Covering the spread
Felix Cheung & Richard Lucas
Journal of Personality and Social Psychology, forthcoming
Abstract:
Previous research has shown that having rich neighbors is associated with reduced levels of subjective well-being, an effect that is likely due to social comparison. The current study examined the role of income inequality as a moderator of this relative income effect. Multilevel analyses were conducted on a sample of more than 1.7 million people from 2,425 counties in the United States. Results showed that higher income inequality was associated with stronger relative income effects. In other words, people were more strongly influenced by the income of their neighbors when income inequality was high.
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Claudia Olivetti & Daniele Paserman
American Economic Review, forthcoming
Abstract:
This paper estimates historical intergenerational elasticities between fathers and children of both sexes in the United States using a novel empirical strategy. The key insight of our approach is that the information about socioeconomic status conveyed by first names can be used to create pseudo-links across generations. We find that both father-son and father-daughter elasticities were flat during the 19th Century, increased sharply between 1900 and 1920, and declined slightly thereafter. We discuss the role of regional disparities in economic development, trends in inequality and returns to human capital, and the marriage market in explaining these patterns.
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Rael Dawtry, Robbie Sutton & Chris Sibley
Psychological Science, forthcoming
Abstract:
The present studies provide evidence that social-sampling processes lead wealthier people to oppose redistribution policies. In samples of American Internet users, wealthier participants reported higher levels of wealth in their social circles (Studies 1a and 1b). This was associated, in turn, with estimates of higher mean wealth in the wider U.S. population, greater perceived fairness of the economic status quo, and opposition to redistribution policies. Furthermore, results from a large-scale, nationally representative New Zealand survey revealed that low levels of neighborhood-level socioeconomic deprivation — an objective index of wealth within participants’ social circles — mediated the relation between income and satisfaction with the economic status quo (Study 2). These findings held controlling for relevant variables, including political orientation and perceived self-interest. Social-structural inequalities appear to combine with social-sampling processes to shape the different political attitudes of wealthier and poorer people.
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European Identity and Redistributive Preferences
Joan Costa-Font & Frank Cowell
London School of Economics Working Paper, June 2015
Abstract:
How important is spatial identity in shifting preferences for redistribution? This paper takes advantage of within-country variability in the adoption of a single currency as an instrument to examine the impact of the rescaling of spatial identity in Europe. We draw upon data from the last three decades of waves of the European Values Survey and we examine the impact of joining the single currency on preferences for redistribution. Our instrumentation strategy relies on using the exogenous effect of joining a common currency, alongside a battery of robustness checks and alternative instruments. Our findings suggest that joining the euro has a boosting effect on European identity; an opposite and comparable effect is found for national pride. We find that European identity increases preferences for redistribution, and that national pride exerts an equivalent reduction in preferences for redistribution.
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Poor Little Rich Kids? The Determinants of the Intergenerational Transmission of Wealth
Sandra Black et al.
NBER Working Paper, July 2015
Abstract:
Wealth is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use administrative data on the net wealth of a large sample of Swedish adoptees merged with similar information for their biological and adoptive parents. Comparing the relationship between the wealth of adopted and biological parents and that of the adopted child, we find that, even prior to any inheritance, there is a substantial role for environment and a much smaller role for genetics. We also examine the role played by bequests and find that, when they are taken into account, the role of adoptive parental wealth becomes much stronger. Our findings suggest that wealth transmission is not primarily because children from wealthier families are inherently more talented or more able but that, even in relatively egalitarian Sweden, wealth begets wealth.
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Sources of Increasing Differential Mortality Among the Aged by Socioeconomic Status
Barry Bosworth, Gary Burtless & Kan Zhang
Brookings Institution Working Paper, June 2015
Abstract:
This paper uses data from the Health and Retirement Study (HRS) to explore the extent and causes of widening differences in life expectancy by socioeconomic status (SES) for older persons. We construct alternative measures of SES using educational attainment and average (career) earnings in the prime working ages of 41-50. We also use information on causes of death, health status and various behavioral indicators (smoking, drinking, and obesity) that are believed to be predictors of premature death in an effort to explain the causes of the growing disparities in life expectancy between people of high and low SES. The paper finds that: -- There is strong statistical evidence in the HRS of a growing inequality of mortality risk by SES among more recent birth cohorts compared with cohorts born before 1930. -- Both educational attainment and career earnings as constructed from Social Security records are equally useful indicators of SES, although the distinction in mortality risk by education is greatest for those with and without a college degree. -- There has been a significant decline in the risk of dying from cancer or heart conditions for older Americans in the top half of the income distribution, but we find no such reduction of mortality risk in the bottom half of the distribution. -- The inclusion of the behavioral variables and health status result in substantial improvement in the predictions of mortality, but they do not identify the sources of the increase in differential mortality. The policy implications of the findings are: -- Indexing the retirement age to increases in average life expectancy to stabilize OASDI finances may have unintended distributional consequences, because most mortality gains have been concentrated among workers in the top half of the earnings distribution. -- The fact that we cannot identify the sources of the increase in differential mortality contributes to uncertainty about the distributional effects of increases in the retirement age in future years.
