Stuff
Subjective Status Shapes Political Preferences
Jazmin Brown-Iannuzzi et al.
Psychological Science, forthcoming
Abstract:
Economic inequality in America is at historically high levels. Although most Americans indicate that they would prefer greater equality, redistributive policies aimed at reducing inequality are frequently unpopular. Traditional accounts posit that attitudes toward redistribution are driven by economic self-interest or ideological principles. From a social psychological perspective, however, we expected that subjective comparisons with other people may be a more relevant basis for self-interest than is material wealth. We hypothesized that participants would support redistribution more when they felt low than when they felt high in subjective status, even when actual resources and self-interest were held constant. Moreover, we predicted that people would legitimize these shifts in policy attitudes by appealing selectively to ideological principles concerning fairness. In four studies, we found correlational (Study 1) and experimental (Studies 2–4) evidence that subjective status motivates shifts in support for redistributive policies along with the ideological principles that justify them.
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Benjamin Newman, Christopher Johnston & Patrick Lown
American Journal of Political Science, forthcoming
Abstract:
Existing research analyzes the effects of cross-national and temporal variation in income inequality on public opinion; however, research has failed to explore the impact of variation in inequality across citizens’ local residential context. This article analyzes the impact of local inequality on citizens’ belief in a core facet of the American ethos — meritocracy. We advance conditional effects hypotheses that collectively argue that the effect of residing in a high-inequality context will be moderated by individual income. Utilizing national survey data, we demonstrate that residing in more unequal counties heightens rejection of meritocracy among low-income residents and bolsters adherence among high-income residents. In relatively equal counties, we find no significant differences between high- and low-income citizens. We conclude by discussing the implications of class-based polarization found in response to local inequality with respect to current debates over the consequences of income inequality for American democracy.
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Who Wants to Get to the Top? Class and Lay Theories About Power
Peter Belmi
Stanford Working Paper, October 2014
Abstract:
We investigate class-based differences in the propensity to seek positions of power. We first propose that people’s lay theories suggest that acquiring power requires exercising political dominance — manipulating one’s way through the social world, relying on a pragmatic and Machiavellian approach to impression management and social relationships to get ahead. Then, drawing on empirical work showing that members of the lower class are oriented toward interdependence and community, we hypothesize that relative to their upper class counterparts, members of the lower class will show less interest in seeking positions of power because they feel less comfortable engaging in political dominance. We test these ideas in six studies. Our findings indicate that, even though members of the lower class see political dominance as a necessary and effective strategy for acquiring positions of power, and report that they have the competence to execute this strategy, they are reluctant to do so; as a result, they have a weaker tendency to seek positions of power. Consistent with our theorizing, we also find that members of the lower class have a stronger desire to seek positions of power when organizations provide an alternative route to power – power through prestige – and when they reconstrue power as a superordinate goal that suits their identity. These findings suggest that current institutional norms that reward political dominance may help explain why class inequalities persist and why creating class-based diversity in upper-level positions poses a serious challenge.
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Income Inequality and Intergenerational Income Mobility in the United States
Deirdre Bloome
Social Forces, forthcoming
Abstract:
Is there a relationship between family income inequality and income mobility across generations in the United States? As family income inequality rose in the United States, parental resources available for improving children's health, education, and care diverged. The amount and rate of divergence also varied across US states. Researchers and policy analysts have expressed concern that relatively high inequality might be accompanied by relatively low mobility, tightening the connection between individuals' incomes during childhood and adulthood. Using data from the Panel Study of Income Dynamics, the National Longitudinal Survey of Youth, and various government sources, this paper exploits state and cohort variation to estimate the relationship between inequality and mobility. Results provide very little support for the hypothesis that inequality shapes mobility in the United States. The inequality children experienced during youth had no robust association with their economic mobility as adults. Formal analysis reveals that offsetting effects could underlie this result. In theory, mobility-enhancing forces may counterbalance mobility-reducing effects. In practice, the results suggest that in the US context, the intergenerational transmission of income may not be very responsive to changes in inequality.
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How Can Scandinavians Tax So Much?
