Ahead or behind
Entertaining Beliefs in Economic Mobility
University of Pennsylvania Working Paper, October 2018
Americans have long believed in upward economic mobility and the narrative of the American Dream. Even in the face of rising income inequality, and substantial empirical evidence that economic mobility has declined in recent decades, most Americans remain convinced in the prospects for upward mobility. What explains this disconnect? I argue that Americans’ media diets play an important role in explaining this puzzle. Specifically, contemporary Americans are watching a record number of entertainment TV programs emphasizing “rags-to-riches” narratives. Using detailed Nielsen ratings data and original content analyses, I demonstrate that such shows have become a ubiquitous part of the American media landscape over the last two decades. In three national surveys — one original, two nationally representative — I find that exposure to these programs increases viewers’ beliefs in the American Dream; for heavy viewers, this effect is as powerful as that of having immigrant parents. Experiments conducted both online and in a lab-in-the-field setting establish that these media effects are causal, and stronger among Republicans. My results underscore the long overdue need to expand the scope of political communication research in a high choice media environment. To the extent that belief in economic mobility can legitimize income inequality, my findings also have implications for the study of redistributive democracy and American public opinion more generally.
Why do Americans believe in economic mobility? Economic inequality, external attributions of wealth and poverty, and the belief in economic mobility
Journal of Experimental Social Psychology, November 2018, Pages 138-148
Although the rates of economic inequality in the United States are at their highest since the onset of The Great Depression, many Americans do not seem as concerned as may be expected. This apparent lack of concern has been attributed to people's deeply-entrenched belief in economic mobility – the belief that through hard work, determination, and skill people are able to rise up the economic ladder. Little is known, however, about why Americans so strongly believe in economic mobility. In five studies (N = 3112, including two pre-registered studies, one with a large, income-stratified sample), I examine the relationship between economic inequality and the belief in economic mobility. I find that people (accurately) perceive a negative relationship between economic inequality and economic mobility, and that this is due to the attributions they make about wealth and poverty. As economic inequality rises, people increasingly attribute economic success and failure to external factors that are beyond a person's control (vs. internal dispositions), and therefore expect economic mobility to drop. As a consequence, people's tendency to underestimate economic inequality reinforces their belief in economic mobility. I discuss how these findings contribute to our understanding of lay beliefs about the economic system and public opinion regarding inequality.
Can Greater Attention to Women's Rights Help Address Income Inequality?
Nabamita Dutta, Lisa Giddings & Sanjukta Roy
Contemporary Economic Policy, forthcoming
We investigate the relationship between women's economic, social, and political rights with the level of income inequality. We use dynamic panel estimation to check our hypothesis that that strong rights for women translate into higher participation in economic productive activities, improve income and education and support for future generations, thus reducing the overall income inequality in the economy. We further look at how a country's overall economic performance and the status of women's education alter the relationship. The relationship is strengthened if countries are either in the higher‐income spectrum or have higher levels of female educational attainment.
Rawls, Piketty, and the Critique of Welfare-State Capitalism
Journal of Politics, forthcoming
Political philosophers have renewed their attempts to justify John Rawls’s preferred economic regime, property-owning democracy. They have followed Rawls in criticizing welfare-state capitalism because it permits unjustifiably large economic inequalities. Simultaneously, Thomas Piketty has argued that capitalism has an inherent tendency to create very high degrees of wealth and income inequality. I argue that introducing Piketty’s work into a Rawlsian framework strengthens Rawls’s critique of the welfare state and his case for property-owning democracy. Piketty’s work, if correct, shows that welfare-state capitalism not only permits unjust economic inequalities but causes and compounds them, despite the presence of various forms of redistribution. I then argue that Piketty’s solution to inequality, a global progressive tax on capital, can contribute to the aims of a property-owning democracy. This synthesis of Rawls and Piketty yields a potentially powerful left-wing yet nonsocialist critique of welfare-state capitalism.
