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Monday, January 7, 2013

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What do Americans know about inequality? It depends on how you ask them

Kimmo Eriksson & Brent Simpson
Judgment and Decision Making, November 2012, Pages 741-745

Abstract:
A recent survey of inequality (Norton and Ariely, Perspectives on Psychological Science, 6, 9-12) asked respondents to indicate what percent of the nation's total wealth is - and should be - controlled by richer and poorer quintiles of the U.S. population. We show that such measures lead to powerful anchoring effects that account for the otherwise remarkable findings that respondents reported perceiving, and desiring, extremely low inequality in wealth. We show that the same anchoring effects occur in other domains, namely web page popularity and school teacher salaries. We introduce logically equivalent questions about average levels of inequality that lead to more accurate responses. Finally, when we made respondents aware of the logical connection between the two measures, the majority said that typical responses to the average measures, indicating higher levels of inequality, better reflected their actual perceptions and preferences than did typical responses to percent measures.

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Income inequality and solidarity in Europe

Marii Paskov & Caroline Dewilde
Research in Social Stratification and Mobility, December 2012, Pages 415-432

Abstract:
This paper studies the relationship between income inequality, a macro-level characteristic, and solidarity of Europeans. To this aim, solidarity is defined as the ‘willingness to contribute to the welfare of other people'. We rely on a theoretical idea according to which feelings of solidarity are derived from both affective and calculating considerations - we derive competing hypotheses relating the extent of income inequality to these ‘underlying' motivations for solidarity. Using data from the 1999 European Values Study (EVS), we apply multilevel analysis for 26 European countries. Controlling for household income and a range of macro-level characteristics, we find evidence that in more unequal countries people are less willing to take action to improve the living conditions of their fellow-countrymen. This is true for respondents living in both low- and high-income households. According to our theoretical framework, this finding suggests that, at least when measured in terms of ‘willingness to contribute to the welfare of other people', feelings of solidarity seem to be influenced more strongly by affective, rather than by calculating considerations.

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Inequality, stock market participation, and the equity premium

Jack Favilukis
Journal of Financial Economics, forthcoming

Abstract:
The last 30 years saw substantial increases in wealth inequality and stock market participation, smaller increases in consumption inequality and the fraction of indebted households, a decline in interest rates and the expected equity premium, as well as a prolonged stock market boom. In an incomplete markets, overlapping generations model I jointly explain these trends by the observed rise in wage inequality, decrease in participation costs, and loosening of borrowing constraints. After accounting for these changes, I show that the stock market played a major role in increasing wealth inequality. Crucially, these phenomena must be considered jointly; studying one independently leads to counterfactual predictions about others.

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Safety first consumption

Michael Sattinger
Journal of Economic Theory, forthcoming

Abstract:
This paper develops a model of safety first consumption behavior in which the likelihood of survival to the next period depends on current consumption levels. Below a threshold asset level, individuals follow a decumulation path, and above that level they follow an accumulation path. Saving rates then vary discontinuously with asset level, generating a poverty trap and divergence in incomes. An increase in the likelihood of surviving raises aggregate saving. A more equitable distribution of assets can be consistent with greater aggregate savings and growth because of declining marginal propensity to save over some asset intervals.

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Biased perceptions of income distribution and preferences for redistribution: Evidence from a survey experiment

Guillermo Cruces, Ricardo Pérez Truglia & Martin Tetaz
Journal of Public Economics, forthcoming

Abstract:
Individual perceptions of income distribution play a vital role in political economy and public finance models, yet there is little evidence regarding their origins or accuracy. This study examines how individuals form these perceptions and explores their potential impact on preferences for redistribution. A tailored household survey provides original evidence on systematic biases in individuals' evaluations of their own relative position in the income distribution. The study discusses one of the mechanisms that may generate such biases, based on the extrapolation of information from endogenous reference groups, and presents some suggestive evidence that this mechanism has significant explanatory power. The impact of these biased perceptions on attitudes toward redistributive policies is studied by means of an experimental design that was incorporated into the survey, which provided consistent information on the own-ranking within the income distribution to a randomly selected group of respondents. The evidence suggests that those who had overestimated their relative position and thought that they were relatively richer than they were tend to demand higher levels of redistribution when informed of their true ranking.

