Similar but unequal: Political polarization in the effects of perceived social similarity on support for redistribution
Journal of Experimental Social Psychology, forthcoming
The inequality of wealth in the United States has reached record high levels in recent years. Although many people agree that the current level of inequality is extreme, public support for redistributive measures designed to reduce inequality is divided. Prior work predicts that perceiving high similarity can potentially boost individuals' support for redistribution. However, the present research proposes that the effect of social similarity on redistribution support may be more complex. Whereas high (vs. low) perceived social similarity increases support for redistribution among liberals, contrary to prior predictions, it may actually decrease redistribution support among conservatives. This happens because high (vs. low) perceived social similarity weakens liberals', but strengthens conservatives', beliefs that people deserve their unequal outcomes. The findings generate useful insights for researchers and policymakers by suggesting that strategies that aim to garner public support for redistribution by changing perceptions of social similarity should be tailored to the audience.
Income Growth and its Distribution from Eisenhower to Obama: The Growing Importance of In-Kind Transfers (1959-2016)
James Elwell, Kevin Corinth & Richard Burkhauser
NBER Working Paper, November 2019
Using Census Bureau estimates of the market value of in-kind transfers and Current Population Survey (ASEC-CPS) data over the period 1979 to 2007, Burkhauser et al. (2012b) construct measures of income and its distribution. We extend their work forward to 2016 and back to 1967 using ASEC-CPS data and decennial Census data for 1959. With this newly linked data set, we provide a fresh look at the twenty-year period 1959 to 1979 that encompasses the inauguration of New Frontier and Great Society programs as well as the first survey-based look at levels and trends in income and its distribution from 1959 to 2016. We find that the dramatic decline in the market income of the middle class (measured as the median American tax unit or the mean value of the middle quintile of American tax units) began in 1969. However, we find that this decline was more than offset by government tax and transfer programs — especially in-kind transfers. Conventional measures of median income and income inequality that exclude the market value of in-kind transfers will substantially understate the impact of government policies in offsetting the stagnation of median market income growth and the rise in market income inequality since 1969.
Information and Inequality
Journal of Economic Theory, forthcoming
This paper studies wealth inequality in a Blanchard/Yaari model with idiosyncratic investment returns. Its key innovation is to assume that individuals can buy information. Information reduces uncertainty about the unknown mean investment return. Reduced estimation risk encourages investment in higher yielding risky assets. As a result, endogenous information acquisition amplifies wealth inequality. Wealthy individuals buy more information, which leads them to invest a higher share of their wealth in higher yielding assets, which then makes them even wealthier. The model's empirical implications are studied using Monte Carlo simulations and perturbation approximations. An empirically plausible decrease in information costs can explain about two-thirds of the observed increase in the top 1% wealth share.
The World’s Banker: On the Rise in U.S. Wealth Inequality
Harvard Working Paper, November 2019
The U.S. economy is often referred to as the "banker to the world," due to its unique role in supplying global reserve assets and funding foreign investment. This paper develops a general equilibrium model to analyze and quantify the contribution of this role to rising wealth concentration among American households. I highlight the following points: 1) financial globalization raises wealth inequality in a financially-developed economy initially due to foreign capital pressing up domestic asset prices; 2) much of this increase is transitory and can be reversed as future expected returns on domestic assets fall; and 3) despite the low-interest-rate environment, newly accessed foreign capital provides incentives for affluent households to reallocate wealth toward risky assets while impoverished households increase their debt. Wealth concentration ensues only if this rebalancing effect is large enough to counteract diminished return on domestic assets. Quantitative analysis suggests that global financial integration alone can account for 34% to 55% of the observed increase in the current top one percent wealth share in the U.S., but indicates a possible reversal in the future.
