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Kevin Lewis

December 28, 2018

Economic Inequality Enhances Inferences that the Normative Climate is Individualistic and Competitive
Ángel Sánchez‐Rodríguez et al.
European Journal of Social Psychology, forthcoming

In addition to the negative effects of economic inequality on a range of health and social outcomes, we propose that inequality should also affect how people perceive the broader normative climate in society. We predicted that people living in a more unequal (versus equal) society are more likely to appraise the social context as one where individualism determines people's behaviour. We tested this idea in three experiments by manipulating the degree of economic inequality in a fictional society. We show that, compared to the low inequality condition, participants in the high inequality condition were more likely to project individualistic norms onto society. Furthermore, Experiments 2 and 3 showed that in the high (vs. low) economic inequality condition, participants inferred more competition and less cooperation between people. Our results are discussed in light of the importance of the perception of a broader normative climate to explain the consequences of economic inequality.

Pygmalion in instruction? Tracking, teacher reward structures, and educational inequality
Ida Gran Andersen
Social Psychology of Education, November 2018, Pages 1021–1044

I combine sociological and economic research to test a new theoretical model of the causes and consequences of teacher responses to students’ track location. I examine the impact of teacher reward structures on educational inequality by analyzing how grading practices affect students’ effort and achievement across tracks. Differences in grading practices determine incentive structures for student behavior and educational investments and thus may be an important mechanism in explaining track effects on academic achievement. I apply student fixed effects models across tracks to the NELS:88 and find that, first, track placement affects achievement, second, although grading practices affect achievement, they only explain a minor part of the track effect, and, third, teacher expectations and perceived class ability level explain the positive track effect for high-track students. These findings suggest that high-track students have higher achievement because their teachers perceive them as better students.

Less Competition, More Meritocracy?
Dawei Fang & Thomas Noe
University of Oxford Working Paper, October 2018

Uncompetitive contests for grades, promotions, and job assignments, which feature lax standards or consider only limited talent pools, are often criticized for being unmeritocratic. We show that, when contestants are strategic, lax standards and exclusivity can make selection more meritocratic. Strategic contestants take more risks in more competitive contests. Risk taking reduces the correlation between selection and ability. By reducing the noise engendered by strategic risk taking, dialing down competition can produce outcomes that better conform with the meritocratic ideal of selecting the best and only the best.

Inequality and Participative Democracy. A Self‐Reinforcing Mechanism
Ioannis Theodossiou & Alexandros Zangelidis
Review of Income and Wealth, forthcoming

During the last three decades, a notable increase in economic inequality is observed, accompanied by a decline in people's engagement in politics and electoral participation. This is an unsatisfactory phenomenon as it undermines the legitimacy of democratic representation. This negative association is produced by a complex salient mechanism. This study aims at investigating this issue. Using data from a panel of 28 OECD and European countries, this paper identifies a two‐way causal relationship between inequality and political participation. The results show that greater income inequality alienates and discourages people from engaging with common affairs, thus leading to lower political participation. Yet, lower electoral participation leads towards a less equitable distribution of income. Hence, this study reveals a self‐reinforcing mechanism where the unequal distribution of income leads to political exclusion, which in turn leads to more inequality.

College as equalizer? Testing the selectivity hypothesis
Kristian Bernt Karlson
Social Science Research, forthcoming

Stratification research shows that occupational origins and destinations are weakly associated among individuals holding a college degree. The finding is taken to support the hypothesis that college equalizes opportunities and promotes social mobility. I test the competing hypothesis that the high level of social mobility reported for college degree holders results from the selectivity of this group. To control for selectivity, I reweigh a sample of college degree holders by the inverse probability of being a college degree holder conditional on observable characteristics of students before they enter college, including characteristics such as cognitive ability, personality traits, and beliefs about the future. Analyzing data from the National Longitudinal Survey of Youth 1979, I find no support for the selectivity hypothesis. These findings align with evidence based on indirect tests of the hypothesis, and indicate that college indeed appears to be an equalizer.