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Inequality and City Size

Nathaniel Baum-Snow & Ronni Pavan
Review of Economics and Statistics, forthcoming

Abstract:
A strong positive monotonic relationship between wage inequality and city size developed between 1979 and 2007 in the United States. After accounting for differences in skill composition across cities of different sizes, at least 23 percent of the nationwide increase in the variance of log hourly wages is explained by the more rapid growth in wage inequality in larger locations than in smaller locations. This influence occurred throughout the wage distribution, was most prevalent during the 1990s, and was mostly driven by more rapid growth in within skill group inequality in larger cities.

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The Impact of Wealth on Financial Mistakes: Evidence from Credit Card Non-Payment

Barry Scholnick, Nadia Massoud & Anthony Saunders
Journal of Financial Stability, forthcoming

Abstract:
Recent research finds that poorer individuals make financial mistakes when the decisions are difficult and rare. We examine who makes financial mistakes involving decisions that are easier and more frequent - specifically, the inadvertent failure to pay monthly credit card balances when sufficient funds are available. On the one hand poorer individuals may make such mistakes because of lower levels of financial literacy. Alternatively, richer individuals may make such mistakes because of the relatively lower costs to them of such mistakes. We examine this question using confidential individual credit card statement data, with over a million data points. Our results show that poorer individuals are more likely to make these mistakes, even after controlling for education.

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Economic choices and status: Measuring preferences for income rank

Redzo Mujcic & Paul Frijters
Oxford Economic Papers, January 2013, Pages 47-73

Abstract:
We report on the trade-offs that 1,068 Australian university students make between absolute income and the rank of that income in hypothetical income distributions. We find that income rank matters independently of absolute income, with greater weight given to rank by males, migrants, and individuals from wealthy families. Rank-sensitive individuals require as much as a 200% increase in income to be compensated for going from the top to the bottom of the income distribution. Migrants residing abroad for longer periods of time, and with more affluent job titles, are more likely to compare themselves to others at the destination. A dynamic choice model of compensating incomes predicts the average respondent to need a permanent increase in income of up to $10,000 (70%) when moving from a society with a mean income of $14,000 (e.g., Mexico) to a society with a mean income of $46,000 (e.g., the USA).

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SES differences in language processing skill and vocabulary are evident at 18 months

Anne Fernald, Virginia Marchman & Adriana Weisleder
Developmental Science, forthcoming

Abstract:
This research revealed both similarities and striking differences in early language proficiency among infants from a broad range of advantaged and disadvantaged families. English-learning infants (n = 48) were followed longitudinally from 18 to 24 months, using real-time measures of spoken language processing. The first goal was to track developmental changes in processing efficiency in relation to vocabulary learning in this diverse sample. The second goal was to examine differences in these crucial aspects of early language development in relation to family socioeconomic status (SES). The most important findings were that significant disparities in vocabulary and language processing efficiency were already evident at 18 months between infants from higher- and lower-SES families, and by 24 months there was a 6-month gap between SES groups in processing skills critical to language development.

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Rising U.S. income inequality and the changing gradient of socioeconomic status on physical functioning and activity limitations, 1984-2007

Hui Zheng & Linda George
Social Science & Medicine, December 2012, Pages 2170-2182

Abstract:
This study examines the interactive contextual effect of income inequality on health. Specifically, we hypothesize that income inequality will moderate the relationships between individual-level risk factors and health. Using National Health Interview Survey data 1984-2007 (n = 607,959) and U.S. Census data, this paper estimates the effect of the dramatic increase in income inequality in the U.S. over the past two decades on the gradient of socioeconomic status on two measures of health (i.e., physical functioning and activity limitations). Results indicate that increasing income inequality strengthens the protective effects of family income, employment, college education, and marriage on these two measures of health. In contrast, high school education's protective effect (relative to less than a high school education) weakens in the context of increasing income inequality. In addition, we find that increasing income inequality exacerbates men's disadvantages in physical functioning and activity limitations. These findings shed light on research about growing health disparities in the U.S. in the last several decades.