Henrik Jacobsen Kleven
Journal of Economic Perspectives, Fall 2014, Pages 77-98
Abstract:
American visitors to Scandinavian countries are often puzzled by what they observe: despite large income redistribution through distortionary taxes and transfers, these are very high-income countries. They rank among the highest in the world in terms of income per capita, as well as most other economic and social outcomes. The economic and social success of Scandinavia poses important questions for economics and for those arguing against large redistribution based on its supposedly detrimental effect on economic growth and welfare. How can Scandinavian countries raise large amounts of tax revenue for redistribution and social insurance while maintaining some of the strongest economic outcomes in the world? Combining micro and macro evidence, this paper identifies three policies that can help explain this apparent anomaly: the coverage of third-party information reporting (ensuring a low level of tax evasion), the broadness of tax bases (ensuring a low level of tax avoidance), and the strong subsidization of goods that are complementary to working (ensuring a high level of labor force participation). The paper also presents descriptive evidence on a variety of social and cultural indicators that may help in explaining the economic and social success of Scandinavia.
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Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data
Emmanuel Saez & Gabriel Zucman
NBER Working Paper, October 2014
Abstract:
This paper combines income tax returns with Flow of Funds data to estimate the distribution of household wealth in the United States since 1913. We estimate wealth by capitalizing the incomes reported by individual taxpayers, accounting for assets that do not generate taxable income. We successfully test our capitalization method in three micro datasets where we can observe both income and wealth: the Survey of Consumer Finance, linked estate and income tax returns, and foundations' tax records. Wealth concentration has followed a U-shaped evolution over the last 100 years: It was high in the beginning of the twentieth century, fell from 1929 to 1978, and has continuously increased since then. The rise of wealth inequality is almost entirely due to the rise of the top 0.1% wealth share, from 7% in 1979 to 22% in 2012 -- a level almost as high as in 1929. The bottom 90% wealth share first increased up to the mid-1980s and then steadily declined. The increase in wealth concentration is due to the surge of top incomes combined with an increase in saving rate inequality. Top wealth-holders are younger today than in the 1960s and earn a higher fraction of total labor income in the economy. We explain how our findings can be reconciled with Survey of Consumer Finances and estate tax data.
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How Much (More) Should CEOs Make? A Universal Desire for More Equal Pay
Sorapop Kiatpongsan & Michael Norton
Perspectives on Psychological Science, November 2014, Pages 587-593
Abstract:
Do people from different countries and different backgrounds have similar preferences for how much more the rich should earn than the poor? Using survey data from 40 countries (N = 55,238), we compare respondents’ estimates of the wages of people in different occupations — chief executive officers, cabinet ministers, and unskilled workers — to their ideals for what those wages should be. We show that ideal pay gaps between skilled and unskilled workers are significantly smaller than estimated pay gaps and that there is consensus across countries, socioeconomic status, and political beliefs. Moreover, data from 16 countries reveals that people dramatically underestimate actual pay inequality. In the United States — where underestimation was particularly pronounced — the actual pay ratio of CEOs to unskilled workers (354:1) far exceeded the estimated ratio (30:1), which in turn far exceeded the ideal ratio (7:1). In sum, respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates.
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Geographic Effects on Intergenerational Income Mobility
Jonathan Rothwell & Douglas Massey
Economic Geography, forthcoming
Abstract:
Research on intergenerational economic mobility often ignores the geographic context of childhood, including neighborhood quality and local purchasing power. We hypothesize that individual variation in intergenerational mobility is partly attributable to regional and neighborhood conditions — most notably access to high-quality schools. Using restricted Panel Study of Income Dynamics and census data, we find that neighborhood income has roughly half the effect on future earnings as parental income. We estimate that lifetime household income would be $635,000 dollars higher if people born into a bottom-quartile neighborhood would have been raised in a top-quartile neighborhood. When incomes are adjusted to regional purchasing power, these effects become even larger. The neighborhood effect is two-thirds as large as the parental income effect, and the lifetime earnings difference increases to $910,000. We test the robustness of these findings to various assumptions and alternative models, and replicate the basic results using aggregated metropolitan-level statistics of intergenerational income elasticities based on millions of Internal Revenue Service records.
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Rodica Damian et al.