Status and the demand for visible goods: Experimental evidence on conspicuous consumption
David Clingingsmith & Roman Sheremeta
Experimental Economics, December 2018, Pages 877–904

Some economists argue that consumption of publicly visible goods is driven by social status. Making a causal inference about this claim is difficult with observational data. We conduct an experiment in which we vary both whether a purchase of a physical product is publicly visible or kept private and whether the income used for purchase is linked to social status or randomly assigned. Making consumption choices visible leads to a large increase in demand when income is linked to status, but not otherwise. We investigate the characteristics that mediate this effect and estimate its impact on welfare.

Symbolically Maintained Inequality: How Harvard and Stanford Students Construct Boundaries among Elite Universities
Amy Binder & Andrea Abel
Sociology of Education, forthcoming

The study of elites is enjoying a revival at a time of increasing economic inequality. Sociologists of education have been leaders in this area, researching how affluent families position their children to compete favorably in a highly stratified higher education system. However, scholars have done less research on how students do symbolic work of their own to bolster elite status. In this study, we use qualitative interviews with 56 undergraduates at Harvard and Stanford Universities to explore how students construct a status hierarchy among elite campuses. Students come to campus with a working knowledge of prestige differences between top institutions but then are influenced by others to refine their perceptions. We find that Harvard and Stanford students value universities that offer a ‘‘well-rounded’’ liberal arts education while criticizing other selective institutions for being, alternatively, too intellectual, connected to the old-world status system, overly associated with partying and athletics, or having a student body too single-minded about career preparation. Our findings suggest that through constructing these nuanced perceptions of elite universities’ distinctiveness, students justify their rarefied positions and contribute to the ongoing status distinctions among social elites more generally.

Outrageous fortune or destiny? Family influences on status achievement in the early life course
Micah Roos & François Nielsen
Social Science Research, forthcoming

Psychologists using quantitative studies of the trait intelligence have established with much confidence that the impact of genes on intelligence increases with age, while the environmental effect of the family of origin declines. We examined the conjecture that a similar trend of increasing effect of genes/declining family environmental effect characterizes other status-related outcomes when arranged in typical age-graded sequence over adolescence and early adulthood. We used DeFries-Fulker (1985) (DF) analysis with longitudinal data on 1576 pairs of variously-related young adult siblings (MZ twins; DZ twins; full siblings; half siblings; cousins; and nonrelated siblings; mean age 28) to estimate univariate quantitative genetic decompositions for fifteen status-related outcomes roughly ordered along the early life course: Verbal IQ, High school GPA, College plans, High school graduation, Some college, College graduation, Graduate school, Educational attainment, Occupational education, Occupational wages, Personal earnings, Household income, Household assets, Home ownership, and Subjective social status, with and without covariate controls for Age, Female gender, and Race/ethnicity (black, Hispanic, other; reference white). Results for successive outcomes did not support the conjecture of increasing heritability with maturity. Rather, the impacts of both the genes and the family environment tended to decline over the life course, resulting in a downward trend in family influences from all sources. There was some evidence of a recrudescence in relative influence of the family environment for outcomes related to the household that are often shared with a spouse, such as home ownership, suggesting a role of assortative mating in status reproduction. Other findings and limitations of the study are discussed.

Price stickiness along the income distribution and the effects of monetary policy
Javier Cravino, Ting Lan & Andrei Levchenko
Journal of Monetary Economics, forthcoming

Monetary shocks have distributional consequences if they affect relative prices across goods consumed by different households. We document that the prices of the goods consumed by high-income households are stickier and less volatile than those of the goods consumed by middle-income households. Following a monetary policy shock, the estimated impulse responses of high-income households’ consumer price indices are about one-third smaller than those of the middle-income households. We evaluate the implications of these findings in a quantitative multi-sector New-Keynesian model featuring heterogeneous households. The distributional consequences of monetary policy shocks are large and similar to those in the econometric model.