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The influence of inequality on the standard of living: Worldwide anthropometric evidence from the 19th and 20th centuries

Matthias Blum
Economics & Human Biology, forthcoming

Abstract:
We provide empirical evidence on the existence of the Pigou-Dalton principle. The latter indicates that aggregate welfare is -- ceteris paribus -- maximized when incomes of all individuals are equalized (and therefore marginal utility from income is as well). Using anthropometric panel data on 101 countries during the 19th and 20th centuries, we determine that there is a systematic negative and concave relationship between height inequality and average height. The robustness of this relationship is tested by means of several robustness checks, including two instrument variable regressions. These findings help to elucidate the impact of economic inequality on welfare.

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Affluence, Inequality, and Educational Achievement: A Structural Analysis of 97 Jurisdictions across the Globe

Dennis Condron
Sociological Spectrum, January/February 2013, Pages 73-97

Abstract:
How does economic inequality affect societies' average levels of student achievement, and how might the answer to this question inform our understanding of U.S. students' achievement in cross-national perspective? Analyses of country-level data (N = 97) from three recent international studies reveal that while more affluent countries exhibit higher average achievement than less affluent countries, more unequal countries have lower average achievement than less unequal countries - even net of affluence and other factors. This helps explain why U.S. students score relatively low compared to their counterparts in other developed nations. I discuss the implications of these findings for understanding the role of stratification in societies generally and for raising achievement in the U.S. specifically.

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Fundamental Causes of Colorectal Cancer Mortality in the United States: Understanding the Importance of Socioeconomic Status in Creating Inequality in Mortality

Nallely Saldana-Ruiz et al.
American Journal of Public Health, January 2013, Pages 99-104

Objectives: We used the fundamental cause hypothesis as a framework for understanding the creation of health disparities in colorectal cancer mortality in the United States from 1968 to 2005.

Methods: We used negative binomial regression to analyze trends in county-level gender-, race-, and age-adjusted colorectal cancer mortality rates among individuals aged 35 years or older.

Results: Prior to 1980, there was a stable gradient in colorectal cancer mortality, with people living in counties of higher socioeconomic status (SES) being at greater risk than people living in lower SES counties. Beginning in 1980, this gradient began to narrow and then reversed as people living in higher SES counties experienced greater reductions in colorectal cancer mortality than those in lower SES counties.

Conclusions: Our findings support the fundamental cause hypothesis: once knowledge about prevention and treatment of colorectal cancer became available, social and economic resources became increasingly important in influencing mortality rates.

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Financial Development and Wage Inequality: Theory and Evidence

Michal Jerzmanowski & Malhar Nabar
Economic Inquiry, January 2013, Pages 211-234

Abstract:
We argue that financial market development contributed to the rise in the skill premium and residual wage inequality in the United States since the 1980s. We present an endogenous growth model with imperfect credit markets and establish how improving the efficiency of these markets affects modes of production, innovation, and wage dispersion between skilled and unskilled workers. The experience of U.S. states following banking deregulation provides empirical support for our hypothesis. We find that wages of skilled workers increased by between 0.5% and 6.3% following deregulation while those of unskilled workers fell by between 3.5% and 8.7%. Similarly, residual (or within-group) inequality increased; the 90-50 percentile ratio of residuals from a Mincerian wage regression and their standard deviation increased by 4.2% and 1.7%, respectively.

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How Does Fiscal Consolidation Impact on Income Inequality?

Luca Agnello & Ricardo Sousa
Review of Income and Wealth, forthcoming

Abstract:
In this paper, we assess the impact of fiscal consolidation on income inequality. Using a panel of 18 industrialized countries from 1978 to 2009, we find that income inequality significantly rises during periods of fiscal consolidation. In addition, while fiscal policy that is driven by spending cuts seems to be detrimental for income distribution, tax hikes seem to have an equalizing effect. We also show that the size of the fiscal consolidation program (in percentage of GDP) has an impact on income inequality. In particular, when consolidation plans represent a small share of GDP, the income gap widens, suggesting that the burden associated with the effort affects disproportionately households at the bottom of the income distribution. Considering the linkages between banking crises and fiscal consolidation, we find that the effect on the income gap is amplified when fiscal adjustments take place after the resolution of such financial turmoil. Similarly, fiscal consolidation programs combined with inflation are likely to increase inequality and the effects of fiscal adjustments on inequality are amplified during periods of relatively low growth. Our results also provide support for a non-linear relationship between inequality and income and corroborate the idea that trade can promote a more equal distribution of income.

