He's got class
Social affiliation in same-class and cross-class interactions
Stéphane Côté et al.
Journal of Experimental Psychology: General, February 2017, Pages 269-285
Abstract:
Historically high levels of economic inequality likely have important consequences for relationships between people of the same and different social class backgrounds. Here, we test the prediction that social affiliation among same-class partners is stronger at the extremes of the class spectrum, given that these groups are highly distinctive and most separated from others by institutional and economic forces. An internal meta-analysis of 4 studies (N = 723) provided support for this hypothesis. Participant and partner social class were interactively, rather than additively, associated with social affiliation, indexed by affiliative behaviors and emotions during structured laboratory interactions and in daily life. Further, response surface analyses revealed that paired upper or lower class partners generally affiliated more than average-class pairs. Analyses with separate class indices suggested that these patterns are driven more by parental income and subjective social class than by parental education. The findings illuminate the dynamics of same- and cross-class interactions, revealing that not all same-class interactions feature the same degree of affiliation. They also reveal the importance of studying social class from an intergroup perspective.
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Voting, Education, and the Great Gatsby Curve
Christopher Rauh
Journal of Public Economics, February 2017, Pages 1–14
Abstract:
High inequality goes hand in hand with low intergenerational earnings mobility across countries. Little is known about why the US is characterized by high inequality and low mobility, while the opposite tends to hold for Scandinavian countries. In an overlapping generations model, calibrated to the US, education policies are endogenized via probabilistic voting. By exploiting cross-country variation in the bias in voter turnout towards the educated and elderly, the model replicates the negative relation between inequality and public education expenditures and accounts for more than a quarter of the variation in inequality and mobility. For the US, I find that compulsory voting could foster mobility, whereas inequality would be hardly affected.
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The Historical Evolution of the Wealth Distribution: A Quantitative-Theoretic Investigation
Joachim Hubmer, Per Krusell & Anthony Smith
NBER Working Paper, December 2016
Abstract:
This paper employs the benchmark heterogeneous-agent model used in macroeconomics to examine drivers of the rise in wealth inequality in the U.S. over the last thirty years. Several plausible candidates are formulated, calibrated to data, and examined through the lens of the model. There is one main finding: by far the most important driver is the significant drop in tax progressivity that started in the late 1970s, intensified during the Reagan years, and then subsequently flattened out, with only a minor bounce back. The sharp observed increases in earnings inequality, the falling labor share over the recent decades, and potential mechanisms underlying changes in the gap between the interest rate and the growth rate (Piketty's r-g story) all fall far short of accounting for the data.
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Mobility Report Cards: The Role of Colleges in Intergenerational Mobility
Raj Chetty et al.
Stanford Working Paper, January 2017
Abstract:
We characterize rates of intergenerational income mobility at each college in the United States using administrative data for over 30 million college students from 1999-2013. We document four results. First, access to colleges varies greatly by parent income. For example, children whose parents are in the top 1% of the income distribution are 77 times more likely to attend an Ivy League college than those whose parents are in the bottom income quintile. Second, children from low and high-income families have very similar earnings outcomes conditional on the college they attend, indicating that there is little mismatch of low socioeconomic status students to selective colleges. Third, upward mobility rates – measured, for instance, by the fraction of students who come from families in the bottom income quintile and reach the top quintile – vary substantially across colleges. Much of this variation is driven by differences in the fraction of students from low-income families across colleges whose students have similar earnings outcomes. Mid-tier public universities such as the City University of New York and California State colleges tend to have the highest rates of bottom-to-top quintile mobility. Elite private colleges, such as Ivy League universities, have the highest rates of upper-tail (e.g., bottom quintile to top 1%) mobility. Finally, between the 1980 and 1991 birth cohorts, the fraction of students from bottom-quintile families fell sharply at colleges with high rates of bottom-to-top-quintile mobility, and did not change substantially at elite private institutions. Although our descriptive analysis does not identify colleges’ causal effects on students’ outcomes, the publicly available statistics constructed here highlight colleges that deserve further study as potential engines of upward mobility.
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Educational Homogamy and Assortative Mating Have Not Increased
Rania Gihleb & Kevin Lang
NBER Working Paper, December 2016
Abstract:
Some economists have argued that assortative mating between men and women has increased over the last several decades, thereby contributing to increased family income inequality. Sociologists have argued that educational homogamy has increased. We clarify the relation between the two and, using both the Current Population Surveys and the decennial Censuses/American Community Survey, show that neither is correct. The former is based on the use of inappropriate statistical techniques. Both are sensitive to how educational categories are chosen. We also find no evidence that the correlation between spouses' potential earnings has changed dramatically.
