Some are More Equal
Inequity Aversion and the International Distribution of Trade Protection
Xiaobo Lü, Kenneth Scheve & Matthew Slaughter
American Journal of Political Science, forthcoming
Abstract:
One important puzzle in international political economy is why lower-earning and less-skilled intensive industries tend to receive relatively high levels of trade protection. This pattern of protection holds across countries with vastly different economic and political characteristics and is not well accounted for in existing political economy models. We propose and model one possible explanation: that individual inequity aversion leads to systematic differences in support for trade protection across industries. We conduct original survey experiments in China and the United States and provide strong evidence that individual policy opinions about sector-specific trade protection depend on the earnings of workers in the sector. We also present structural estimates that advantageous and disadvantageous inequality influence support for trade protection in the two countries.
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The Evolution of Income, Consumption, and Leisure Inequality in The US, 1980-2010
Orazio Attanasio, Erik Hurst & Luigi Pistaferri
NBER Working Paper, April 2012
Abstract:
Recent research has documented that income inequality in the United States has increased dramatically over the prior three decades. There has been less of a consensus, however, on whether the increase in income inequality was matched by an equally large increase in consumption inequality. Most researchers have studied this question using data from the Consumer Expenditure Survey (CE) and some studies have suggested that the increase in consumption inequality has been modest. Unfortunately ,there is now mounting evidence that the CE is plagued by serious non-classical measurement error, which hinders the extent to which definitive conclusions can be made about the extent to which consumption inequality has evolved over the last three decades. In this paper, we use a variety of different techniques to overcome the measurement error problems with the CE. First, we use data from the diary component of the CE, focusing on categories where measurement error has been found to be less of an issue. Second, we explore inequality measures within the CE using the value of vehicles owned, a consumption component that is considered to be measured well. Third, we try to account directly for the non-classical measurement error of the CE by comparing the spending on luxuries (entertainment) relative to necessities (food). This is similar to the recent approach taken by Browning and Crossley (2009) and Aguiar and Bils (2011). Finally, we use expenditure data from the Panel Study of Income Dynamics to explore the dynamics of alternative measures of consumption inequality. All of our different methods yield similar results. We find that consumption inequality within the U.S. between 1980 and 2010 has increased by nearly the same amount as income inequality.
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Military service and economic mobility: Evidence from the American civil war
Chulhee Lee
Explorations in Economic History, forthcoming
Abstract:
How did geographic and occupational mobility after the Civil War differ between Union Army veterans and nonveterans? By 1880, Union veterans were more likely to migrate to a different state or region than nonveterans. The higher geographic mobility of veterans is likely attributable to their experience of traveling away from their hometowns while in service. Union veterans who held unskilled jobs prior to enlistment were more likely to move up to white-collar or farming jobs by 1880 than unskilled nonveterans. In contrast, unskilled veterans were less likely to become artisans than nonveterans. The differences in occupational mobility by veteran status might be explained by the effects of military experiences such as learning from comrades in the company.
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Anders Björklund, Jesper Roine & Daniel Waldenström
Journal of Public Economics, June 2012, Pages 474-484
Abstract:
This paper presents new evidence on intergenerational mobility at the top of the income and earnings distributions. Using a large dataset of matched father-son pairs in Sweden, we find that intergenerational transmission is very strong at the top, more so for income than for earnings. At the extreme top (top 0.1%) income transmission is remarkable with an intergenerational elasticity of approximately 0.9. We also study potential transmission mechanisms and find that IQ, non-cognitive skills and education of the sons are all unlikely channels in explaining the strong transmission. Within the top percentile, increases in the income of the fathers, if they are related at all, are negatively associated with these variables. Wealth, on the other hand, has a significantly positive association. Our results suggest that Sweden, known for having relatively high intergenerational mobility in general, is a society in which transmission remains strong at the very top of the distribution and wealth is the most likely channel.
