Going for the gold
Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility
Raj Chetty et al.
NBER Working Paper, January 2014
Abstract:
We present new evidence on trends in intergenerational mobility in the U.S. using administrative earnings records. We find that percentile rank-based measures of intergenerational mobility have remained extremely stable for the 1971-1993 birth cohorts. For children born between 1971 and 1986, we measure intergenerational mobility based on the correlation between parent and child income percentile ranks. For more recent cohorts, we measure mobility as the correlation between a child’s probability of attending college and her parents’ income rank. We also calculate transition probabilities, such as a child’s chances of reaching the top quintile of the income distribution starting from the bottom quintile. Based on all of these measures, we find that children entering the labor market today have the same chances of moving up in the income distribution (relative to their parents) as children born in the 1970s. However, because inequality has risen, the consequences of the “birth lottery” – the parents to whom a child is born – are larger today than in the past.
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Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States
Raj Chetty et al.
NBER Working Paper, January 2014
Abstract:
We use administrative records on the incomes of more than 40 million children and their parents to describe three features of intergenerational mobility in the United States. First, we characterize the joint distribution of parent and child income at the national level. The conditional expectation of child income given parent income is linear in percentile ranks. On average, a 10 percentile increase in parent income is associated with a 3.4 percentile increase in a child's income. Second, intergenerational mobility varies substantially across areas within the U.S. For example, the probability that a child reaches the top quintile of the national income distribution starting from a family in the bottom quintile is 4.4% in Charlotte but 12.9% in San Jose. Third, we explore the factors correlated with upward mobility. High mobility areas have (1) less residential segregation, (2) less income inequality, (3) better primary schools, (4) greater social capital, and (5) greater family stability. While our descriptive analysis does not identify the causal mechanisms that determine upward mobility, the new publicly available statistics on intergenerational mobility by area developed here can facilitate future research on such mechanisms.
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The Demise of U.S. Economic Growth: Restatement, Rebuttal, and Reflections
Robert Gordon
NBER Working Paper, February 2014
Abstract:
The United States achieved a 2.0 percent average annual growth rate of real GDP per capita between 1891 and 2007. This paper predicts that growth in the 25 to 40 years after 2007 will be much slower, particularly for the great majority of the population. Future growth will be 1.3 percent per annum for labor productivity in the total economy, 0.9 percent for output per capita, 0.4 percent for real income per capita of the bottom 99 percent of the income distribution, and 0.2 percent for the real disposable income of that group. The primary cause of this growth slowdown is a set of four headwinds, all of them widely recognized and uncontroversial. Demographic shifts will reduce hours worked per capita, due not just to the retirement of the baby boom generation but also as a result of an exit from the labor force both of youth and prime-age adults. Educational attainment, a central driver of growth over the past century, stagnates at a plateau as the U.S. sinks lower in the world league tables of high school and college completion rates. Inequality continues to increase, resulting in real income growth for the bottom 99 percent of the income distribution that is fully half a point per year below the average growth of all incomes. A projected long-term increase in the ratio of debt to GDP at all levels of government will inevitably lead to more rapid growth in tax revenues and/or slower growth in transfer payments at some point within the next several decades. There is no need to forecast any slowdown in the pace of future innovation for this gloomy forecast to come true, because that slowdown already occurred four decades ago. In the eight decades before 1972 labor productivity grew at an average rate 0.8 percent per year faster than in the four decades since 1972. While no forecast of a future slowdown of innovation is needed, skepticism is offered here, particularly about the techno-optimists who currently believe that we are at a point of inflection leading to faster technological change. The paper offers several historical examples showing that the future of technology can be forecast 50 or even 100 years in advance and assesses widely discussed innovations anticipated to occur over the next few decades, including medical research, small robots, 3-D printing, big data, driverless vehicles, and oil-gas fracking.
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Marry Your Like: Assortative Mating and Income Inequality
Jeremy Greenwood et al.