Taxing the Job Creators: Efficient Taxation with Bargaining in Hierarchical Firms
Labour Economics, January 2019, Pages 1-25
Economists typically view personal income taxes as a tradeoff between distortionary effects on labour supply and desirable effects on the income distribution. However, when wages deviate from marginal product, there is an efficiency rationale for income taxation. In the empirically relevant setting of wage bargaining within hierarchical firms, the efficiency case for taxing the manager at the top of the firm depends on a “job-creation” effect: if wages are too low and increased labour supply allows managers to supervise larger firms and thus collect larger rents, they will work too hard to create jobs at their firm. It may then be efficient to tax the “job creators” because of their job-creation activity. If bargaining compresses the wage distribution for workers, the efficient tax schedule is V-shaped and deviates significantly from zero in a model calibrated to the U.S. income distribution. For a planner with redistributive motives, wage bargaining similarly raises optimal marginal tax rates at the top and bottom of the distribution, while decreasing them in the middle.
Genes, Education, and Labor Market Outcomes: Evidence from the Health and Retirement Study
Nicholas Papageorge & Kevin Thom
NBER Working Paper, September 2018
Recent advances have led to the discovery of specific genetic variants that predict educational attainment. We study how these variants, summarized as a linear index — known as a polygenic score — are associated with human capital accumulation and labor market outcomes in the Health and Retirement Study (HRS). We present two main sets of results. First, we find evidence that the genetic factors measured by this score interact strongly with childhood socioeconomic status in determining educational outcomes. In particular, while the polygenic score predicts higher rates of college graduation on average, this relationship is substantially stronger for individuals who grew up in households with higher socioeconomic status relative to those who grew up in poorer households. Second, the polygenic score predicts labor earnings even after adjusting for completed education, with larger returns in more recent decades. These patterns suggest that the genetic traits that promote education might allow workers to better accommodate ongoing skill biased technological change. Consistent with this interpretation, we find a positive association between the polygenic score and non-routine analytic tasks that have benefited from the introduction of new technologies. Nonetheless, the college premium remains the dominant determinant of earnings differences at all levels of the polygenic score. Given the role of childhood SES in predicting college attainment, this raises concerns about wasted potential arising from limited household resources.
Intergenerational Mobility at the Top of the Educational Distribution
Sociology of Education, October 2018, Pages 266-289
Research has shown that intergenerational mobility is higher among individuals with a college degree than those with lower levels of schooling. However, mobility declines among graduate degree holders. This finding questions the meritocratic power of higher education. Prior research has been hampered, however, by the small samples of advanced degree holders in representative surveys. Drawing on a large longitudinal data set of PhD holders — the Survey of Doctorate Recipients — this study examines intergenerational mobility among the American educational elite, separately for men and women and different racial/ethnic groups. Results show substantial mobility among PhD holders. The association between parents’ education and adult children’s earnings is moderate among men and nonexistent among women with doctoral degrees. However, women’s earnings converge to an average level that is much lower than men’s, signaling ‘‘perverse openness’’ for women even at the top of the educational distribution. Among men, there is variation in mobility by race and ethnicity. The intergenerational socioeconomic association is null for Asian men, small for white and black men, and more pronounced for Hispanics. Educational and occupational mediators account for intergenerational association among blacks and whites but not Hispanic men. A doctoral degree largely detaches individuals from their social origins in the United States, but it does not eliminate all sources of inequality.
Educational Inequality, Educational Expansion, and Intergenerational Income Persistence in the United States
Deirdre Bloome, Shauna Dyer & Xiang Zhou
American Sociological Review, forthcoming
The children of high-income parents often become high-income adults, while their low-income peers often become low-income adults. Education plays a central role in this intergenerational income persistence. Because education-based inequalities grew in recent decades, many scholars predicted that intergenerational income persistence would increase. However, previous research suggests that it remained stable across recent cohorts. We address this puzzle. Analyzing National Longitudinal Surveys of Youth data, we find that growing educational inequality by parental income, along with rising economic returns to education, increased intergenerational persistence, as scholars expected. However, two countervailing trends offset this increase. The expansion of higher education reduced persistence, because completing college helps low-income children become high-income adults. Yet, this reduction in persistence was far from enough to offset the increase in persistence associated with growing educational inequality and rising educational returns. Intergenerational persistence would have increased if not for another change: within educational groups, parental income became less predictive of adult income. New methodological tools underlie these findings, tools that quantify, for the first time, education’s full force in intergenerational income persistence. These findings suggest that to reduce intergenerational persistence, educational policies should focus less on how many people complete college and more on who completes college.