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Do people die from income inequality of a decade ago?
Hui Zheng
Social Science & Medicine, July 2012, Pages 36-45
Abstract:
The long-term impact of income inequality on health has not been fully explored in the current literature. Until now, 4 studies have examined the lagged effect on population/group mortality rate at the aggregate level, and 7 studies have investigated the effect of income inequality on subsequent individual mortality risk within a restricted time period. These 11 studies suffer from the same limitation: they do not simultaneously control for a series of preceding income inequalities. The results of these studies are also mixed. Using the U.S. National Health Interview Survey data 1986-2004 with mortality follow-up data 1986-2006 (n = 701,179), this study investigates the lagged effects of national-level income inequality on individual mortality risk. These effects are tested by using a discrete-time hazard model where contemporaneous and preceding income inequalities are treated as time-varying person-specific covariates, which then track a series of income inequalities that a respondent faces from the survey year until s/he dies or is censored. Findings suggest that income inequality did not have an instantaneous detrimental effect on individual mortality risk, but began exerting its influence 5 years later. This effect peaked at 7 years, and then diminished after 12 years. This pattern generally held for three measures of income inequality: the Gini coefficient, the Atkinson index, and the Theil entropy index. The findings suggest that income inequality has a long-term detrimental impact on individual mortality risk. This study also explains discrepancies in the existant literature.
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The Nature of Countercyclical Income Risk
Fatih Guvenen, Serdar Ozkan & Jae Song
NBER Working Paper, May 2012
Abstract:
This paper studies the cyclical nature of individual income risk using a confidential dataset from the U.S. Social Security Administration, which contains (uncapped) earnings histories for millions of individuals. The base sample is a nationally representative panel containing 10 percent of all U.S. males from 1978 to 2010. We use these data to decompose individual income growth during recessions into "between-group" and "within-group" components. To study the former, we group individuals along several observable characteristics at the time a recession hits. We find two variables to be excellent predictors of fortunes during a recession. First, prime-age workers that enter a recession with high average earnings suffer substantially less compared with those who enter with low average earnings. Second, we estimate "individual betas" (analogous to "stock betas" in finance) and examine their out-of-sample predictive power. We find that the earnings of high-beta individuals (those that exhibited higher sensitivity to prior recessions and expansions) fall significantly more during subsequent recessions. Next, we turn to within-group differences. Contrary to past research, we do not find the variance of idiosyncratic income shocks to be countercyclical. Instead, it is the left-skewness of shocks that is strongly countercyclical. That is, during recessions, the upper end of the shock distribution collapses - large upward income movements become less likely - whereas the bottom end expands - large drops in income become more likely. Thus, while the dispersion of shocks does not increase, shocks become more left skewed and, hence, risky during recessions. Finally, we find that the cyclical nature of income risk is dramatically different for the top 1 percent compared with all other individuals - even relative to those in the top 2 to 5 percent.
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The Contribution of US Taxes and Social Transfers to Income Redistribution
Luis Hierro, Rosario Gómez-Alvarez & Pedro Atienza
Public Finance Review, May 2012, Pages 381-400
Abstract:
The aim of this work is to solve the problem of nonadditivity revealed by work that calculates the redistributive effects of the budget or public policies made up of different instruments of income or public spending. To do this, the authors use the Shapley value. This technique allows us to consistently, symmetrically, and directly decompose the redistributive effect and the vertical and horizontal effects. This method is consistent because the total effects can be explained by the sum of the individual contributions; it is symmetrical because it does not depend on the aggregation ranking of the instruments; and it is direct because each index can be calculated without the need to calculate the rest. The main result obtained for the case of taxes and social transfers in the United States is that previous calculations undervalued the redistributive effects and their vertical and horizontal components for taxes and transfers. Undervaluation is more important for taxes.
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Kimmo Sorjonen et al.