NBER Working Paper, January 2014
Abstract:
Has there been an increase in positive assortative mating? Does assortative mating contribute to household income inequality? Data from the United States Census Bureau suggests there has been a rise in assortative mating. Additionally, assortative mating affects household income inequality. In particular, if matching in 2005 between husbands and wives had been random, instead of the pattern observed in the data, then the Gini coefficient would have fallen from the observed 0.43 to 0.34, so that income inequality would be smaller. Thus, assortative mating is important for income inequality. The high level of married female labor-force participation in 2005 is important for this result.
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Inequality and growth: The neglected time dimension
Daniel Halter, Manuel Oechslin & Josef Zweimüller
Journal of Economic Growth, March 2014, Pages 81-104
Abstract:
Inequality affects economic performance through many mechanisms, both beneficial and harmful. Moreover, some of these mechanisms tend to set in fast while others are rather slow. The present paper (i) introduces a simple theoretical model to study how changes in inequality affect economic growth over different time horizons; (ii) empirically investigates the inequality–growth relationship, thereby relying on specifications derived from the theory. Our empirical findings are in line with the theoretical predictions: Higher inequality helps economic performance in the short term but reduces the growth rate of GDP per capita farther in the future. The long-run (or total) effect of higher inequality tends to be negative.
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Income Inequality and Child Maltreatment in the United States
John Eckenrode et al.
Pediatrics, forthcoming
Objective: To examine the relation between county-level income inequality and rates of child maltreatment.
Methods: Data on substantiated reports of child abuse and neglect from 2005 to 2009 were obtained from the National Child Abuse and Neglect Data System. County-level data on income inequality and children in poverty were obtained from the American Community Survey. Data for additional control variables were obtained from the American Community Survey and the Health Resources and Services Administration Area Resource File. The Gini coefficient was used as the measure of income inequality. Generalized additive models were estimated to explore linear and nonlinear relations among income inequality, poverty, and child maltreatment. In all models, state was included as a fixed effect to control for state-level differences in victim rates.
Results: Considerable variation in income inequality and child maltreatment rates was found across the 3142 US counties. Income inequality, as well as child poverty rate, was positively and significantly correlated with child maltreatment rates at the county level. Controlling for child poverty, demographic and economic control variables, and state-level variation in maltreatment rates, there was a significant linear effect of inequality on child maltreatment rates (P < .0001). This effect was stronger for counties with moderate to high levels of child poverty.
Conclusions: Higher income inequality across US counties was significantly associated with higher county-level rates of child maltreatment. The findings contribute to the growing literature linking greater income inequality to a range of poor health and well-being outcomes in infants and children.
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The international mobility of billionaires
Tino Sanandaji
Small Business Economics, February 2014, Pages 329-338
Abstract:
This paper uses data from Forbes Magazine’s list of billionaires, supplemented with other publicly available information, to study the migratory behavior of the very rich. Billionaires are more likely to move to countries that share a language and a culture with their country of birth and to countries with larger markets, higher incomes, and lower capital taxes. In total, only 15 % of self-made billionaires — almost all of whom are entrepreneurs — migrated to another country. One explanation for the modest rate of migration may be the country-specificity of entrepreneurs’ human capital. Eight out of ten migrants select a destination country with higher per capita income than that of their birth country, and seven out of ten move to a country with lower capital taxes.
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Employer's choice: Selection through job advertisements in the nineteenth and twentieth centuries
Wiebke Schulz, Ineke Maas & Marco van Leeuwen
Research in Social Stratification and Mobility, forthcoming
Abstract:
Dominant theories in stratification research suppose modernization processes to have caused societies to become more open. Employers are assumed to have increasingly selected from among applicants on the basis of job-related characteristics, such as their skills, rather than on characteristics unrelated to the job, such as social origin. We address this issue by studying employers’ selection criteria in job advertisements. We do so for the heyday of modernization, the nineteenth and twentieth centuries. Employers are found to have selected more on job-related than on other characteristics even at the start of the period, but the extent to which they did so did not increase over time. Job-related characteristics were no more important as selection criteria in modern occupations, nor in modern municipalities. Despite what modernization theories suggest, employers were no more and no less inclined to select their personnel through job advertisements. Employers did, however, select more on job-related characteristics for occupations with a high status.
