Polarization of the Rich: The New Democratic Allegiance of Affluent Americans and the Politics of Redistribution
Perspectives on Politics, forthcoming
Affluent Americans used to vote for Republican politicians. Now they vote for Democrats. In this paper, I show detailed evidence for this decades-in-the-making trend and argue that it has important consequences for the U.S. politics of economic inequality and redistribution. Beginning in the 1990s, the Democratic Party started winning increasing shares of rich, upper-middle income, high-income occupation, and stock-owning voters. This appears true across voters of all races and ethnicities, is concentrated among (but not exclusive to) college-educated voters, and is only true among voters living in larger metropolitan areas. In the 2010s, Democratic candidates' electoral appeal among affluent voters reached above-majority levels. I echo other scholars in maintaining that this trend is partially driven by the increasingly "culturally liberal" views of educated voters and party elite polarization on those issues, but I additionally argue that the evolution and stasis of the parties' respective economic policy agendas has also been a necessary condition for the changing behavior of affluent voters. This reversal of an American politics truism means that the Democratic Party's attempts to cohere around an economically redistributive policy agenda in an era of rising inequality face real barriers.
Do Political Elites Have Accurate Perceptions of Social Conditions?
British Journal of Political Science, forthcoming
Politicians often oppose economic policies benefiting low-income Americans. However, the mechanisms behind this political inequality are unclear. I ask whether politicians oppose these policies, in part, because they underestimate how many of those they govern are struggling financially. I test this theory with an original survey of 1,265 state legislative candidates. Contrary to my expectations, I find that politicians tend to overestimate how many of those they govern are struggling financially. At the same time, there are some instances in which politicians-and Republicans in particular-do underestimate the level of financial hardship among those they govern. In an experiment, I randomly assign politicians to have their misperceptions corrected. The results suggest that politicians' policy preferences would be similar even if they had a more accurate understanding of reality. Overall, the findings suggest that politicians may frequently misperceive the state of reality in which those they govern live.
Income and emotional well-being: A conflict resolved
Matthew Killingsworth, Daniel Kahneman & Barbara Mellers
Proceedings of the National Academy of Sciences, 7 March 2023
Do larger incomes make people happier? Two authors of the present paper have published contradictory answers. Using dichotomous questions about the preceding day, [Kahneman and Deaton, Proc. Natl. Acad. Sci. U.S.A. 107, 16489-16493 (2010)] reported a flattening pattern: happiness increased steadily with log(income) up to a threshold and then plateaued. Using experience sampling with a continuous scale, [Killingsworth, Proc. Natl. Acad. Sci. U.S.A. 118, e2016976118 (2021)] reported a linear-log pattern in which average happiness rose consistently with log(income). We engaged in an adversarial collaboration to search for a coherent interpretation of both studies. A reanalysis of Killingsworth's experienced sampling data confirmed the flattening pattern only for the least happy people. Happiness increases steadily with log(income) among happier people, and even accelerates in the happiest group. Complementary nonlinearities contribute to the overall linear-log relationship. We then explain why Kahneman and Deaton overstated the flattening pattern and why Killingsworth failed to find it. We suggest that Kahneman and Deaton might have reached the correct conclusion if they had described their results in terms of unhappiness rather than happiness; their measures could not discriminate among degrees of happiness because of a ceiling effect. The authors of both studies failed to anticipate that increased income is associated with systematic changes in the shape of the happiness distribution. The mislabeling of the dependent variable and the incorrect assumption of homogeneity were consequences of practices that are standard in social science but should be questioned more often. We flag the benefits of adversarial collaboration.
Status and mortality: Is there a Whitehall effect in the United States?
Economic History Review, forthcoming
The influential Whitehall studies found that top-ranking civil servants in Britain experienced lower mortality than civil servants below them in the organizational hierarchy due to differential exposure to workplace stress. I test for a Whitehall effect in the United States using a 1930 cohort of white-collar employees at a leading firm -- General Electric (GE). All had access to a corporate health and welfare program during a critical period associated with the health transition. I measure status using position in the managerial hierarchy, attendance at prestigious management training camps and promotions, none of which is associated with a Whitehall-like rank-mortality gradient. Instead, senior managers and executives experienced a 3-5-year decrease in lifespan relative to those in lower levels, with the largest mortality penalty experienced by individuals in the second level of the hierarchy. I discuss generalizability and potential explanations for this reversal of the Whitehall phenomenon using additional data on the status and lifespan of top business executives and US senators.
The Slow Diffusion of Earnings Inequality
Isaac Sorkin & Melanie Wallskog
NBER Working Paper, February 2023
Over the last several decades, rising pay dispersion between firms accounts for the majority of the dramatic increase in earnings inequality in the United States. This paper shows that a distinct cross-cohort pattern drives this rise: newer cohorts of firms enter more dispersed and stay more dispersed throughout their lives. A similar cohort pattern drives a variety of other closely related facts: increases in worker sorting across firms on the basis of pay, education, and age, and increasing productivity dispersion across firms. We discuss two important implications. First, these cohort patterns suggest a link between changes in firm entry associated with the decline in business dynamism and the rise in earnings inequality. Second, cohort effects imply a slow diffusion of inequality: we expect inequality to continue to rise as older and more equal cohorts of firms are replaced by younger and more unequal cohorts. Back of the envelope calculations suggest that this momentum could be substantial with increases in between-firm inequality in the next two decades almost as large as in the last two.