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Parental Asset Accumulation Trajectories and Children's College Outcomes

Vernon Loke
Economics of Education Review, forthcoming

Abstract:
The effects of parental assets on children's educational outcomes have mainly been explored from the perspective of asset holdings. However, the process of asset accumulation may also have effects. While asset-based policies are predicated on the premise of asset accumulation, little is known about the effects of different asset accumulation trajectories. This study attempts to fill this gap. The results indicate that youths born into households that had asset holdings significantly higher than zero have better college outcomes compared to youths born into households with lower levels of net worth that did not increase significantly over time. However, when lower-wealth households experience significant asset accumulation over time, youths from these households have similar educational outcomes as youths from wealthier households. Finally, the results indicate that the effects of assets are partially or fully mediated by the mother's educational expectations. Implications for asset-based policy are discussed.

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Perception is Reality: Effect of Subjective Versus Objective Socio-economic Position on Quality of Life

Gopalakrishnan Netuveli & Mel Bartley
Sociology, December 2012, Pages 1208-1215

Abstract:
We tested the hypothesis that the relationship between social class measured according to employment relations and conditions and quality of life in older people was due to the influence of social class on the perception individuals had about their place in a social hierarchy. We used the data from the English Longitudinal Study of Ageing (ELSA) in which both an occupation-based measure, the National Statistics Socio-Economic Classification (NS-SEC) and a subjective measure of social status (SSS) were included. Quality of life was measured using a 19-item Likert-scaled questionnaire (CASP-19). We found that even in the employed, SSS explained quality of life better than NS-SEC. The path analysis revealed that the effects of most NS-SEC categories on quality of life were fully mediated by SSS. The effect of SSS on quality of life was independent of advantageous occupational conditions, favourable life circumstances or mental health.

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Deprivation and Subjective Well-Being: Evidence from Panel Data

Maite Blázquez Cuesta & Santiago Budría
Review of Income and Wealth, forthcoming

Abstract:
This paper uses data from the 2000-08 waves of the German Socio-Economic Panel dataset (SOEP) to assess the impact of deprivation in various life domains upon individual well-being. Unobserved heterogeneity is controlled for by means of a random effects model extended to include a Mundlak term and explicit controls for the respondents' personality traits. The paper shows that people care about social comparison information in a number of domains, not just income. Using an equivalent income approach, the estimates suggest that a one standard deviation deterioration of the individual position in the income distribution is as important as a 33.5 percent decrease in own income. This monetary equivalent amounts to an income variation of between 25 and 43 percent when it comes to other deprivation domains, including durables, accommodation, health, and social relations. These results recommend that in the fight against deprivation more emphasis should be directed to these non-monetary relevant dimensions.

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Parental income and the dynamics of health inequality in early childhood - evidence from the UK

Kai Eberhard Kruk
Health Economics, forthcoming

Abstract:
Recent research documents that socioeconomic health inequality has its origins in early childhood, that is, children from high-income families have better health than their peers from low-income families. In this article, we investigate the determinants of the evolution of socioeconomic health inequality in the UK. We analyze the relation between household income and both the prevalence and the consequences of adverse health conditions by following up infants throughout early childhood. We find evidence for the hypothesis that parental income operates through two different channels: it reduces the likelihood of incurring certain illnesses and it cushions the consequences of health conditions. Our results also indicate that a higher household income increases the probability that children fully recover from some diseases within a given period.

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Inequality and School Funding in the Rural United States, 1890

Dietrich Vollrath
Explorations in Economic History, forthcoming

Abstract:
This paper examines the relationship of inequality to school funding in counties of the U.S. in 1890. Inequality, measured here on the basis of farm-size distributions, is found to be negatively related to local school property tax revenues across the whole sample of 1,345 rural counties. However, further analysis shows that this relationship is not consistent across the sample. In the North, there is a significant negative relationship between inequality and school funding, and this relationship is shown to be consistent with the fact that assessed values of property did not rise linearly with wealth. Across the South, there is no distinct relationship between inequality and school funding. The results also indicate that inequality in the South cannot directly explain the gap in school funding with the North, in the sense that redistributing farms in the South to match the Northern distributions leads to no predicted increase in school funding.