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HwaJung Choi et al.
Social Science & Medicine, September 2015, Pages 82–90
Abstract:
We assessed the potential contextual effect of income inequality on health by: 1) comparing individuals with similar socioeconomic status (SES) but who reside in counties with different levels of income inequality; and 2) examining whether the potential effect of county-level income inequality on health varies across SES groups. We used the Health and Retirement Study, a nationally representative study of Americans over the age of 50. Using propensity score matching, we selected SES-comparable individuals living in high-income inequality counties and in low-income inequality counties. We examined differences in self-rated overall health outcomes and in other specific physical/mental health outcomes between the two groups using logistic regression (n=34,994) and imposing different sample restrictions based on residential duration in the area. We then used logistic regression with interactions to assess whether, and if so how, health outcomes differed among participants of different SES groups defined by wealth, income, and education. In bivariate analyses of the unmatched full sample, adults living in high-income inequality counties have worse health outcomes for most health measures. After propensity score matching, adults in high-income inequality counties had worse self-rated health status (AOR=1.12; 95% CI 1.04-1.19) and were more likely to report diagnosed psychiatric problems (AOR=1.08; 95% CI 0.99-1.19) than their matched counterparts in low-income inequality counties. These associations were stronger with longer-term residents in the area. Adverse health outcomes associated with living in high-income inequality counties were significant particularly for individuals in the 30th or greater percentiles of income/wealth distribution and those without a college education. In summary, after using more precise matching methods to compare individuals with similar characteristics and addressing measurement error by excluding more recently arrived county residents, adults living in high-income inequality counties had worse reported overall physical and mental health than adults living in low-income inequality counties.
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Tali Kristal & Yinon Cohen
Research in Social Stratification and Mobility, December 2015, Pages 33–47
Abstract:
In this paper we advance the argument that the widespread assumption that computerization and institutional changes are independent explanations for the resurgence of wage inequality is inaccurate. Instead we posit for complex dynamics between computerization and fading pay-setting institutions, arguing that the latter is a mechanism by which the former operates. To test our argument that computerization increases wage inequality not only via the mechanisms specified by skill-biased Technological Change, but also indirectly through structural processes, we utilize longitudinal U.S. industrial-level data on computerization, pay-setting institutions, and wage inequality. Estimating Error Correction Models, we find a stronger longitudinal association between computerization and wage inequality in industries where labor processes were subject to both computerization and the breakup of pay-setting institutions (such as labor unions) than in industries where these institutions never had much of a presence. These findings provide some evidence that computerization operates also through the mechanism of weakening labor market institutions.
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Genetics of Educational Attainment and the Persistence of Privilege at the Turn of the 21st Century
François Nielsen & Micah Roos
Social Forces, forthcoming
Abstract:
We use structural equations methodology with data on 1,576 pairs of variously related young adult siblings (MZ twins, DZ twins, full siblings, half siblings, cousins, and nonrelated siblings) to distinguish the roles of genetic and environmental influences on educational attainment. Using quantitative genetic (ACE) models, we find that the role of genes in educational attainment is relatively weaker (23 percent of the variance) and the role of the shared family environment stronger (41 percent of the variance for twins and 30 percent of the variance for non-twin siblings) than is typically found for cognitive outcomes in young adults. The pattern of high shared environmentality, especially for twins, is not accounted for by the strong degree of assortative mating in the data (parental correlation r = .629), nor by direct effects of educational attainment of the siblings on each other. The low heritability-high environmentality pattern indicates a high level of inequality of opportunity for educational attainment in American society at the turn of the twenty-first century, perhaps linked to a greater role of family financial resources in attainment. Comparative evidence suggests that inequality of opportunity has increased in the United States over past decades, and is higher there today than in other industrial societies.
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Merita Jokela
Social Policy and Society, July 2015, Pages 385-405
Abstract:
The growing demand for domestic workers has been linked to several global developments, such as an ageing population, income inequality, the growth of women entering labour markets, migration and changes in the provision of care. However, empirical quantitative evidence for these associations is still scarce. This study examines how macro-level factors related to care needs (female employment rates and proportion of aged population), labour markets (proportion of migrants and vulnerable employment) and economic characteristics (gross domestic product, income inequality and level of urbanisation) are associated with the prevalence of paid domestic labour across seventy-four countries. Data are derived from the statistics compiled by the International Labour Organization (ILO). Results show that a higher prevalence of paid domestic workers is particularly associated with greater income inequality, but also with a higher proportion of migrants. The association with income inequality remained unchanged after controlling for six other variables related to the demand and supply of domestic services. These findings suggest that income inequality is a crucial factor in determining the proportion of domestic workers in the labour force.
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Technical Change, Wage Inequality, and Taxes
Laurence Ales, Musab Kurnaz & Christopher Sleet
American Economic Review, forthcoming
Abstract:
This paper considers the normative implications of technical change for tax policy design. A task-to-talent assignment model of the labor market is embedded into an optimal tax problem. Technical change modifies equilibrium wage growth across talents and the substitutability of talents across tasks. The overall optimal policy response is to reduce marginal income taxes on low to middle incomes, while raising those on middle to high incomes. The reform favors those in the middle of the income distribution, reducing their average taxes while lowering transfers to those at the bottom.
