The Wealth Inequality of Nations
Fabian Pfeffer & Nora Waitkus
American Sociological Review, August 2021, Pages 567-602
Comparative research on income inequality has produced several frameworks to study the institutional determinants of income stratification. In contrast, no such framework and much less empirical evidence exist to explain cross-national differences in wealth inequality. This situation is particularly lamentable as cross-national patterns of inequality in wealth diverge sharply from those in income. We seek to pave the way for new explanations of cross-national differences in wealth inequality by tracing them to the influence of different wealth components. Drawing on the literatures on financialization and housing, we argue that housing equity should be the central building block of the comparative analysis of wealth inequality. Using harmonized data on 15 countries included in the Luxembourg Wealth Study (LWS), we demonstrate a lack of association between national levels of income and wealth inequality and concentration. Using decomposition approaches, we then estimate the degree to which national levels of wealth inequality and concentration relate to cross-national differences in wealth portfolios and the distribution of specific asset components. Considering the role of housing equity, financial assets, non-housing real assets, and non-housing debt, we show that cross-national variation in wealth inequality and concentration is centrally determined by the distribution of housing equity.
What explains the decline in r*? Rising income inequality versus demographic shifts
Atif Mian, Ludwig Straub & Amir Sufi
Federal Reserve Working Paper, August 2021
Downward pressure on the natural rate of interest (r*) is often attributed to an increase in saving. This study uses microeconomic data from the SCF+ to explore the relative importance of demographic shifts versus rising income inequality on the evolution of saving behavior in the United States from 1950 to 2019. The evidence suggests that rising income inequality is the more important factor explaining the decline in r*. Saving rates are significantly higher for high income households within a given birth cohort relative to middle and low income households in the same birth cohort, and there has been a large rise in income shares for high income households since the 1980s. The result has been a large rise in saving by high income earners since the 1980s, which is the exact same time period during which r* has fallen. Differences in saving rates across the working age distribution are smaller, and there has not been a consistent monotonic shift in income toward any given age group. Both findings challenge the view that demographic shifts due to the aging of the baby boom generation explain the decline in r*.
Win-win denial: The psychological underpinnings of zero-sum thinking
Samuel Johnson, Jiewen Zhang & Frank Keil
Journal of Experimental Psychology: General, forthcoming
A core proposition in economics is that voluntary exchanges benefit both parties. We show that people often deny the mutually beneficial nature of exchange, instead espousing the belief that one or both parties fail to benefit from the exchange. Across four studies (and 8 further studies in the online supplementary materials), participants read about simple exchanges of goods and services, judging whether each party to the transaction was better off or worse off afterward. These studies revealed that win-win denial is pervasive, with buyers consistently seen as less likely to benefit from transactions than sellers. Several potential psychological mechanisms underlying win-win denial are considered, with the most important influences being mercantilist theories of value (confusing wealth for money) and theory of mind limits (failing to observe that people do not arbitrarily enter exchanges). We argue that these results have widespread implications for politics and society.
Obedience in the Labor Market and Social Mobility: A Socio-Economic Approach
NBER Working Paper, August 2021
This paper presents an analysis of what types of values, especially in regards to obedience vs. independence, families impart to their children and how these values interact with social mobility. In the model, obedience is a useful characteristic for employers, especially when wages are low, because independent workers require more incentives (when wages are high, these incentives are automatic). Hence, in low-wage environments, low-income families will impart values of obedience to their children to prevent disadvantaging them in the labor market. To the extent that independence is useful for entrepreneurial activities, this then depresses their social mobility. High-income and privileged parents, on the other hand, always impart values of independence, since they expect that their children can enter into higher-income entrepreneurial (or managerial) activities thanks to their family resources and privileges. I also discuss how political activity can be hampered when labor market incentives encourage greater obedience and how this can generate multiple steady states with different patterns of social hierarchy and mobility.
The Language of Inequality: Evidence Economic Inequality Increases Wealth Category Salience
Kim Peters et al.