The Unlikely Heroes of Progressive Taxation: CEOs' Support for Bill Clinton's Tax Increase Package in 1993
Journal of Policy History, April 2023, Pages 219-253
On August 10, 1993, President Bill Clinton signed the Omnibus Budget Reconciliation Act of 1993, one of the largest fiscal deficit-reduction packages in US fiscal history. This law raised the top individual income tax rate from 31% to 39.6%, which increased the average effective tax rate for high-income earners and shifted the federal fiscal balance from deficit to surplus by the end of the century. Given major business interest groups' criticism of the Omnibus Budget Reconciliation Act of 1993's heavy reliance on tax increases over spending cuts, how was the Democrat-controlled Congress able to pass this legislation? Drawing on archival evidence from the Clinton Presidential Library, this paper shows that the administration and Democratic committee chairs mobilized support from corporate CEOs, including Fortune 500 executives, asking them to lobby key legislators to support the bill. Thus, with business leaders' support and lobbying efforts, the legislation was passed with a very slight majority.
Monetary Policy and Home Buying Inequality
Federal Reserve Working Paper, January 2023
Does monetary policy influence who becomes a home owner? Home purchases by low- and moderate-income households may be particularly sensitive to mortgage interest rates, as these households' budgets are tighter and they more frequently come up against binding payment-to-income ratio constraints in credit decisions. Exploiting the timing of high-frequency observations of mortgage applicants locking in their interest rates around monetary policy shocks, I find that a 1 percentage point policy-induced increase in mortgage rates lowers the presence of low-income households in the population of home buyers by 1 percentage point, and of low- and moderate-income households by 2 percentage points, immediately following the shock. Effects are substantially stronger among first-time home buyers, and persist for approximately one year.
Earnings Are Greater and Increasing in Occupations That Require Intellectual Tenacity
Christos Makridis, Louis Hickman & Benjamin Manning
Stanford Working Paper, February 2023
Automation and technology are rapidly disrupting the labor market. We investigated changes in the returns to occupational personality requirements -- the ways of thinking, feeling, and behaving that enable success in a given occupation -- and the resulting implications for organizational strategy. Using job incumbent ratings from the U.S. Department of Labor's Occupational Information Network (O*NET), we identify two broad occupational personality requirements, which we label intellectual tenacity and social adjustment. Intellectual tenacity encompasses achievement/effort, persistence, initiative, analytical thinking, innovation, and independence. Social adjustment encompasses emotion regulation, concern for others, social orientation, cooperation, and stress tolerance. Both occupational personality requirements relate similarly to occupational employment growth between 2007 and 2019. However, among over 10 million respondents to the American Community Survey, jobs requiring intellectual tenacity pay higher wages -- even controlling for occupational cognitive ability requirements -- and the earnings premium grew over this 13-year period. Results are robust to controlling for education, demographics, and industry effects, suggesting that organizations should pay at least as much attention to personality in the hiring and retention process as skills.
Consider your origins: Parental social class and preferences for redistribution in the United States from 1977 to 2018
Social Science Research, February 2023
Capitalizing on the newly available and consistent coding of detailed occupations for the General Social Surveys (GSS), this article examines the link between class origins and public support for redistribution in the United States from 1977 through 2018. The findings reveal significant net associations between class origins and preferences for redistribution. Individuals with farming-class or working-class origins are more supportive of government action to reduce inequality than individuals with salariat-class origins. These class-origin differences are associated with individuals' current socioeconomic characteristics but are not fully accounted for by these factors. In addition, individuals in more privileged class positions have increased their support for redistribution over time. Attitudes toward federal income taxes are also analyzed as an additional measure of redistribution preferences. Overall, the findings suggest a continuing role of class origin in determining support for redistribution.
Public Education Expenditures, Growth and Income Inequality
Lionel Artige & Laurent Cavenaile
Journal of Economic Theory, forthcoming
This paper analyzes the relationship between public education spending, long-run growth and income inequality. We propose an endogenous growth model with occupational choice and an endogenous supply of teachers and education quality. We show that endogenous school quality alters the shape of those relationships in a way that has new policy implications. First, growth depends on the level of public education expenditures and on the shape of the human capital distribution. Second, the relationship between public education and inequality can be either positive or negative. Calibrating our model to US state data, we find that a significant share of states faces a trade-off between increasing growth and decreasing inequality through public education spending. We find that this trade-off is overall more likely in states with higher public education expenditures, teacher employment share and relative wage, and intergenerational mobility. Finally, the existence of such a trade-off depends on how public education spending is financed.