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Exposure to inequality affects support for redistribution
Melissa Sands
Proceedings of the National Academy of Sciences, 24 January 2017, Pages 663–668
Abstract:
The distribution of wealth in the United States and countries around the world is highly skewed. How does visible economic inequality affect well-off individuals’ support for redistribution? Using a placebo-controlled field experiment, I randomize the presence of poverty-stricken people in public spaces frequented by the affluent. Passersby were asked to sign a petition calling for greater redistribution through a “millionaire’s tax.” Results from 2,591 solicitations show that in a real-world-setting exposure to inequality decreases affluent individuals’ willingness to redistribute. The finding that exposure to inequality begets inequality has fundamental implications for policymakers and informs our understanding of the effects of poverty, inequality, and economic segregation. Confederate race and socioeconomic status, both of which were randomized, are shown to interact such that treatment effects vary according to the race, as well as gender, of the subject.
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Distributional National Accounts: Methods and Estimates for the United States
Thomas Piketty, Emmanuel Saez & Gabriel Zucman
NBER Working Paper, December 2016
Abstract:
This paper combines tax, survey, and national accounts data to estimate the distribution of national income in the United States since 1913. Our distributional national accounts capture 100% of national income, allowing us to compute growth rates for each quantile of the income distribution consistent with macroeconomic growth. We estimate the distribution of both pre-tax and post-tax income, making it possible to provide a comprehensive view of how government redistribution affects inequality. Average pre-tax national income per adult has increased 60% since 1980, but we find that it has stagnated for the bottom 50% of the distribution at about $16,000 a year. The pre-tax income of the middle class — adults between the median and the 90th percentile — has grown 40% since 1980, faster than what tax and survey data suggest, due in particular to the rise of tax-exempt fringe benefits. Income has boomed at the top: in 1980, top 1% adults earned on average 27 times more than bottom 50% adults, while they earn 81 times more today. The upsurge of top incomes was first a labor income phenomenon but has mostly been a capital income phenomenon since 2000. The government has offset only a small fraction of the increase in inequality. The reduction of the gender gap in earnings has mitigated the increase in inequality among adults. The share of women, however, falls steeply as one moves up the labor income distribution, and is only 11% in the top 0.1% today.
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Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data
Benjamin Faber & Thibault Fally
NBER Working Paper, January 2017
Abstract:
A growing literature has emphasized the role of firm heterogeneity within sectors in accounting for nominal income inequality. This paper explores the implications for household price indices across the income distribution. Using detailed matched US home and store scanner microdata, we present evidence that rich and poor households source their consumption from different parts of the firm size distribution within disaggregated product groups. We use the microdata to examine alternative explanations, write down a quantitative model featuring two-sided heterogeneity across producers and consumers that rationalizes the observed moments, and calibrate it to explore general equilibrium counterfactuals. We find that larger, more productive firms endogenously sort into catering to the taste of wealthier households, and that this gives rise to asymmetric effects on household price indices. These effects amplify observed changes in nominal income inequality over time, and lead to a more regressive distribution of the gains from international trade.
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Linking Economic Complexity, Institutions, and Income Inequality
Dominik Hartmann et al.
World Development, forthcoming
Abstract:
A country’s mix of products predicts its subsequent pattern of diversification and economic growth. But does this product mix also predict income inequality? Here we combine methods from econometrics, network science, and economic complexity to show that countries exporting complex products — as measured by the Economic Complexity Index — have lower levels of income inequality than countries exporting simpler products. Using multivariate regression analysis, we show that economic complexity is a significant and negative predictor of income inequality and that this relationship is robust to controlling for aggregate measures of income, institutions, export concentration, and human capital. Moreover, we introduce a measure that associates a product to a level of income inequality equal to the average GINI of the countries exporting that product (weighted by the share the product represents in that country’s export basket). We use this measure together with the network of related products — or product space — to illustrate how the development of new products is associated with changes in income inequality. These findings show that economic complexity captures information about an economy’s level of development that is relevant to the ways an economy generates and distributes its income. Moreover, these findings suggest that a country’s productive structure may limit its range of income inequality. Finally, we make our results available through an online resource that allows for its users to visualize the structural transformation of over 150 countries and their associated changes in income inequality during 1963–2008.