Personality and Social Psychology Bulletin, forthcoming
There is evidence that in more economically unequal societies, social relations are more strained. We argue that this may reflect the tendency for wealth to become a more fitting lens for seeing the world, so that in economically more unequal circumstances, people more readily divide the world into “the haves” and “have nots.” Our argument is supported by archival and experimental evidence. Two archival analyses reveal that at times of greater inequality, books in the United Kingdom and the United States and news media in English-speaking countries were more likely to mention the rich and poor. Three experiments, two preregistered, provided evidence for the causal role of economic inequality in people’s use of wealth categories when describing life in a fictional society; effects were weaker when examining real economic contexts. Thus, one way in which inequality changes the world may be by changing how we see it.
Marriage Market Counterfactuals Using Matching Models
Arnaud Dupuy & Simon Weber
We use a simple structural matching model with unobserved heterogeneity to produce counterfactual marriage patterns, and thus quantify the contribution of changes in marital patterns in rising income inequality. We propose an algorithm that allows us to fix the degree of assortative mating without changing the level of marital gains and hence isolate the intensive and extensive margins (i.e. isolate changes in assortative mating from changes in marriage rates). We apply this approach to US data from 1962 to 2017, and show that marital patterns can explain about a quarter of the rise in income inequality, the intensive margin contributing 7%, the extensive margin the remaining 93%. Our algorithm also allows us to show that the extensive margin is itself driven for three-fifths by a change in the total number of singles and for two-fifths by a change in the distribution of types among singles (in particular low-educated women).
Opportunity and change in occupational assortative mating
Christine Schwartz, Yu Wang & Robert Mare
Social Science Research, September 2021
This article documents how opportunity and change in the U.S. occupational structure shaped patterns of occupational assortative mating between 1970 and 2015–2017. Trends in occupational assortative mating have often been cited as potentially contributing to the rise in economic inequality — the idea that doctors increasingly marry doctors instead of nurses — thereby exacerbating the concentration of resources among advantaged households. Previous estimates of trends in occupational assortative mating are now decades old and their impact on household inequality has not been quantified. Our results show large-scale change. The prevalence of dual-professional couples nearly tripled between 1970 and 2015–2017. Changes were especially large among particular occupational combinations. For instance, male doctors have become increasingly likely to be married to female doctors, and male lawyers to female lawyers. Almost all of the changes in occupational assortative mating patterns, however, are accounted for by changes in the distributions of spouses' occupations, for example, the rise of women in professional occupations. Because of this, the contribution of occupational assortative mating to the rise in economic inequality has been small. In the absence of any association between spouses’ occupations, observed increases in household earnings inequality would have been reduced by 5%. Although this is a small portion of overall changes in inequality, it is much larger than prior estimates of the effects of educational assortative mating on inequality, which recent studies have estimated to be essentially zero.
A panel analysis of income inequality and energy use
Contemporary Economic Policy, forthcoming
This paper investigates the relationship between energy consumption and income inequality in an unbalanced panel of 144 countries over the period 1990–2018. Using fixed effect and instrumental variable panel methods and controlling for other determinants of inequality, I find a large and strong negative relationship between energy use and income inequality. The paper also demonstrates that results hold for models which divide the total sample into subsamples of economic blocs and regions. In addition, greater energy use reduces the income share of the top 10% and increases the share of the bottom 40%.
Lesion Evidence for a Causal Role of the Insula in Aversion to Social Inequity
Felix Jan Nitsch et al.
Social Cognitive and Affective Neuroscience, forthcoming
Humans resist unequal distributions of goods in their social interactions, even if it requires foregoing personal gains. Functional neuroimaging studies implicate the insula in this aversion to social inequity and in fairness-related decisions, but a causal contribution has not yet been established. We compared the responses of 30 patients with lesions to the insula on a multiple-trial version of the one-shot Ultimatum Game, a neuroeconomic social exchange paradigm where a sum of money is split between two players, to those of 30 matched patients with brain injuries sparing the insula. Insula lesion patients accepted offers of an unequal disadvantageous split significantly more often than comparison lesion patients. Computational modeling confirmed that this difference in choice behavior was due to decreased aversion to disadvantageous inequity following insula damage, rather than due to increased decision noise or non-consideration of inequity. Our results provide novel evidence that the insula is causally involved in aversion to inequity and in value-based choices in the context of social interactions.