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Economic Inequality and the Social Capital Gap in the United States across Time and Space
Matthew Wright
Political Studies, forthcoming
Abstract:
Although researchers have demonstrated that economic inequality and social capital are inversely related in an aggregate sense across time and space, to date little is known about the relationship between inequality and the socio-economic disparity in social capital outcomes. Using yearly cross-sectional surveys of American twelfth graders fielded during 1976–2009, I show that social capital is strongly related to parental socio-economic status, and that this relationship grows in strength as economic inequality increases. This relationship is confirmed both over time and cross-sectionally. Finally, I argue that, between resource-based and psychological accounts of why this relationship exists, the former appears more promising.
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How Risky Are Recessions for Top Earners?
Fatih Guvenen, Greg Kaplan & Jae Song
NBER Working Paper, January 2014
Abstract:
How sensitive are the earnings of top earners to business cycles? And, how does the business cycle sensitivity of top earners vary by industry? We use a confidential dataset on earnings histories of US males from the Social Security Administration. On average, individuals in the top 1% of the earnings distribution are slightly more cyclical than the population average. But there are large differences across sectors: Top earners in Finance, Insurance, and Real Estate (FIRE) and Construction face substantial business cycle volatility, whereas those in Services (who make up 40% of individuals in the top 1 percent) have earnings that are less cyclical than the average worker.
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Income distribution and housing prices: An assignment model approach
Niku Määttänen & Marko Terviö
Journal of Economic Theory, forthcoming
Abstract:
We present a framework for studying the relation between the distributions of income and house prices that is based on an assignment model where households are heterogeneous by incomes and houses by quality. Each household owns one house and wishes to live in one house; thus everyone is potentially both a buyer and a seller. In equilibrium, the distribution of prices depends on both distributions in a tractable but nontrivial manner. We show how the impact of increased income inequality on house prices depends on the shapes of the distributions, and can be inferred from data. In our empirical application we find that increased income inequality between 1998 and 2007 had a negative impact on average house prices in 6 US metropolitan areas.
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Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data
Olivier Coibion et al.
NBER Working Paper, January 2014
Abstract:
One suggested hypothesis for the dramatic rise in household borrowing that preceded the financial crisis is that low-income households increased their demand for credit to finance higher consumption expenditures in order to “keep up” with higher-income households. Using household level data on debt accumulation during 2001-2012, we show that low-income households in high-inequality regions accumulated less debt relative to income than their counterparts in lower-inequality regions, which negates the hypothesis. We argue instead that these patterns are consistent with supply-side interpretations of debt accumulation patterns during the 2000s. We present a model in which banks use applicants’ incomes, combined with local income inequality, to infer the underlying type of the applicant, so that banks ultimately channel more credit toward lower-income applicants in low-inequality regions than high-inequality regions. We confirm the predictions of the model using data on individual mortgage applications in high- and low-inequality regions over this time period.
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Income Inequality and Gambling: A Panel Study in the United States (1980–1997)
Thijs Bol, Bram Lancee & Sander Steijn
Sociological Spectrum, January/February 2014, Pages 61-75
Abstract:
While there are many studies that examine the consequences of increasing income inequality, its effects on gambling behavior have not yet been studied. In this article, we argue that income inequality increases the average expenditure on gambling. Using longitudinal state-level data for the United States (1980–1997), we estimate fixed-effects models to analyze two types of gambling expenditure: pari-mutuel betting and lottery spending. Our findings show a positive effect of increasing income inequality on lottery expenditure. For pari-mutuel betting, the result is not linear, as for higher levels of income inequality, the positive effect decreases, suggesting that the effect flattens out when the increase in income inequality is highest. We argue that there are three reasons why we find a positive effect of income inequality of gambling expenditure: increasing mobility aspirations, availability of resources in the upper part of the distribution, and status anxiety in the lower part of the distribution.
