the empirical part of the article, we analyze the distribution of wealth across 18 countries, and we describe and compare national patterns of wealth inequality to those of income inequality making use of different data sources. Our results show – first – that there is strong variation in the distribution of wealth between these 18 countries, and – second – that levels of wealth inequality significantly differ from levels of income inequality in about half of the countries analyzed. Surprisingly high levels of wealth inequality we find in Sweden and Denmark, two countries widely considered being highly egalitarian societies. Conversely, the Southern European countries – where income inequality is relatively high – exhibit comparatively low levels of wealth inequality.
---------------------
Reference Points and Redistributive Preferences: Experimental Evidence
Jimmy Charité, Raymond Fisman & Ilyana Kuziemko
NBER Working Paper, March 2015
Abstract:
If individuals evaluate outcomes relative to the status quo, then a social planner may limit redistribution from rich to poor even in the absence of moral hazard. We present two experiments suggesting that individuals, placed in the position of a social planner, do in fact respect the reference points of others. First, subjects are given the opportunity to redistribute unequal, unearned initial endowments between two anonymous recipients. They redistribute significantly less when the recipients know the initial endowments (and thus may have formed corresponding reference points) than when the recipients do not know (when we observe near-complete redistribution). Subjects who are themselves risk-seeking over losses drive the effect, suggesting they project their own loss-aversion onto the recipients. In a separate experiment, respondents are asked to choose a tax rate for someone who (due to luck) became rich either five or one year(s) ago. Subjects faced with the five-year scenario choose a lower tax rate, indicating respect for the more deeply embedded (five-year) reference point. Our results thus suggest that respect for reference points of the wealthy may help explain why voters demand less redistribution than standard models predict.
---------------------
Daniel Henderson, Junhui Qian & Le Wang
Economics Letters, March 2015, Pages 17–20
Abstract:
We examine the (potentially nonlinear) relationship between inequality and growth using a method which does not require an a priori assumption on the underlying functional form. This approach reveals a plateau completely missed by commonly used (nonlinear) parametric approaches – the economy first expands rapidly with a large decline in inequality, plateaus when inequality remains relatively stable, and then decreases rapidly with a large increase in inequality. This novel finding helps reconcile the conflicting results in the literature (using different parametric assumptions and datasets) and has important policy implications.
---------------------
Bryan Dettrey & Harvey Palmer
Journal of Elections, Public Opinion and Parties, forthcoming
Abstract:
This article examines the differences in the distributional effects of economic growth. While all incumbents are incentivized to create economic growth in order to win reelection, they use a diverse variety of policies to achieve this growth. These policy choices are often congruent with the demands of the core constituent groups of the respective parties. This suggests that economic growth is not equally shared by all, but that some groups are more or less benefited from the sets of policies chosen by the incumbent parties to stimulate growth. We test this proposition by investigating the effects of economic growth on stock market performance and unemployment. Our results show that economic growth under Republican presidents has a stronger effect on stimulating stock market performance, while economic growth under Democratic presidents has a stronger effect on reducing unemployment. Overall, these results highlight the partisan differences in macroeconomic policy and illustrate one of the causal mechanisms behind the substantial and rising economic inequality in the USA.
---------------------
How Has Educational Expansion Shaped Social Mobility Trends in the United States?
Fabian Pfeffer & Florian Hertel
Social Forces, forthcoming
Abstract:
This contribution provides a long-term assessment of intergenerational social mobility trends in the United States across the 20th and early 21st centuries and assesses the determinants of those trends. In particular, we study how educational expansion has contributed to the observed changes in mobility opportunities for men across cohorts. Drawing on recently developed decomposition methods, we empirically identify the contribution of each of the multiple channels through which changing rates of educational participation shape mobility trends. We find that a modest but gradual increase in social class mobility can nearly exclusively be ascribed to an interaction known as the compositional effect, according to which the direct influence of social class backgrounds on social class destinations is lower among the growing number of individuals attaining higher levels of education. This dominant role of the compositional effect is also due to the fact that, despite pronounced changes in the distribution of education, class inequality in education has remained stable while class returns to education have shown no consistent trend. Our analyses also provide a cautionary tale about mistaking increasing levels of social class mobility for a general trend toward more fluidity in the United States. The impact of parental education on son's educational and class attainment has grown or remained stable, respectively. Here, the compositional effect pertaining to the direct association between parental education and son's class attainment counteracts a long-term trend of increasing inequality in educational attainment tied to parents' education.