The Wealth–Health Relationship by Race/Ethnicity: Evidence from a Longitudinal Perspective
Kiwoong Park & Tse-Chuan Yang
Sociological Forum, forthcoming
Using a longitudinal dataset, the Americans’ Changing Lives study, we tested whether and how the wealth–health relationship varies across race/ethnicity groups. By applying hybrid panel models to the data, we first found that individual wealth explained the variation in both mental and physical health (i.e., depressive symptoms and functional health limitations), not only between individuals but also within an individual, net of other socioeconomic status measures and covariates. Second, the impact of change in wealth on mental and physical health was moderated by race/ethnicity in different ways. The beneficial effect of an increase in wealth was more profound among blacks than whites for depressive symptoms, and the favorable impact of an increase in wealth was weaker among blacks than whites for functional health limitations. Our study provides a robust causal inference about the wealth–health association and demonstrates that wealth–health associations vary by racial/ethnic group, especially between whites and blacks.
Association of Wealth With Longevity in US Adults at Midlife
Eric Finegood et al.
JAMA Health Forum, July 2021
Design, Setting, and Participants: This cohort study conducted a series of analyses using data from the Midlife in the United States (MIDUS) study, an ongoing national study of health and aging. The sample included adults (unrelated individuals, full siblings, and dizygotic and monozygotic twins) aged 20 to 75 years, who participated in wave 1 of the MIDUS study, which occurred from 1994 to 1996. The analyses were conducted between November 16, 2019, and May 18, 2021.
Results: The full sample comprised 5414 participants, who had a mean (SD) age of 46.7 (12.7) years and included 2766 women (51.1%). Higher net worth was associated with lower mortality risk (hazard ratio [HR], 0.95; 95% CI, 0.94-0.97; P < .001). Among siblings and twin pairs specifically (n = 2490), a similar within-family association was observed between higher net worth and lower mortality (HR, 0.94; 95% CI, 0.91-0.97; P = .001), suggesting that the sibling or twin with more wealth tended to live longer than their co-sibling or co-twin with less wealth. When separate estimates were performed for the subsamples of siblings (HR, 0.94; 95% CI, 0.90-0.97; P = .002), dizygotic twins (HR, 0.94; 95% CI, 0.86-1.02; P = .19), and monozygotic twins (HR, 0.95; 95% CI, 0.87-1.04; P = .34), the within-family estimates of the net worth–mortality association were similar, although the precision of estimates was reduced among twins.
Intergenerational upward mobility and racial differences in mortality among young adults: Evidence from county-level analyses
Emma Zang & Nathan Kim
Health & Place, July 2021
Inspired by the influential “deaths of despair” narrative, which emphasizes the role of worsening economic opportunity in driving the increasing mortality for non-Hispanic Whites in the recent decades, a rising number of studies have provided suggestive evidence that upward mobility levels across counties may partly explain variations in mortality rates. A gap in the literature is the lack of life-course studies examining the relationship between early-life upward mobility and later-life mortality across counties. Another gap is the lack of studies on how the relationship between upward mobility and mortality across counties varies across diverse sociodemographic populations. This study examines differences across race and sex in the relationship between early-life intergenerational upward mobility and early adulthood mortality at the county level. We use administrative data on upward mobility and vital statistics data on mortality across 3030 counties for those born between 1978 and 1983. We control for a variety of county-level socioeconomic variables in a model with fixed effects for state and year. Subgroup analyses by educational attainment and urban status were also performed for each race-sex combination. Results show strong negative relationships between early-life upward mobility and early adulthood mortality across racial-sex combinations, with a particularly greater magnitude for non-Hispanic Black males. In addition, individuals without a college degree and living in urban counties are particularly affected by early life upward mobility. The findings of this study highlight the vulnerability of less-educated, young urban Black males, due to the intersecting effects of the urban context, education, race, and sex.