Effort: The Unrecognized Contributor to US Income Inequality
Rodrigo Fuentes & Edward Leamer
NBER Working Paper, November 2019
This paper provides theory and evidence that worker effort has played an important role in the increase in income inequality in the United States between 1980 and 2016. The theory suggests that a worker needs to exert effort enough to pay the rental value of the physical and human capital, thus high effort and high pay for jobs operating expensive capital. With that as a foundation, we use data from the ACS surveys in 1980 and 2016 to estimate Mincer equations for six different education levels that explain wage incomes as a function of weekly hours worked and other worker features. One finding is a decline in annual income for high school graduates for all hours worked per week. We argue that the sharp decline in manufacturing jobs forces down wages of those with high school degrees who have precious few high-effort opportunities outside of manufacturing. Another finding is that incomes rose only for those with advanced degrees and with weekly hours in excess of 40. We attribute this to the natural talent needed to make a computer deliver exceptional value and to the relative ease with which long hours can be chosen when working over the Internet.
Heritability of education rises with intergenerational mobility
Per Engzell & Felix Tropf
Proceedings of the National Academy of Sciences, forthcoming
As an indicator of educational opportunity, social scientists have studied intergenerational mobility — the degree to which children’s attainment depends on that of their parents — and how it varies across place or time. We combine this research with behavior genetics to show that societal variation in mobility is rooted in family advantages that siblings share over and above genetic transmission. In societies with high intergenerational mobility, less variance in educational attainment is attributable to the shared sibling environment. Variance due to genetic factors is largely constant, but its share as a part of total variance, heritability, rises with mobility. Our results suggest that environmental differences underlie variation in intergenerational mobility, and that there is no tension between egalitarian policies and the realization of individual genetic potential.
Who Becomes a Business Owner in High-inequality Regimes? The Conditioning Effect of Economic Inequality on the Impact of Individual Educational and Financial Endowment on Entrepreneurship
Social Currents, forthcoming
Research has shown that individual educational and financial endowments are key indicators of their potential for entrepreneurial entry and success. At the same time, scholars have shown that economic inequality undermines educational development while increasing financial precarity. Yet, we know little about the extent to which economic inequality may condition how education and income affect an individual’s entrepreneurial experience. In this article, we present a mixed-effect analysis using data from 50 countries that shows that economic inequality diminishes the importance of an individual’s education and income on entrepreneurial entry. This effect is larger for higher education and income individuals than those in the bottom of the educational and income strata. In addition, inequality increases the likelihood that an individual would undertake entrepreneurial activities as a last resort, particularly individuals in low-education strata. These results suggest that under high-inequality regimes, entrepreneurship may be a sign of economic insecurity and inefficiency, and highlight the need for scholars to pay greater attention to understanding the structural forces that facilitate entrepreneurship development.
Social Insurance and Occupational Mobility
German Cubas & Pedro Silos
International Economic Review, forthcoming
This paper studies how insurance from progressive taxation improves the matching of workers to occupations. We propose an equilibrium dynamic assignment model to illustrate how social insurance encourages mobility. Workers experiment to find their best occupational fit in a process filled with uncertainty. Risk aversion and limited earnings insurance induce workers to remain in unfitting occupations. We estimate the model using microdata from the United States and Germany. Higher earnings uncertainty explains the U.S. higher mobility rate. When workers in the United States enjoy Germany's higher progressivity, mobility rises. Output and welfare gains are large.
Income Inequality, Size of Government, and Tax Progressivity: A Positive Theory
European Economic Review, forthcoming
I investigate the relationship between income inequality and the composition of public spending in redistributive policies. I extend the Meltzer-Richard model of voting over redistribution allowing voters to choose not only the amount of a uniform lump-sum transfer, but also the level of provision of a public good. The governmental budget is balanced; thus these two choices determine the tax rate on labor income. The multidimensionality of the policy space implies that there is no Condorcet winner. I adopt a citizen-candidate model of electoral competition to tackle this problem. I show that the progressivity of the tax system is increasing in the mean-to-median income ratio while the size of the government need not be. This means that higher income inequality implies a more progressive tax system but, in contrast with the traditional analysis, it may also result in a smaller size of government. Such results are consistent with the most recent findings in the empirical literature.
