What's in your wallet
Dean Lacy
Public Opinion Quarterly, June 2014, Pages 255-275
Abstract:
The 2012 election campaign popularized the notion that people who benefit from federal spending vote for Democrats, while people who pay the preponderance of taxes vote Republican. A survey conducted during the election included questions to test this hypothesis and to assess the accuracy of voters’ perceptions of federal spending. Voters’ perceptions of their benefit from federal spending are determined by family income, age, employment status, and number of children, as well as by party identification and race. Voters aged 65 and older who believe they are net beneficiaries of federal spending are more likely to be Democrats and vote for Barack Obama than seniors who believe they are net contributors to the federal government. However, the 77.5 percent of voters under age 65 who believe they are net beneficiaries of federal spending are as likely to vote for Romney as for Obama and as likely to be Republicans as Democrats. Voters who live in states that receive more in federal funds than they pay in federal taxes are less likely to vote for Obama or to be Democrats. For most of the electorate, dependence on federal spending is unrelated to vote choice.
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Educational Assortative Mating and Household Income Inequality
Lasse Eika, Magne Mogstad & Basit Zafar
NBER Working Paper, June 2014
Abstract:
We investigate the pattern of educational assortative mating, its evolution over time, and its impact on household income inequality. To these ends, we use rich data from the U.S. and Norway over the period 1980-2007. We find evidence of positive assortative mating at all levels of education in both countries. However, the time trends vary by the level of education: Among college graduates, assortative mating has been declining over time, whereas low educated are increasingly sorting into internally homogenous marriages. When looking within the group of college educated, we find strong but declining assortative mating by academic major. These findings motivate and guide a decomposition analysis, where we quantify the contribution of various factors to the distribution of household income. We find that educational assortative mating accounts for a non-negligible part of the cross-sectional inequality in household income. However, changes in assortative mating over time barely move the time trends in household income inequality. This is because the decline in assortative mating among the highly educated is offset by an increase in assortative mating among the low educated. By comparison, increases in the returns to education over time generate a considerable rise in household income inequality, but these price effects are partly mitigated by increases in college attendance and completion rates among women.
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Krzysztof Zagorski et al.
Social Indicators Research, July 2014, Pages 1089-1110
Abstract:
This paper analyses the effect of income inequality on Europeans’ quality of life, specifically on their overall well-being (happiness, life satisfaction), on their financial quality of life (satisfaction with standard of living, affordability of goods and services, subjective poverty), and on their health (self-rated health, satisfaction with health). The simple bivariate correlations of inequality with overall well-being, financial quality of life, and health are negative. But this is misleading because of the confounding effect of a key omitted variable, national economic development (GDP per capita): Unequal societies are on average much poorer (r = 0.46) and so disadvantaged because of that. We analyse the multi-level European Quality of Life survey conducted in 2003 including national-level data on inequality (Gini coefficient) and economic development (GDP) and individual-level data on overall well-being, financial quality of life, and health. The individual cases are from representative samples of 28 European countries. Our variance-components multi-level models controlling for known individual-level predictors show that national per capita GDP increases subjective well-being, financial quality of life, and health. Net of that, the national level of inequality, as measured by the Gini coefficient, has no statistically significant effect, suggesting that income inequality does not reduce well-being, financial quality of life, or health in advanced societies. These result all imply that directing policies and resources towards inequality reduction is unlikely to benefit the general public in advanced societies.
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How Did Distributional Preferences Change During the Great Recession?
Raymond Fisman, Pamela Jakiela & Shachar Kariv
NBER Working Paper, May 2014
Abstract:
We compare behavior in experiments measuring distributional preferences during the “Great Recession” to behavior in identical experiments conducted during the preceding economic boom. Subjects are drawn from a diverse pool of students whose socioeconomic composition is largely held constant by the university, mitigating concerns about differential selection across macroeconomic conditions. Subjects exposed to the recession are more selfish and more willing to sacrifice equality to enhance efficiency. Reproducing recessionary conditions inside the laboratory by confronting subjects with losses has the same impact on distributional preferences, bolstering the interpretation that economic circumstances, rather than other factors, are driving our results.
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Educational Segregation, Tea Party Organizations, and Battles over Distributive Justice
Rory McVeigh et al.