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Michael Gaddis & Jonathan Daw
Pennsylvania State University Working Paper, December 2016
Abstract:
The publication of research examining three-generational mobility processes has accelerated during the past half-decade, due in part to new and expanded data that now include large sample sizes of families with more than two generations. However, this area of inquiry is relatively new and little is known about the mechanisms of intergenerational effects beyond parent-child ties. In this article, we draw upon theory and research on intergenerational mobility, maternal education, educational homogamy, and status exchange to propose a new potential mechanism of the transmission of educational attainment from grandparents to grandchildren in the United States: second generation spousal mediation. Using the Panel Study of Income Dynamics, we find evidence that grandparent’s educational attainment positively effects their child’s spouse’s educational attainment net of child’s educational attainment. This pathway then mediates the effect of grandparent’s educational attainment on grandchild’s educational attainment. Further analysis suggests no gender differences in the spousal mediation effect. Overall, this research suggests that grandparent’s educational attainment matters to grandchildren, but is partially mediated through child’s spouse’s educational attainment. We suggest that three-generational transmission of educational advantage is a complex topic in need of further, careful examination of original mechanisms.
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Gregory Acs et al.
Journal of Social Issues, December 2016, Pages 656–675
Abstract:
Persistently high poverty among families with children, a lack of equal opportunity, stalled intergenerational mobility, and inequality have all risen up the agenda for federal, state, and local policymakers. Children born into low-income families face barriers to success in each stage of life from birth till age 40. Using data on a representative group of American children and a life cycle model to track their progress from the earliest years through school and beyond, we show that well-evaluated, targeted interventions can close over 80% of the gap between more and less advantaged children in the proportion that ends up middle class by middle age. These interventions can also greatly improve social mobility and enhance the lifetime incomes of less advantaged children.
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Inequality in Human Capital and Endogenous Credit Constraints
Rong Hai & James Heckman
NBER Working Paper, December 2016
Abstract:
This paper investigates the determinants of inequality in human capital with an emphasis on the role of the credit constraints. We develop and estimate a model in which individuals face uninsured human capital risks and invest in education, acquire work experience, accumulate assets and smooth consumption. Agents can borrow from the private lending market and from government student loan programs. The private market credit limit is explicitly derived by extending the natural borrowing limit of Aiyagari (1994) to incorporate endogenous labor supply, human capital accumulation, psychic costs of working, and age. We quantify the effects of cognitive ability, noncognitive ability, parental education, and parental wealth on educational attainment, wages, and consumption. We conduct counterfactual experiments with respect to tuition subsidies and enhanced student loan limits and evaluate their effects on educational attainment and inequality. We compare the performance of our model with an influential ad hoc model in the literature with education-specific fixed loan limits. We find evidence of substantial life cycle credit constraints that affect human capital accumulation and inequality. The constrained fall into two groups: those who are permanently poor over their lifetimes and a group of well-endowed individuals with rising high levels of acquired skills who are constrained early in their life cycles. Equalizing cognitive and noncognitive ability has dramatic effects on inequality. Equalizing parental backgrounds has much weaker effects. Tuition costs have weak effects on inequality.
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Malgorzata Mikucka, Francesco Sarracino & Joshua Dubrow
World Development, forthcoming
Abstract:
Governments across the world seek to promote a better life for their citizens, but thus far scholars have provided contradictory advice. While some argue that economic growth leads to higher subjective well-being, and others argue that it does not, we are the first to specify two conditions that make economic growth compatible with subjective well-being over time: increasing social trust and declining income inequality. Our methodological contribution is to combine micro- and macro-level data from a large sample of developing, transition, and developed countries and to explicitly distinguish the cross-country differences from the changes over time. We perform a multilevel analysis of harmonized data composed of the World Values Survey, the European Values Study, and macro-level indicators of economic growth and income inequality for 46 countries, observed from 1981 to 2012. Our results show that in the long run economic growth improves subjective well-being when social trust does not decline and, in richer countries, when income inequality reduces. These results are compatible with the recommendation that, to pursue durable improvements in people’s subjective well-being, policy-makers should adopt a ”promote, protect and reduce” policy agenda: promote economic growth, protect and promote social trust, and reduce income inequality.
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Amber Wichowsky
Urban Affairs Review, forthcoming
Abstract:
Social capital is presumed to help individuals who lack financial or human capital achieve collective action through their social ties and networks of relationships. But does it help individuals overcome their socioeconomic disadvantages relative to their wealthier neighbors, or does the accumulation of social capital merely reproduce socioeconomic disparities, particularly in economically segregated places? Leveraging data from the Current Population Survey, I test whether residential income segregation is associated with larger income differences in social capital investments and collective action. I find that in more economically segregated places, wealthier residents are more likely to be members of neighborhood organizations and report working with other community members to address local issues. These results are robust to the inclusion of other potential confounders, including income inequality, racial context, and racial residential segregation. This research has implications for policy makers and stakeholders interested in building a more inclusive civic arena.