---------------------
Paradoxes of Social Policy: Welfare Transfers, Relative Poverty, and Redistribution Preferences
David Brady & Amie Bostic
American Sociological Review, forthcoming
Abstract:
Korpi and Palme’s (1998) classic “The Paradox of Redistribution and Strategies of Equality” claims that universal social policy better reduces poverty than social policies targeted at the poor. This article revisits Korpi and Palme’s classic, and in the process, explores and informs a set of enduring questions about social policy, politics, and social equality. Specifically, we investigate the relationships between three dimensions of welfare transfers — transfer share (the average share of household income from welfare transfers), low-income targeting, and universalism — and poverty and preferences for redistribution. We analyze rich democracies like Korpi and Palme, but we also generalize to a broader sample of developed and developing countries. Consistent with Korpi and Palme, we show (1) poverty is negatively associated with transfer share and universalism; (2) redistribution preferences are negatively associated with low-income targeting; and (3) universalism is positively associated with transfer share. Contrary to Korpi and Palme, redistribution preferences are not related to transfer share or universalism; and low-income targeting is neither positively associated with poverty nor negatively associated with transfer share. Therefore, instead of the “paradox of redistribution” we propose two new paradoxes of social policy: non-complementarity and undermining. The non-complementarity paradox entails a mismatch between the dimensions that matter to poverty and the dimension that matters to redistribution preferences. The undermining paradox emphasizes that the dimension (transfer share) that most reduces poverty tends to increase with the one dimension (low-income targeting) that reduces support for redistribution.
---------------------
Is an Increasing Capital Share under Capitalism Inevitable?
Yew-Kwang Ng
European Journal of Political Economy, June 2015, Pages 82–86
Abstract:
Piketty’s influential book Capital in the Twenty-First Century and its prominent review by Milanovic in the Journal of Economic Literature both assert the inevitability of an increasing share of capital in total income, given a higher rate of return to capital than the rate of growth in income. This paper shows by a specific example, a logical argument and its intuition that the alleged inevitability is not valid. Even just for capital to grow faster than income, we need an additional requirement that saving of non-capital income is larger than consumption of capital income. Even if this is satisfied, the capital share may not increase as the rate of return may fall and non-capital incomes may increase with capital accumulation.
---------------------
David Morris
Youth & Society, March 2015, Pages 267-290
Abstract:
Participation in Organized Activities (OA) is associated with positive behavioral and developmental outcomes in children. However, less is known about how particular aspects of participation affect the academic achievement of high school students from different social class positions. Using the Education Longitudinal Study of 2002, this study examines the math achievement gains from organized activity participation for advantaged and disadvantaged youths. Findings indicate that the relationship between OA and achievement does indeed vary by social class. Regardless of the type of OA, less advantaged high school students see substantial academic improvements from time in OA while their more advantaged peers do not. These findings suggest that participation in organized activities is a form of resource compensation that helps to reduce the achievement gap between advantaged and disadvantaged youths, even at the end of the K-12 schooling process.
---------------------
The Financial Premium in the US Labor Market: A Distributional Analysis
Ken-Hou Lin
Social Forces, forthcoming
Abstract:
Using both cross-sectional and panel data, this article revisits the evolution of the financial premium between 1970 and 2011 with a distributional approach. I report that above-market compensation was present in the finance sector in the 1970s, but concentrated mostly at the bottom of the earnings distribution. The financial premium observed since the 1980s, however, is largely driven by excessive compensation at the top, a development that increasingly contributes to the national concentration of earnings. Furthermore, the analysis suggests that the financial premium for top earners remained robust in the early 2000s, when deregulation slowed down, and in the aftermath of the recent financial meltdown. These findings are inconsistent with the account that the earnings differential is driven by unobserved skill difference and demand shocks but supportive of the institutional account of rising inequality.
---------------------
Capital Taxation Under Political Constraints
Florian Scheuer & Alexander Wolitzky
Stanford Working Paper, February 2015
Abstract:
This paper studies optimal dynamic tax policy under the threat of political reform. A policy will be reformed ex post if a large enough political coalition supports reform; thus, sustainable policies are those that will continue to attract enough political support in the future. We find that optimal marginal capital taxes are either progressive or U-shaped, so that savings are subsidized for the poor and/or the middle class but are taxed for the rich. U-shaped capital taxes always emerge when the salient reform threat consists of radically redistributing capital and individuals' political behavior is purely determined by economic motives.