Journal of Personality and Social Psychology, forthcoming
Abstract:
This study investigated the interplay of family background and individual differences, such as personality traits and intelligence (measured in a large U.S. representative sample of high school students; N = 81,000) in predicting educational attainment, annual income, and occupational prestige 11 years later. Specifically, we tested whether individual differences followed 1 of 3 patterns in relation to parental socioeconomic status (SES) when predicting attained status: (a) the independent effects hypothesis (i.e., individual differences predict attainments independent of parental SES level), (b) the resource substitution hypothesis (i.e., individual differences are stronger predictors of attainments at lower levels of parental SES), and (c) the Matthew effect hypothesis (i.e., “the rich get richer”; individual differences are stronger predictors of attainments at higher levels of parental SES). We found that personality traits and intelligence in adolescence predicted later attained status above and beyond parental SES. A standard deviation increase in individual differences translated to up to 8 additional months of education, $4,233 annually, and more prestigious occupations. Furthermore, although we did find some evidence for both the resource substitution and the Matthew effect hypotheses, the most robust pattern across all models supported the independent effects hypothesis. Intelligence was the exception, the interaction models being more robust. Finally, we found that although personality traits may help compensate for background disadvantage to a small extent, they do not usually lead to a “full catch-up” effect, unlike intelligence. This was the first longitudinal study of status attainment to test interactive models of individual differences and background factors.
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Fabian Kindermann & Dirk Krueger
NBER Working Paper, October 2014
Abstract:
In this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1% of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in the labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations.
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Erzsébet Bukodi, Robert Erikson & John Goldthorpe
Acta Sociologica, November 2014, Pages 293-310
Abstract:
In previous work we have shown that in Britain and Sweden alike parental class, parental status and parental education have independent effects on individuals’ educational attainment. In this paper we extend our analyses, first by also including measures of individuals’ early-life cognitive ability, and second by bringing our results for Britain and Sweden into direct comparative form. On the basis of extensive birth-cohort data for both countries, we find that when cognitive ability is introduced into our analyses, parental class, status and education continue to have significant, and in fact only moderately reduced and largely persisting, effects on the educational attainment of members of successive cohorts. There is some limited evidence for Britain, but not for Sweden, that cognitive ability has a declining effect on educational attainment, and a further cross-national difference is that in Britain, but not in Sweden, some positive interaction effects occur between advantaged social origins and high cognitive ability in relation to educational success. Overall, though, cross-national similarities are most apparent, and especially in the extent to which parental class, status and education, when taken together, create wide disparities in the eventual educational attainment of individuals who in early life were placed at similar levels of cognitive ability. Some wider implications of these findings are considered.
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The mobility problem in Britain: New findings from the analysis of birth cohort data
Erzsébet Bukodi et al.
British Journal of Sociology, forthcoming
Abstract:
Social mobility is now a matter of greater political concern in Britain than at any time previously. However, the data available for the determination of mobility trends are less adequate today than two or three decades ago. It is widely believed in political and in media circles that social mobility is in decline. But the evidence so far available from sociological research, focused on intergenerational class mobility, is not supportive of this view. We present results based on a newly-constructed dataset covering four birth cohorts that provides improved data for the study of trends in class mobility and that also allows analyses to move from the twentieth into the twenty-first century. These results confirm that there has been no decline in mobility, whether considered in absolute or relative terms. In the case of women, there is in fact evidence of mobility increasing. However, the better quality and extended range of our data enable us to identify other ‘mobility problems’ than the supposed decline. Among the members of successive cohorts, the experience of absolute upward mobility is becoming less common and that of absolute downward mobility more common; and class-linked inequalities in relative chances of mobility and immobility appear wider than previously thought.
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A Schumpeterian Model of Top Income Inequality
Charles Jones & Jihee Kim
NBER Working Paper, October 2014
Abstract:
Top income inequality rose sharply in the United States over the last 35 years but increased only slightly in economies like France and Japan. Why? This paper explores a model in which heterogeneous entrepreneurs, broadly interpreted, exert effort to generate exponential growth in their incomes. On its own, this force leads to rising inequality. Creative destruction by outside innovators restrains this expansion and induces top incomes to obey a Pareto distribution. The development of the world wide web, a reduction in top tax rates, and a decline in misallocation are examples of changes that raise the growth rate of entrepreneurial incomes and therefore increase Pareto inequality. In contrast, policies that stimulate creative destruction reduce top inequality. Examples include research subsidies or a decline in the extent to which incumbent firms can block new innovation. Differences in these considerations across countries and over time, perhaps associated with globalization, may explain the varied patterns of top income inequality that we see in the data.