High consanguinity promotes intergenerational wealth concentration in socioeconomically privileged Krummhörn families of the 18th and 19th centuries
Johannes Johowa, Kai Willführ & Eckart Volandd
Evolution and Human Behavior, forthcoming

Previous research has demonstrated that consanguineous marriage is a vector for socioeconomic inheritance and for the maintenance of family structure and property. On the basis of reconstituted families from the Krummhörn, Ostfriesland in the 18th and 19th centuries, we examine statistical correlations between ascertained inbreeding coefficients (F) based on family trees and socioeconomic status as well as the intergenerational transmission of landholdings. Semiparametric copula/bivariate regression models with non-random sample selection were applied to estimate F and the proportion of medium (0.0625 > F ≥ 0.0156) or high consanguineous unions (F ≥ 0.0625), respectively. Our estimates for F as well as for the proportion of medium (0.0625 > F ≥ 0.0156) or high consanguineous unions (F ≥ 0.0625) are significantly higher among socioeconomically privileged large farmer families than among the landless portion of the population. At the same time, our analyses show that a high level of consanguinity is associated with an increased intergenerational transmission of landholdings through the patriline (but not the matriline). We discuss the reproductive consequences of consanguinity among large farmers in connection with local resource competition, intensive kinship, and potential in-law conflicts.

Market Power, Finance Wages and Inequality
Wenting Ma
University of North Carolina Working Paper, November 2018

Increasing industry concentration has raised concerns that declining competition among firms for labor has led to slow wage growth. However, the financial sector has been an exception. I find that finance wages have increased by almost three times the increase in non-finance wages, despite similar trends in market concentration. Using confidential U.S. Census data, I construct measures of firm-specific market power and show that finance firms with higher market power are associated with relatively higher wages as compared to firms in other sectors. I provide evidence that rent-sharing plays an essential role in driving the more pronounced effect of market power on finance wages for two reasons. First, finance firms with higher market power can extract relatively higher rents to share. Second, finance firms give a relatively higher share of rents to workers, especially high-skill ones, due to relatively higher worker bargaining power. As rents are disproportionally distributed to high-skilled workers, finance firms with higher market power are associated with relatively higher within-firm inequality.

Investor Sophistication and Capital Income Inequality
Marcin Kacperczyk, Jaromir Nosal & Luminita Stevens
Journal of Monetary Economics, forthcoming

Capital income inequality is large and growing fast, accounting for a significant portion of total income inequality. We study its growth in a general equilibrium portfolio choice model with endogenous information acquisition and heterogeneity across household sophistication and asset riskiness. The model implies capital income inequality that grows with aggregate information technology. Investors differentially adjust both the size and the composition of their portfolios, as unsophisticated investors retrench from trading risky securities and shift their portfolios to safer assets. Technological progress also reduces aggregate returns and increases the volume of transactions, features that are consistent with recent U.S. data.

Could 'Less' Be 'More' in Signaling Wealth?
Zhenqi Liu, Pinar Yildirim & John Zhang
University of Pennsylvania Working Paper, September 2018

In this paper, we incorporate incomplete information about consumer wealth and presence of high-quality counterfeits to investigate when a consumer may engage in moderate as opposed to excessive or conspicuous consumption to signal his/her wealth. Past literature has shown that when wealth is not observable, the wealthy are motivated to outspend the unwealthy to signal their wealth. We show in a single model, however, that when high-quality counterfeits exist, conspicuous consumption as a signal for wealth may no longer be effective. Instead, the wealthy may purposefully restrain from consumption of luxury goods to separate themselves from the rest and hence less can be more in signaling wealth. Our analysis delimits the conditions under which such loud and quiet equilibria exist. We draw managerial implications for luxury brands under both equilibria.

When Fair Isn't Fair: Understanding Choice Reversals Involving Social Preferences
James Andreoni et al.
NBER Working Paper, November 2018

In settings with uncertainty, tension exists between ex ante and ex post notions of fairness (e.g., equal opportunity versus equal outcomes). In a laboratory experiment, the most common behavioral pattern is for subjects to select the ex ante fair alternative ex ante, and switch to the ex post fair alternative ex post. One potential explanation embraces consequentialism and construes the reversals as manifestations of time inconsistency. Another abandons consequentialism, thereby avoiding the implication that revisions imply inconsistency. We test between these explanations by examining the demand for commitment, and contingent planning. The hypothesis of time-consistent non-consequentialism receives strong support.

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