American Sociological Review, forthcoming
Abstract:
Competing visions of who is deserving of rewards and privileges, and different understandings of the fairness of reward allocation processes, are at the heart of political conflict. Indeed, social movement scholars generally agree that a key component of most, if not all, social movements is a shared belief that existing conditions are unfair and subject to change (Gamson 1992; McAdam 1982; Snow et al. 1986; Turner and Killian 1987). In this article we consider the role that residential segregation by education level plays in shaping perceptions of distributive justice and, in turn, providing a context conducive to conservative political mobilization. We apply these ideas in an analysis of Tea Party activism and show that educational segregation is a strong predictor of the number of Tea Party organizations in U.S. counties. In a complementary analysis, we find that individuals with a bachelor’s degree are more likely than people who do not have any college education to support the Tea Party; this relationship is strongest in counties with higher levels of educational segregation.
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Income Inequality, Social Mobility, and the Decision to Drop Out of High School
Melissa Kearney & Phillip Levine
NBER Working Paper, June 2014
Abstract:
This paper considers the role that high levels of income inequality and low rates of social mobility play in driving the educational attainment of youth in low-income households in the United States. Using high school degree status from five individual-level surveys, our analysis reveals that low-socioeconomic status (SES) students, and particularly boys, who grow up in locations with greater levels of lower-tail income inequality and lower levels of social mobility are relatively more likely to drop out of high school, conditional on other individual characteristics and contextual factors. The data indicate that this relationship does not reflect alternative characteristics of the place, such as poverty concentration, residential segregation, or public school financing. We propose that the results are consistent with a class of explanations that emphasize a role for perceptions of one’s own identity, position in society, or chances of success. In the end, our empirical results indicate that high levels of lower-tail income inequality and low levels of social mobility hinder educational advancement for disadvantaged youth.
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Michelle Rheinschmidt & Rodolfo Mendoza-Denton
Journal of Personality and Social Psychology, July 2014, Pages 101-121
Abstract:
Undergraduates, especially those from lower income backgrounds, may perceive their social class background as different or disadvantaged relative to that of peers and worry about negative social treatment. We hypothesized that concerns about discrimination based on one’s social class (i.e., class-based rejection sensitivity or RS-class) would be damaging to undergraduates’ achievement outcomes particularly among entity theorists, who perceive their personal characteristics as fixed. We reasoned that a perceived capacity for personal growth and change, characteristic of incremental theorists, would make the pursuit of a college degree and upward mobility seem more worthwhile and attainable. We found evidence across 3 studies that dispositionally held and experimentally primed entity (vs. incremental) beliefs predicted college academic performance as a function of RS-class. Studies 1a and 1b documented that high levels of both entity beliefs and RS-class predicted lower self-reported and official grades, respectively, among undergraduates from socioeconomically diverse backgrounds. In Study 2, high entity beliefs and RS-class at matriculation predicted decreased year-end official grades among lower class Latino students. Study 3 established the causal relationship of entity (vs. incremental) beliefs on academic test performance as a function of RS-class. We observed worse test performance with higher RS-class levels following an entity (vs. incremental) prime, an effect driven by lower income students. Findings from a 4th study suggest that entity theorists with RS-class concerns tend to believe less in upward mobility and, following academic setbacks, are prone to personal attributions of failure, as well as hopelessness. Implications for education and intervention are discussed.
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The Distributional Preferences of Americans
Raymond Fisman, Pamela Jakiela & Shachar Kariv
NBER Working Paper, May 2014
Abstract:
We measure the distributional preferences of a large, diverse sample of Americans by embedding modified dictator games that vary the relative price of redistribution in the American Life Panel. Subjects' choices are generally consistent with maximizing a (social) utility function. We decompose distributional preferences into two distinct components - fair-mindedness (tradeoffs between oneself and others) and equality-efficiency tradeoffs - by estimating constant elasticity of substitution utility functions at the individual level. Approximately equal numbers of Americans have equality-focused and efficiency-focused distributional preferences. After controlling for individual characteristics, our experimental measures of equality-efficiency tradeoffs predict the political decisions of our subjects.
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David Jacobs & Lindsey Myers
American Sociological Review, forthcoming
Abstract:
Do historically contingent political accounts help explain the growth in family income inequality in the United States? We use time-series regressions based on 60 years to detect such relationships by assessing interactive associations between the neoliberal departure coincident with Ronald Reagan’s election and the acceleration in inequality that began soon after Reagan took office. We find evidence for this and for a second contingent relationship: stronger unions could successfully resist policies that enhanced economic inequality only before Reagan’s presidency and before the neoliberal anti-union administrations from both parties that followed Reagan. Politically inspired reductions in union membership, and labor’s diminished political opportunities during and after Reagan’s presidency, meant unions no longer could slow the growth in U.S. inequality. Coefficients on these two historically contingent interactions remain significant after many additional determinants are held constant. These findings indicate that political determinants should not be neglected when researchers investigate the determinants of U.S. inequality.