Intelligence, May-June 2012, Pages 269-277
Abstract:
The question whether a person's attained socioeconomic position is mainly due to hers/his intelligence, socioeconomic background, or level of education, has sparked some controversy. In the present study, the effects of these three variables, as well as emotional capacity, on attained occupational position and on income were analyzed with structural equation modeling in a prospective cohort of Swedish men (N = 48,013), born between 1949 and 1951. Intelligence and level of education were identified to have the strongest total effect on attained occupational position (β = .46 and β = .49, respectively), while the effects of socioeconomic background and emotional capacity were rather weak (β = .19 and β = .11). Except for emotional capacity, the predictors had weaker effects on income than on attained occupational position. A comparison with earlier British studies indicated that in Sweden social position of origin is a less important predictor of a person's attained level of education and socioeconomic or occupational position in midlife.
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Federalism and American Inequality
Nathan Kelly & Christopher Witko
Journal of Politics, April 2012, Pages 414-426
Abstract:
Studies of the political determinants of economic inequality have usually focused on the national government, but in federalist systems subnational governments may also be important. In recent decades, the U.S. national government has been less active in fighting inequality, but increasing devolution means that states wanting to address this problem have had a greater incentive and perhaps means by which to do so. Applying power resources theory, we argue that in states where left parties are stronger and more liberal politics are enacted, the government will reduce inequality and that this state effect becomes more pronounced as middle- and lower-class power wanes nationally. In the analysis we find that both federal and state governments influence inequality, and since the Republican takeover of Congress in 1995, the states have played a more important role in shaping the income distribution.
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Do middle classes bring institutional reforms?
Norman Loayza, Jamele Rigolini & Gonzalo Llorente
Economics Letters, September 2012, Pages 440-444
Abstract:
We reexamine the association between poverty, the middle class and institutional outcomes using a newly developed cross-country panel dataset containing detailed information on the distribution of income and expenditures. When the size of the middle class increases (measured as the proportion of people with income above 10 US Dollars a day in PPP terms), social policy on health and education becomes more active and the quality of governance regarding democratic participation and official corruption improves. This does not occur at the expense of economic freedom, as an expansion of the middle class also implies more market-oriented economic policy on trade and finance. In these respects, the impact of a larger middle class appears to be more robust than those of lower poverty, lower inequality, or higher GDP per capita.
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Trends in American Living Standards and Inequality, 1959-2007
Edward Wolff, Ajit Zacharias & Thomas Masterson
Review of Income and Wealth, June 2012, Pages 197-232
Abstract:
We analyze the trends from 1959 to 2007 using an expanded measure of income called the Levy Institute Measure of Economic Well-Being (LIMEW). LIMEW is different in scope from the official U.S. Census Bureau measure of gross money income (MI) in that our measure includes non-cash transfers, public consumption, imputed income from wealth, and household production and nets out personal taxes. While the annual growth rates of median LIMEW and MI are very close over the whole period (0.67 and 0.63 percent), median LIMEW grew much faster than median MI after 1982 and much slower before. The Gini coefficient of MI is uniformly higher than that of LIMEW but both show about the same change from 1959 to 2007. Decomposition analysis shows that changes in inequality are driven to a large extent by non-home wealth in LIMEW and earnings in MI. While the racial gap in MI declined somewhat over the 1990s and 2000s, the racial gap in LIMEW actually widened a bit. Over the same years, while there was little change in the gap in MI between the elderly and non-elderly, the LIMEW of the elderly actually overtook that of the non-elderly.
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Does wealth inequality reduce the gains from trade?
Mauro Caselli
Review of World Economics, June 2012, Pages 333-356
Abstract:
This paper refines and tests the hypothesis that the impact of opening to trade on a country's economic growth is affected by the inequality of its distribution of wealth. Analysis of panel data on 44 developing countries between 1960 and 2000 suggests that the difference in growth rates between the period an economy is open and the period it is closed depends inversely on the degree of wealth inequality prior to opening. There is evidence to suggest that access to credit and lack thereof may lie behind these results, thus highlighting a new aspect of the role of financial development.