Political Ideology, the Moralizing of Income Inequality, and Its Social Consequences
Michael O'Donnell & Serena Chen
University of California Working Paper, September 2018
Income inequality is at its highest level in decades and is a key political and social issue in the U.S. today. However, there is a stark partisan divide on whether and how to address income inequality. We propose one reason for this: ideological differences in viewing the issue of income inequality in moral terms. Across five studies, involving more than 3,000 participants, conservative relative to liberal ideology was associated with a disinclination to see inequality as a moral issue and a dampened tendency to see it as morally wrong. Moreover, more liberal ideology was associated with less tolerance for diverging opinions on the issue in one’s social circle. Finally, although conservatives were reliably disinclined to moralize inequality, we found that they can be induced to view it as a more serious issue and express support for inequality-reducing political policies.
How Will Persistent Low Expected Returns Shape Household Economic Behavior?
Vanya Horneff, Raimond Maurer & Olivia Mitchell
NBER Working Paper, October 2018
Many believe that global capital markets will generate lower returns in the future versus the past. We examine how persistently lower real returns will reshape work, retirement, saving, and investment behavior of older persons using a calibrated dynamic life cycle model. In a low return regime, workers build up less wealth in their tax-qualified 401(k) accounts versus the past, claim social security benefits later, and work more. Moreover, the better-educated are more sensitive to real interest rate changes, and the least-educated alter their behavior less. Interestingly, wealth inequality is lower in periods of persistent low expected returns.
The (Internet) Information Inequality Machine?
NYU Working Paper, September 2018
Advances in information technology have fundamentally altered how we make decisions, as well as the range of alternative options we might consider when deciding. From fairly trivial decisions to important ones, our decisions are increasingly informed by online expert or “crowd-sourced” ratings. The use of this ratings information is no surprise as it helps reduce uncertainty. As the prevalence and usage of ratings information increase, so too does the concentration of income and wealth as “superstars” garner an increasing share of returns. There is reason to believe these trends are entwined as predicted by seminal theories in both sociology (Merton’s “Matthew Effect”) and economics (Rosen’s star markets). Both Merton’s and Rosen’s theories imply that increasing availability of ratings information should exacerbate inequality. Viewed from a different perspective, however, increasing availability of ratings information may help facilitate comparison of entities on some dimensions, thereby allowing for differentiation and consumer sorting on other dimensions. This, in turn, should reduce inequality. I test these propositions in the context of the NYC restaurant industry from 1994 – 2013 using restricted-access administrative data and matched time-varying restaurant ratings. This period purposefully envelopes Yelp’s market entry and expansion, and the greater accessibility of ratings information it afforded. Results are economically meaningful, and show heterogeneous information effects across different markets. For those market segments with less local information (e.g., tourists) making larger cultural purchases, ratings exacerbate sales disparities between competitors. Theoretical implications for both the Matthew Effect and Star Markets theories are discussed throughout.
Who Profits from Patents? Rent-Sharing at Innovative Firms
Patrick Kline et al.
NBER Working Paper, November 2018
This paper analyzes how patent-induced shocks to labor productivity propagate into worker compensation using a new linkage of US patent applications to US business and worker tax records. We infer the causal effects of patent allowances by comparing firms whose patent applications were initially allowed to those whose patent applications were initially rejected. To identify patents that are ex-ante valuable, we extrapolate the excess stock return estimates of Kogan et al. (2017) to the full set of accepted and rejected patent applications based on predetermined firm and patent application characteristics. An initial allowance of an ex-ante valuable patent generates substantial increases in firm productivity and worker compensation. By contrast, initial allowances of lower ex-ante value patents yield no detectable effects on firm outcomes. Patent allowances lead firms to increase employment, but entry wages and workforce composition are insensitive to patent decisions. On average, workers capture roughly 30 cents of every dollar of patent-induced surplus in higher earnings. This share is roughly twice as high among workers present since the year of application. These earnings effects are concentrated among men and workers in the top half of the earnings distribution, and are paired with corresponding improvements in worker retention among these groups. We interpret these earnings responses as reflecting the capture of economic rents by senior workers, who are most costly for innovative firms to replace.