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Benefits Conditional on Work and the Nordic Model
Ann-Sofie Kolm & Mirco Tonin
Journal of Public Economics, forthcoming
Abstract:
Welfare benefits in the Nordic countries are often tied to employment. We argue that this is one of the factors behind the success of the Nordic model, where a comprehensive welfare state is associated with high employment. In a general equilibrium setting, the underlining mechanism works through wage moderation and job creation. The benefits make it more important to hold a job, thus lower wages will be accepted, and more jobs created. Moreover, we show that the incentive to acquire higher education improves, further boosting employment in the long run. These positive effects help counteracting the negative impact of taxation. Through numerical simulations, we show how this mechanism can contribute to explain the better labor market performance and more equitable income distribution of Nordic countries compared to Continental European ones.
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The Scandinavian model — An interpretation
Erling Barth, Karl Moene & Fredrik Willumsen
Journal of Public Economics, September 2014, Pages 60–72
Abstract:
The small open economies in Scandinavia have for long periods had high work effort, small wage differentials, high productivity, and a generous welfare state. To understand how this might be an economic and political equilibrium we combine models of collective wage bargaining, creative job destruction, and welfare spending. The two-tier system of wage bargaining provides microeconomic efficiency and wage compression. Combined with a vintage approach to the process of creative destruction we show how wage compression fuels investments, enhances average productivity and increases the mean wage by allocating more of the work force to the most modern activities. Finally, we show how the political support of welfare spending is fueled by both a higher mean wage and a lower wage dispersion.
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Early childhood education expenditures and the intergenerational persistence of income
William Blankenau & Xiaoyan Youderian
Review of Economic Dynamics, forthcoming
Abstract:
We consider the extent to which cross-country differences in the intergenerational persistence of income can be explained by differences in government spending on early childhood education. We build a life-cycle model where human capital is accumulated in early, middle and late childhood. Both families and the government can increase the human capital of young agents by investing in education at each stage of childhood. Ability in each dynasty and wages per unit of human capital are stochastic. Different realizations of these values and the resultant education spending histories generate a stochastic steady-state distribution of income. Government spending can reduce persistence by weakening the link between parental income and education spending for a child. Our results show that doubling early childhood spending in the U.S. to match levels in Norway and Denmark eliminates less than 8.5 percent of the gap in intergenerational income persistence. Increased government education spending in later childhood has almost no effect on persistence. Early childhood expenditures can have a larger effect when allocated to low income families.
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Democracy, Redistribution, and Political Participation: Evidence From Sweden 1919–1938
Björn Tyrefors Hinnerich & Per Pettersson-Lidbom
Econometrica, May 2014, Pages 961–993
Abstract:
In this paper, we compare how two different types of political regimes — direct versus representative democracy — redistribute income toward the relatively poor segments of society after the introduction of universal and equal suffrage. Swedish local governments are used as a testing ground since this setting offers a number of attractive features for a credible impact evaluation. Most importantly, we exploit the existence of a population threshold, which partly determined a local government's choice of democracy to implement a regression-discontinuity design. The results indicate that direct democracies spend 40–60 percent less on public welfare. Our interpretation is that direct democracy may be more prone to elite capture than representative democracy since the elite's potential to exercise de facto power is likely to be greater in direct democracy after democratization.
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Life Satisfaction Across Nations: The Effects of Women’s Political Status and Public Priorities
Richard York & Shannon Elizabeth Bell
Social Science Research, November 2014, Pages 48–61
Abstract:
Feminist scholars suggest that improving the quality of life of individuals living in nations around the world may be more readily achieved by increasing women’s political power and by reorienting public-policy priorities, rather than focusing primarily on economic growth. These considerations raise the question of which characteristics of societies are associated with the quality of life of the people in those societies. Here, we address this issue empirically by statistically analyzing cross-national data. We assess the effects of gender equality in the political sphere, as well as a variety of other factors, on the subjective well-being of nations, as indicated by average self-reported levels of life satisfaction. We find that people report the highest levels of life satisfaction in nations where women have greater political representation, where military spending is low, and where health care spending is high, controlling for a variety of other factors. GDP per capita, urbanization, and natural resource exploitation are not clearly associated with life satisfaction. These findings suggest that nations may be able to improve the subjective quality of life of people without increasing material wealth or natural resource consumption by increasing gender equality in politics and changing public spending priorities.