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Income Inequality across Micro and Meso Geographic Scales in the Midwestern United States, 1979-2009
David Peters
Rural Sociology, forthcoming
Abstract:
This article examines the spatial distribution of income inequality and the socioeconomic factors affecting it using spatial analysis techniques across 16,285 block groups, 5,050 tracts, and 618 counties in the western part of the North Central Region of the United States. Different geographic aggregations result in different inequality outcomes, suggesting spatial scale needs to be carefully considered in inequality research. Inequality is spatially clustered in suburban areas of larger metro areas and around Native American reservations in the Dakotas. Higher inequality is associated with better socioeconomic conditions, counter to the social inequality literature but consistent with the inequality growth literature. However, growing inequality is associated with worse socioeconomic outcomes. Results partially support the polarization thesis that declines in industrial sectors and growth in services has caused incomes to diverge. Higher and growing inequality is associated with both low-skill and high-skill services jobs. However, employment in agricultural and industrial sectors experiencing large losses over the past three decades is also linked to higher and growing inequality. This suggests a dual process where many former agricultural and industrial workers are now employed in other sectors at lower wages, while the remaining workers in these sectors earn higher and growing wages.
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Intergenerational transfers and social class: Inter-vivos transfers as means of status reproduction?
Marco Albertini & Jonas Radl
Acta Sociologica, June 2012, Pages 107-123
Abstract:
Research on social stratification and the transmission of inequality has largely disregarded the role of inter-vivos transfers to adult children. At the same time, the role of social class has been neglected in the literature on intergenerational transfers. In an attempt to link the two research strands, the article assesses the association between occupational social class and parental transfer behaviour. Estimation results from a tobit censored regression model on the basis of data from SHARE show substantial class differences in financial transfers. Existing theories on intergenerational transfers are largely unable to account for this finding. Even after income and wealth are controlled for, service-class parents transfer more resources to their adult children than do working-class parents. We explain the observed class effects in parental transfer behaviour by rethinking inter-vivos transfers as a means of status reproduction.
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On the Value of Aiming High: The Causes and Consequences of Ambition
Timothy Judge & John Kammeyer-Mueller
Journal of Applied Psychology, forthcoming
Abstract:
Ambition is a commonly mentioned but poorly understood concept in social science research. We sought to contribute to understanding of the concept by developing and testing a model in which ambition is a middle-level trait (Cantor, 1990)-predicted by more distal characteristics but, due to its teleological nature, more proximally situated to predict career success. A 7-decade longitudinal sample of 717 high-ability individuals from the Terman life-cycle study (Terman, Sears, Cronbach, & Sears, 1989) was used in the current study. Results indicated that ambition was predicted by individual differences - conscientiousness, extraversion, neuroticism, and general mental ability - and a socioeconomic background variable: parents' occupational prestige. Ambition, in turn, was positively related to educational attainment, occupation prestige, and income. Ambition had significant total effects with all of the endogenous variables except mortality. Overall, the results support the thesis that ambition is a middle-level trait - related to but distinct from more distal individual difference variables - that has meaningful effects on career success.