Long-term decline in intergenerational mobility in the United States since the 1850s
Xi Song et al.
Proceedings of the National Academy of Sciences, forthcoming
We make use of newly available data that include roughly 5 million linked household and population records from 1850 to 2015 to document long-term trends in intergenerational social mobility in the United States. Intergenerational mobility declined substantially over the past 150 y, but more slowly than previously thought. Intergenerational occupational rank–rank correlations increased from less than 0.17 to as high as 0.32, but most of this change occurred to Americans born before 1900. After controlling for the relatively high mobility of persons from farm origins, we find that intergenerational social mobility has been remarkably stable. In contrast with relative stability in rank-based measures of mobility, absolute mobility for the nonfarm population — the fraction of offspring whose occupational ranks are higher than those of their parents — increased for birth cohorts born prior to 1900 and has fallen for those born after 1940.
Income Inequality and Status Symbols: The Case of Fine Wine Imports
Britta Niklas & Elkhan Richard Sadik-Zada
Journal of Wine Economics, forthcoming
This survey investigates the inequality-fine wine imports nexus. To this end, the study employs cointegration techniques to analyze two panel datasets, one of which will analyze data from 12 countries between 1871 and 2018, and another that analyzes data from 66 countries between 1995 and 2017. Estimations indicate that income inequality leads to more fine wine imports in the long run. Changes in income have only a short-term effect on fine wine imports. Nonlinear autoregressive distributed lag (NARDL) estimators reveal an asymmetric long-run relationship between income inequality and fine wine imports in the cases of Argentina and the United States.
The social and genetic inheritance of educational attainment: Genes, parental education, and educational expansion
Social Science Research, forthcoming
Recently, several genome-wide association studies of educational attainment have found education-related genetic variants and enabled the integration of human inheritance into social research. This study incorporates the newest education polygenic score (Lee et al., 2018) into sociological research, and tests three gene-environment interaction hypotheses on status attainment. Using the Health and Retirement Study (N = 7599), I report three findings. First, a standard deviation increase in the education polygenic score is associated with a 58% increase in the likelihood of advancing to the next level of education, while a standard deviation increase in parental education results in a 53% increase. Second, supporting the Saunders hypothesis, the genetic effect becomes 11% smaller when parental education is one standard deviation higher, indicating that highly educated parents are more able to preserve their family's elite status in the next generation. Finally, the genetic effect is slightly greater for the younger cohort (1942–59) than the older cohort (1920–41). The findings strengthen the existing literature on the social influences in helping children achieve their innate talents.
Linked Lives, Linked Trajectories: Intergenerational Association of Intragenerational Income Mobility
Siwei Cheng & Xi Song
American Sociological Review, December 2019, Pages 1037-1068
Most intergenerational mobility studies rely on either snapshot or time-averaged measures of earnings, but have yet to examine resemblance of earnings trajectories over the life course of successive generations. We propose a linked trajectory mobility approach that decomposes the progression of economic status over two generations into associations in four life-cycle dimensions: initial position, growth rate, growth deceleration, and volatility. Using father-son dyad data from the Panel Study of Income Dynamics, we show that men resemble their fathers not only in the overall level of earnings but also in the pattern by which their earnings develop over time. The intergenerational persistence of earnings varies substantially across life stages of both generations; it is strongest for fathers’ early-career and sons’ mid-career, with an intergenerational elasticity (IGE) as high as .6. This result can be explained by the concurrence of the parent’s early career and the offspring’s early childhood. Our findings suggest the intergenerational economic association between parents and offspring is not age-constant but is contingent on the respective life stages of both generations and, most importantly, the period during which they overlap.