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Sarah Brown, Jolian McHardy & Karl Taylor
Economics of Education Review, forthcoming
Abstract:
A body of empirical evidence supports a positive relationship between educational attainment and social interaction. We build on this literature by exploring the relationship between the social interaction of parents and their offspring from an empirical perspective. Using two U.K. and U.S. panel data sets, we find robust evidence of intergenerational links between the social interaction of parents and their offspring supporting the existence of positive intergenerational effects in social interaction. These links exist after controlling for an extensive set of factors covering family background including income and wealth as well as attempting to control for issues related to reverse causality and endogeneity. Our empirical evidence indicates that higher levels of parental social interaction are associated with higher levels of child social interaction. Our findings indicate an important influence on this facet of children's human capital, namely social skills, with positive consequences expected for educational attainment.
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Compulsory Voting and Income Inequality
John Carey & Yusaku Horiuchi
Dartmouth College Working Paper, January 2014
Abstract:
What difference does it make if more, or fewer, people vote? What difference would it make if the state makes people vote? These questions are central both to normative debates about the rights and duties of citizens in a democracy and to contemporary policy debates in a variety of countries over what actions states should take to encourage electoral participation. To address them, this paper focuses on the phenomenon of compulsory voting – legal requirements that compel citizens to vote in elections. Specifically, by focusing on a rare case of abolishing compulsory voting in Venezuela, we show that not forcing people to vote yielded a more unequal distribution of income. Our evidence supports Arend Lijphart’s claim, advanced in his 1996 presidential address to the American Political Science Association, that compulsory voting can offset class bias in turnout and, in turn, contribute to the equality of influence.
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Do positional goods inhibit saving? Evidence from a life–cycle experiment
Nick Feltovich & Ourega-Zoé Ejebu
Journal of Economic Behavior & Organization, forthcoming
Abstract:
We investigate the effect of positional goods (goods for which one's consumption relative to others’ matters) on saving, based on results from a life-cycle consumption/saving experiment. In a Group treatment, we allow inter-personal comparisons by assigning subjects to groups and displaying rankings based partly on consumption. A baseline Individual treatment is similar, but without the additional information. We find more under-saving (saving less than the optimal amount), and lower money earnings for subjects, in the Group treatment. Both effects are economically relevant, with magnitudes of roughly 6–7% of expected income and 7–8% of average earnings respectively. Additional analysis shows that the result is driven by those subjects who are not ranked in the top three in their group (“keeping up with the Joneses”), and males in particular.
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Samuel Bowles, Glenn Loury & Rajiv Sethi
Journal of the European Economic Association, February 2014, Pages 129–152
Abstract:
We explore the combined effect of segregation in social networks, peer effects, and the relative size of a historically disadvantaged group on the incentives to invest in market-rewarded skills and the dynamics of inequality between social groups. We identify conditions under which group inequality will persist in the absence of differences in ability, credit constraints, or labor market discrimination. Under these conditions, group inequality may be amplified even if initial group differences are negligible. Increases in social integration may destabilize an unequal state and make group equality possible, but the distributional and human capital effects of this depend on the demographic composition of the population. When the size of the initially disadvantaged group is sufficiently small, integration can lower the long-run costs of human capital investment in both groups and result in an increase the aggregate skill share. In contrast, when the initially disadvantaged group is large, integration can induce a fall in the aggregate skill share as the costs of human capital investment rise in both groups. We consider applications to concrete cases and policy implications.
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The long-lasting effects of family background: A European cross-country comparison
Fabrizio Mazzonna
Economics of Education Review, forthcoming
Abstract:
This paper investigates how and to what extent the association between family socio-economic status (SES) during childhood and old age health, income and cognition varies across 11 European countries. It uses the Survey on Health, Aging and Retirement in Europe (SHARE) and SHARELIFE, which collects retrospective information on respondents’ family backgrounds during their childhood. We also analyze which factors lead to intergenerational persistence of human capital by accounting for childhood health and school performance, education and labor market outcomes. The results show a strong relationship between family SES during childhood and old age outcomes and a large cross-country heterogeneity. Education appears as the main channel for this gradient and explains most of the estimated cross-country heterogeneity. Moreover, we show evidence of a strong correlation between income inequality and our estimates of intergenerational persistence of human capital.