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The “Business Climate” and Economic Inequality
David Neumark & Jennifer Muz
NBER Working Paper, June 2014
Abstract:
“Business climate indexes” characterize state economic policies, and are often used to try to influence economic policy debate. However, they are also useful in research as summaries of a large number of state policies that cannot be studied simultaneously. Prior research found that business climate indexes focused on productivity and quality of life do not predict economic growth, while indexes emphasizing taxes and costs of doing business indicate that low-tax, low-cost states have faster growth of employment, wages, and output. In this paper, we study the relationship between these two categories of business climate indexes and the promotion of equality or inequality. We do not find that the productivity/quality-of-life indexes predict more equitable outcomes, although some of the policies underlying them suggest they might. We do find, however, that the same tax-and-cost related indexes that are associated with higher economic growth are also associated with increases in inequality.
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The Financial Crisis of 1929 Reexamined: The Role of Soaring Inequality
Jon Wisman
Review of Political Economy, forthcoming
Abstract:
The financial crisis of 1929 that triggered the Great Depression has been endlessly studied. Still there is little consensus regarding what caused it. This article claims that wage stagnation and exploding inequality fueled three dynamics that set the stage for a financial crisis. First, consumption was constrained by the smaller share of total income accruing to workers, thereby restricting investment opportunities in the real economy. Flush with greater income and wealth, the elite flooded financial markets with credit, helping keep interest rates low and encouraging the creation of new credit instruments, some of which recycled the rich's surplus assets as debt to those less well off. Second, greater inequality pressured households to find ways to consume more in order to maintain their relative social status, resulting in reduced household saving, greater household debt, and possibly longer work hours. Third, as the rich took larger shares of income and wealth, they gained relatively more command over everything, including ideology. Reducing taxes on the rich, favoring business over labor, and failing to regulate newly evolving credit instruments flowed out of this ideology.
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Syngjoo Choi et al.
American Economic Review, June 2014, Pages 1518-1550
Abstract:
Revealed preference theory offers a criterion for decision-making quality: if decisions are high quality then there exists a utility function the choices maximize. We conduct a large-scale experiment to test for consistency with utility maximization. Consistency scores vary markedly within and across socioeconomic groups. In particular, consistency is strongly related to wealth: a standard deviation increase in consistency is associated with 15-19 percent more household wealth. This association is quantitatively robust to conditioning on correlates of unobserved constraints, preferences, and beliefs. Consistency with utility maximization under laboratory conditions thus captures decision-making ability that applies across domains and influences important real-world outcomes.
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Jonathan Fisher, David Johnson & Timothy Smeeding
Review of Income and Wealth, forthcoming
Abstract:
This paper examines the distribution of income and consumption in the U.S. using one dataset that obtains measures of both income and consumption from the same set of individuals. We develop a set of inequality measures that show the increase in inequality during the past 27 years using the 1984–2011 Consumer Expenditure Survey. We find that the trends in income and consumption inequality are similar between 1984 and 2006, and diverge during and after the Great Recession. For the entire 27-year period we find that consumption inequality increases almost as much as does income inequality.
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Trust, Welfare States and Income Equality: Sorting out the Causality
Andreas Bergh & Christian Bjørnskov
European Journal of Political Economy, September 2014, Pages 183–199
Abstract:
The cross-country correlation between social trust and income equality is well documented, but few studies examine the direction of causality. We show theoretically that by facilitating cooperation, trust may lead to more equal outcomes, while the feedback from inequality to trust is ambiguous. Using a structural equations model estimated on a large country sample, we find that trust has a positive effect on both market and net income equality. Larger welfare states lead to higher net equality but neither net income equality nor welfare state size seem to have a causal effect on trust. We conclude that while trust facilitates welfare state policies that may reduce net inequality, this decrease in inequality does not increase trust.
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On the Relationship between Innovation and Wage Inequality: New Evidence from Canadian Cities
Sébastien Breau, Dieter Kogler & Kenyon Bolton
Economic Geography, forthcoming
Abstract:
In this article, we examine the link between innovation and earnings inequality across Canadian cities over the 1996–2006 period. We do so using a novel data set that combines information from the Canadian long-form census and the United States Patent and Trademark Office. The analysis reveals that there is a positive relationship between innovation and inequality: cities with higher levels of innovation have more unequal distributions of earnings. Other factors influencing differences in inequality include city size, manufacturing and government employment, the percentage of visible minority in an urban population, and educational inequality. These results are robust to the use of different measures of inequality, innovation, alternative specifications, and instrumental variables estimations. Questions are thus raised about how the benefits of innovation are distributed in society and the long-term sustainability of such trends.