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Using Personal Car Register for Measuring Economic Inequality in Countries with a Large Share of Shadow Economy: Evidence for Latvia

Boriss Siliverstovs, Konstantin Kholodilin & Vyacheslav Dombrovsky
Review of Income and Wealth, forthcoming

Abstract:
We suggest using information from the state register of personal cars as an alternative indicator of economic inequality in countries with a large share of shadow economy. We illustrate our approach using the Latvian pool of personal cars. Our main finding is that the extent of household economic inequality in Latvia is much larger than officially assumed. According to Eurostat, the officially published estimate of the Gini coefficient for Latvia is 0.374 for 2009, which is much higher than the Gini coefficient value reported for all the 27 EU member countries (0.304), but significantly lower than 0.48 according to our results.

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Public Justification and the Right to Private Property: Welfare Rights as Compensation for Exclusion

Corey Brettschneider
Law & Ethics of Human Rights, December 2012, Pages 119-146

Abstract:
The right to private property is among the most fundamental in liberal theory. For many liberals the idea of the state is grounded in its role as a protector of private property. If the liberal state is justified by its ability to protect property, the modern welfare state is often justified by its ability to meet needs. According to a view commonly referred to as "welfarism," the very fact that needs exist implies there is a moral obligation to meet them. In this Article I appeal to Rawlsian contractualist justification, including the "criterion of reciprocity," in developing a third manner of thinking about the relationship between property and welfare. I argue that welfare rights are necessary conditions for justifying a role for the state in enforcing the "right to exclude," a fundamental element of private ownership. My Article thus aims to use Rawls' account of justification, outlined in his later works, to theorize the notion of property-owning democracy from Theory of Justice.

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Who wins the Pulitzer Prize in international reporting? Cumulative advantage and social stratification in journalism

Yong Volz & Francis Lee
Journalism, forthcoming

Abstract:
Robert Merton's theory of cumulative advantage posits that the initial status advantages one acquires can successively lead to greater opportunities in career advancement. This study examines the cumulative effect of individual and institutional factors on the likelihood of one's success in international reporting, an area commonly considered as the mark of an ultra-elite in journalistic stratification. Analyzing a sample of 814 Pulitzer winners whose life courses and career progressions are reconstructed using various archival data, our study shows that international reporting winners, compared with local reporting awardees, are more likely to be male, foreign born, cosmopolites, and Ivy League graduates. These initial advantages, however, mainly improve their chances of joining top news organizations in the first place. Being selected by those news organizations boosts disproportionally their successive probability of winning the Pulitzers. The process of advantage accumulation in journalism accentuates the social stratification in society at large.

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Inequality of Happiness in the U.S.: 1972-2010

Indranil Dutta & James Foster
Review of Income and Wealth, forthcoming

Abstract:
It is well accepted that a country's GDP may not fully reflect its level of well-being. In recent years, happiness has emerged as an alternative indicator of well-being, and research has mainly focused on determining the level of happiness. While it is important to look at the level, the distribution of happiness is also a salient aspect in any evaluation of inequality. There has been a growing interest in the distribution of happiness, although the ordinal nature of the data makes the use of standard inequality measures problematic. Our paper contributes to the literature by exploring the distributions for the U.S. from 1972 to 2010. Based on new methods developed for ordinal data, we are able to overcome the problems associated with ordinality and obtain unambiguous rankings of happiness distributions. We also compute the level of happiness inequality using existing measures based on median centred approaches. Further, we decompose the median based inequality measures of happiness by gender, race, and region.

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Best Practices in Conceptualizing and Measuring Social Class in Psychological Research

Matthew Diemer et al.
Analyses of Social Issues and Public Policy, forthcoming

Abstract:
An extensive body of research has documented the relation between social class, as indexed by socioeconomic status (SES) and subjective social status (SSS), and a host of outcomes, including physical and mental health, academic achievement, and educational attainment. Yet, there remains ambiguity regarding how best to conceptualize and measure social class. This article clarifies definitional and measurement issues related to the assessment of SES and SSS, addresses their importance and relevance for psychological research, and reviews best practices with regard to measurement and assessment. We conclude by discussing the integration of social class with other markers of social position to promote the advancement of psychological science. 

By KEVIN LEWIS | 09:00:00 AM