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The Silver Lining of Materialism: The Impact of Luxury Consumption on Subjective Well-Being
Liselot Hudders & Mario Pandelaere
Journal of Happiness Studies, June 2012, Pages 411-437
Abstract:
Materialism is a way of life characterized by the pursuit of wealth and possessions. Several studies have documented that a materialistic lifestyle is associated with diminished subjective well-being. In spite of this, many people continue to pursue materialistic goals rather than pursue goals that are more beneficial for their well-being. The current paper investigates one mechanism that may contribute to the continued pursuit of materialism. In particular, we propose that luxury consumption may reinforce a materialistic lifestyle. To test this possibility, we investigate the relations between luxury consumption, materialism and cognitive and affective subjective well-being aspects simultaneously, in a structural model. The results of a large scale survey in Dutch-speaking Belgium demonstrate that materialistic consumers are more inclined to consume luxury goods than less materialistic consumers. In addition, luxury consumption leads to enhanced positive mood, diminished negative mood and increased satisfaction with life. Furthermore, although the impact on negative and positive mood is not moderated by materialism, the impact of luxury consumption on satisfaction with life is more pronounced for materialistic consumers than for less materialistic consumers. Together, these results indicate that materialistic consumers not only engage more in luxury consumption than less materialistic consumers, but also benefit more from it (at least in the short run). As a result, luxury consumption may be more rewarding for the former than for the latter and consequently, "lock in" materialists in their lifestyle, irrespective of the long-term adverse consequences for self and society.
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Movie stars and box office revenues: An empirical analysis
Randy Nelson & Robert Glotfelty
Journal of Cultural Economics, May 2012, Pages 141-166
Abstract:
This paper examines the relationship between star power and box office revenues using box office data from nine countries and a continuous measure of star power based on the number of visits to a star's web page on IMDB, the most popular web site for movie-related information. The degree of star power is computed for the top star, top three stars, and the director for the films in our sample. The results indicate that replacing an average star with a top star would increase revenues by an average of 16,618,570, while replacing three average stars with three top stars would increase revenues by an average of 64,410,381.
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Christopher Soto & Maike Luhmann
Social Psychological and Personality Science, forthcoming
Abstract:
The present research tested whether the Big Five personality dimensions - extraversion, agreeableness, conscientiousness, neuroticism, and openness to experience - moderate the effects of income on life satisfaction. The authors analyzed data from three large-sample, nationally representative, longitudinal studies: the British Household Panel Survey, the German Socio-Economic Panel Study, and the Household Income and Labour Dynamics in Australia Survey. Neuroticism consistently moderated the effects of both stable between-person income differences and within-person income fluctuations on life satisfaction. Specifically, income predicted satisfaction more strongly for highly neurotic individuals than for their emotionally stable peers. These findings illustrate that the effects of life circumstances on subjective well-being can vary considerably across individuals, depending on their basic personality traits.
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Support for Democracy in Cross-national Perspective: The Detrimental Effect of Economic Inequality
Robert Andersen
Research in Social Stratification and Mobility, forthcoming
Abstract:
Using survey data and national statistics on 35 modern democracies, this research explores the relationship between economic and political conditions and support for democracy. As expected from modernization theory, support for democracy tends to be highest in countries with a high level of economic development. More importantly, however, I contribute a new finding that income inequality matters much more. Specifically, citizens from countries with relatively low levels of income inequality tend to be more likely than others to support democracy. I also find that household income is positively related to support for democracy in most countries, though it tends to have its strongest effect if economic development is high and income inequality is low. Finally, even after taking into account the level of economic development in one's country, people from former Communist countries tends to have far less support for democracy than those from more established democracies.
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Income Inequality and Participation: A Comparison of 24 European Countries
Bram Lancee & Herman van de Werfhorst
Social Science Research, forthcoming
Abstract:
Previous research suggests that when there is a high level of inequality, there is a low rate of participation. Two arguments are generally offered: First, inequality depresses participation because people from different status groups have fewer opportunities to share common goals. Second, people may participate more in civic and social life when they have more resources. However, until now, these explanations have not been separated empirically. Using EU-SILC data for 24 European countries, we analyze how income inequality is related to civic and social participation. Our results indicate that the main effects of inequality manifest via resources at the individual and societal level. However, independent of these resources, higher inequality is associated with lower civic participation. Furthermore, inequality magnifies the relationship between income and participation. This finding is in line with the view that inter-individual processes explain why inequality diminishes participation.