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Family Socioeconomic Status, Peers, and the Path to College
Robert Crosnoe & Chandra Muller
Social Problems, November 2014, Pages 602-624
Abstract:
Drawing on the primary/secondary effects perspective of educational inequality, this mixed methods study investigated connections between high school students’ trajectories through college preparatory course work and their relationships with parents and peers as a channel in the intergenerational transmission of socioeconomic inequality. Growth curve and multilevel analyses of national survey and transcript data revealed that having college-educated parents differentiated students’ enrollment in advanced course work at the start of high school and that this initial disparity was stably maintained over subsequent years. During this starting period of high school, exposure to school-based peer groups characterized by higher levels of parent education appeared to amplify these course work disparities between students with and without college-educated parents. Ethnographic data from a single high school pointed to possible mechanisms for these patterns, including the tendency for students with college-educated parents to have more information about the relative weight of grades, core courses, and electives in college going and for academically relevant information from school peers with college-educated parents to matter most to students’ course work when it matched what was coming from their own parents.
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Inheritances and the distribution of wealth or whatever happened to the great inheritance boom?
Edward Wolff & Maury Gittleman
Journal of Economic Inequality, December 2014, Pages 439-468
Abstract:
Using data from the Survey of Consumer Finances (SCF), we found that on average over the period from 1989 to 2007, about one fifth of American households at a given point of time reported a wealth transfer and these accounted for quite a sizeable figure, about a quarter of their net worth. Over the lifetime, about 30 percent of households could expect to receive a wealth transfer and these would account for close to 40 % of their net worth near time of death. However, there is little evidence of an inheritance “boom.” In fact, from 1989 to 2007, the share of households reporting a wealth transfer fell by 2.5 percentage points, a time trend statistically significant at the one percent level. The average value of inheritances received among all households did increase but at a slow pace, by 10 %; the time trend is not statistically significant. Wealth transfers as a proportion of current net worth fell sharply over this period, from 29 to 19 %, though the time trend once again is not statistically significant. We also found that inheritances and other wealth transfers tend to be equalizing in terms of the distribution of household wealth, though a number of caveats apply to this result.
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The Effect of Product Demand on Inequality: Evidence from the US and the UK
Marco Leonardi
American Economic Journal: Applied Economics, forthcoming
Abstract:
Using Consumer Expenditure Survey data this paper shows that more educated workers demand more high-skill-intensive services and, to a lower extent, more very low-skill-intensive services (such as personal services). Additional evidence at the MSA level shows that this "education elasticity of demand" mechanism can explain part of the correlation between the share of college-educated workers in a city and the employment share of service industries. The parametrization of a simple model suggests that this induced demand shift can explain around 6.5% of the relative demand shift in the US between 1984 and 2002. Similar results are provided for the UK.
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Keeping up with the Joneses: Who loses out?
David Ulph
Economics Letters, December 2014, Pages 400–403
Abstract:
When individuals compare themselves to those with the same wage-rate, status concerns – Keeping up with the Joneses – lead individuals to work who otherwise would have chosen not to, and, for them, well-being is a decreasing function of the wage rate.
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Do People with Specific Skills Want More Social Insurance? Not in the United States
Jeffrey Timmons & Jerry Nickelsburg
Economics & Politics, November 2014, Pages 457–482
Abstract:
Skill specificity is thought to increase preferences for social insurance (Iversen and Soskice, 2001, American Political Science Review 95,875), especially where employment protections are low, notably the United States (Gingrich and Ansell, 2012, Comparative Political Studies 45, 1624). The compensating differentials literature, by contrast, suggests that neither skill specificity, nor labor market protections affect preferences when wages adjust for differences in risks and investment costs. We examine these competing predictions using U.S. data on general and specific skills. Absolute and relative skill specificity have a robust positive correlation with income, but are negatively correlated with preferences for social protection. Our results strongly support the compensating differentials approach.