Inequality in the Social Mind: Social Comparison and Support for Redistribution
Meghan Condon & Amber Wichowsky
Journal of Politics, forthcoming
Income inequality is fundamentally relational in nature, but research on the American public’s response to it tends to examine individuals in isolation, concluding that support for redistribution is unresponsive to inequality. We focus instead on perceptions of relative socioeconomic position, which we manipulate experimentally through imagined social interactions with high- or low-status others. We find that subjects who make social comparisons between themselves and someone who is socioeconomically advantaged perceive their own status as lower, assess their own socioeconomic status more accurately, and become more supportive of social welfare spending, even though we provide no factual information about the income distribution to subjects in the experiment. Our findings demonstrate that Americans respond with support for redistribution when conditions facilitate upward social comparison. We argue for a shift in scholarly attention to the structural factors that keep rising upper-tail inequality socially invisible.
The Great Gatsby goes to College: Tuition, Inequality and Intergenerational Mobility in the U.S.
Princeton Working Paper, October 2019
This paper studies the role of the higher education system, including government financial aid and transfers to colleges, in shaping income inequality and intergenerational mobility. I introduce a model of college choice with overlapping generations of heterogeneous households subject to a borrowing constraint and with heterogeneous colleges that maximize quality. First, I show that in response to the observed rise in the return to human capital the model yields predictions consistent with increases in five outcomes in the U.S. since 1980: income inequality, tuition, the dispersion of spending per-student across colleges, the exclusion of low-income students from top colleges, and the intergenerational elasticity of earnings (IGE). I quantify the model with rich micro-data from the U.S. About 6% of the observed increase in income inequality results from changes in how students and resources are allocated across colleges. Second, I use the model to run policy counterfactuals. If all students received the same higher education, the Gini coefficient and the IGE would decrease by up to 9% and 33%, respectively. Current government interventions — financial aid and transfers to colleges — decrease the Gini coefficient by 3% and the IGE by 12% compared to a laissez-faire policy. Need-blind admissions can be particularly useful at increasing mobility and correcting for the misallocation of students and resources, thereby increasing GDP, at the expense of slightly higher income inequality.
Inequality and Bias in the Demand for and Supply of News
Ann Owen & Andrew Wei
Social Science Quarterly, forthcoming
Objectives: We examine how the supply and demand for news stories that reference an individualistic concept change in response to changes in inequality and the prevailing ideology.
Methods: We use Google Trends data to construct an index of demand for individualistic news and a database of newspaper articles to construct an index of supply. We estimate fixed effects models on state and DMA‐level data from 1993 to 2017.
Results: Demand for individualistic news is higher in more conservative areas and it is even stronger when inequality rises. Supply of individualistic news is higher when the share of income to the top 1 percent is higher. The supply effect is strongest in more liberal areas.
Predicting mid-life capital formation with pre-school delay of gratification and life-course measures of self-regulation
Daniel Benjamin et al.
Journal of Economic Behavior & Organization, forthcoming
How well do pre-school delay of gratification and life-course measures of self-regulation predict mid-life capital formation? We surveyed 113 participants of the 1967–1973 Bing pre-school studies on delay of gratification when they were in their late 40’s. They reported 11 mid-life capital formation outcomes, including net worth, permanent income, absence of high-interest debt, forward-looking behaviors, and educational attainment. To address multiple hypothesis testing and our small sample, we pre-registered an analysis plan of well–powered tests. As predicted, a newly constructed and pre-registered measure derived from preschool delay of gratification does not predict the 11 capital formation variables (i.e., the sign-adjusted average correlation was 0.02). A pre-registered composite self-regulation index, combining preschool delay of gratification with survey measures of self-regulation collected at ages 17, 27, and 37, does predict 10 of the 11 capital formation variables in the expected direction, with an average correlation of 0.19. The inclusion of the preschool delay of gratification measure in this composite index does not affect the index’s predictive power. We tested several hypothesized reasons that preschool delay of gratification does not have predictive power for our mid-life capital formation variables.