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The effect of foreign aid on income inequality: Evidence from panel cointegration
Dierk Herzer & Peter Nunnenkamp
Structural Change and Economic Dynamics, September 2012, Pages 245-255
Abstract:
This paper examines the long-run effect of foreign aid on income inequality for 21 recipient countries using panel cointegration techniques to control for omitted variable and endogeneity bias. We find that aid exerts an inequality increasing effect on income distribution.
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Inequality, Institutions, and the Risks to Foreign Investment
Matthew Fails
International Studies Quarterly, forthcoming
Abstract:
Income inequality is frequently given a central role in explaining diverse political outcomes, but the specifics of how, when, and under what circumstances inequality really matters are far from clear. This paper addresses these questions by examining whether greater levels of inequality raise the risk of expropriation associated with foreign investment. The results demonstrate that inequality matters in two distinct ways. First, inequality elevates risk, although consistent with the argument developed herein, the effect is strongest when chief executives face high constraints on their decision making. Second, inequality mitigates the otherwise protective influence of political institutions on the risk of expropriation. The findings are robust across a variety of estimation strategies, including instrumental variable procedures that correct for error in the measurement of inequality. The findings provide new insights regarding the determinants of foreign investment while simultaneously resolving one part of the contested literature describing inequality's role in the political economy of development.
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M. Novak, C. Ahlgren & A. Hammarstrom
Public Health, April 2012, Pages 349-357
Objective: To explore the pattern and determinants of inter- and intragenerational occupational mobility among Swedish men and women.
Study design: A Swedish 14-year prospective longitudinal study (response rate 96.5%).
Methods: Detailed information on 546 men and 495 women regarding their occupation, health status, health-related behaviour, psychosocial environment at home and school, material recourses and ethnicity prior to mobility were available at 16, 21 and 30 years of age. Odds ratios and 99% confidence intervals were calculated using logistic regression to determine social mobility.
Results: The results indicated that being popular at school predicted upward mobility, and being less popular at school predicted downward mobility. Additionally, material deprivation, economic deprivation, shorter height (women) and poor health behavioural factors predicted downward mobility. Among this cohort, being less popular at school was more common among subjects whose parents had low socio-economic status. Occupational mobility was not influenced by ethnic background.
Conclusions: Apart from height (women), health status was not associated with mobility for men or women either inter- or intragenerationally. Unfavourable school environment was a consistent predictor of mobility for both genders. The results indicate that schools should be used as a setting for interventions aimed at reducing socio-economic health inequities. Targeted school interventions that are designed to assist higher educational attainment of socio-economically disadvantaged youth would help to break the social chain of risk experienced during this time, and thereby alter their life course in ways that would reduce subsequent social inequities in health and well-being.
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No contract or unfair contract: What's better?
Lisa Bruttel & Gerald Eisenkopf
Journal of Socio-Economics, August 2012, Pages 384-390
Abstract:
We investigate the welfare implications of unfair incentive contracts in comparison with interactions without contracts. Reciprocal people should cooperate conditionally in the latter situation but punish unfairness by non-cooperation. We confirm that some people do cooperate conditionally in a sequential prisoner's dilemma. Furthermore, some subjects do not cooperate if they face an unfair incentive contract in a similar context. However, there is no correlation between these two types of reciprocity. At an aggregate level, all contracts - no matter how fair they are - improve welfare even if agents are conditionally cooperative.
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The Double Power Law in Income Distribution: Explanations and Evidence
Alexis Akira Toda
Journal of Economic Behavior & Organization, forthcoming
Abstract:
Conditional on education and experience, the distribution of personal labor income appears to be double Pareto, a distribution that obeys the power law in both the upper and lower tails. In particular, the error term of the classical Mincer equation appears to be Laplace, or double exponential. This "double power law" is not rejected by goodness-of-fit tests. I compare two diffusion processes (one mean-reverting, the other unit root) with a stationary double Pareto distribution as a model of income dynamics. The data favors the mean-reverting process for modeling income dynamics over the unit root process.