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Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account
Robert Lawrence
NBER Working Paper, June 2015
Abstract:
As shown in the 1930s by Hicks and Robinson the elasticity of substitution (σ) is a key parameter that captures whether capital and labor are gross complements or substitutes. Establishing the magnitude of σ is vital, not only for explaining changes in the distribution of income between factors but also for undertaking policy measures to influence it. Several papers have explained the recent decline in labor’s share in income by claiming that σ is greater than one and that there has been capital deepening. This paper presents evidence that refutes these claims. It shows that despite a rise in measured capital-labor ratios, labor-augmenting technical change in the US has been sufficiently rapid that effective capital-labor ratios have actually fallen in the sectors and industries that account for the largest portion of the declining labor share in income since 1980. In combination with estimates that corroborate the consensus in the literature that σ is less than 1, these declines in the effective capital ratio can account for much of the recent fall in labor’s share in US income at both the aggregate and industry level. Paradoxically, these results also suggest that increased capital formation would raise labor’s share in income.
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Geoffrey Wodtke
Research in Social Stratification and Mobility, forthcoming
Abstract:
This study investigates changes in the American class structure — defined in terms of workplace ownership and authority relations — and trends in status group disparities in class attainment from 1972 to 2010. Although theory and prior research suggest a variety of appreciable changes in class structure and class attainment, data from the General Social Survey indicate that the sizes of different classes remained fairly stable during this time period and that status group disparities in access to ownership and authority persisted largely intact. The 1970s witnessed a decline in the proportion of workers and growth in the proportion of managers and proprietors, but these trends reversed in the 1980s. As a result, by the late 2000s, the ownership and authority structure of the U.S. economy closely resembled that of the early 1970s. Racial and gender disparities in class attainment also did not change significantly over time: blacks and women remained underrepresented (relative to whites and men) in positions of ownership and authority throughout this period. Even after controlling for an extensive set of human capital characteristics, family constraints, and structural economic factors, there is little evidence of status group integration across these key dimensions of economic power.
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Roderick Swaab & Adam Galinsky
Organizational Behavior and Human Decision Processes, July 2015, Pages 80–92
Abstract:
The current research examined whether cross-national variation in egalitarianism predicts talent levels and organizational performance. We propose that national variation in egalitarianism predicts country-level talent because egalitarianism influences policymaking at the institutional level and everyday social interactions at the psychological level. We compared the relative impact of institutional and psychological measures of equality using the context of international performance in the most popular worldwide sport – football (soccer). Both institutional and psychological measures of equality were associated with greater national team performance. Egalitarian countries also had higher talent levels, which mediated the link between egalitarianism and performance. Furthermore, psychological equality mediated the effects of institutional equality on performance: Countries with greater institutional equality had better performing national teams because they psychologically endorsed egalitarianism. Overall, the findings support a serial mediation model: institutional equality → psychological equality → top talent levels → performance. Importantly, psychological equality at Time 1 predicted the performance of national football teams at Time 2 more than a decade later. All of these effects held when controlling for a host of country-level variables. The forces of equality appear to be a critical driver of talent levels and ultimately performance. These findings demonstrate that both institutional practices and normative systems help determine talent levels and have important implications for organizational performance.
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Information technologies and subjective well-being: Does the Internet raise material aspirations?
Steffen Lohmann
Oxford Economic Papers, July 2015, Pages 740-759
Abstract:
This article examines whether access to modern information technologies, in particular the Internet, has an impact on individual positionality — the degree to which subjective well-being is affected by concerns about relative status and material aspirations. We provide empirical evidence that positionality and Internet access are intertwined. Exploiting variation over time in a panel of European households, we find stated material aspirations to be significantly positively related to computer access in areas with advanced Internet infrastructure. Furthermore, we report cross-sectional evidence from the World Values Survey suggesting an indirect negative effect of Internet access on subjective well-being since people who regularly use the Internet as a source of information derive less satisfaction from their income. Together, the empirical findings highlight the importance of information sets for how individuals evaluate their own living conditions relative to others and suggest a vital role for informational globalization to affect positionality.
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Human Capital Quality and Aggregate Income Differences: Development Accounting for U.S. States
Eric Hanushek, Jens Ruhose & Ludger Woessmann
Stanford Working Paper, June 2015
Abstract:
Although many U.S. state policies presume that human capital is important for state economic development, there is little research linking better education to state incomes. In a complement to international studies of income differences, we investigate the extent to which quality-adjusted measures of human capital can explain within-country income differences. We develop detailed measures of state human capital based on school attainment from census micro data and on cognitive skills from state- and country-of-origin achievement tests. Partitioning current state workforces into state locals, interstate migrants, and immigrants, we adjust achievement scores for selective migration. We use the new human capital measures in development accounting analyses calibrated with standard production parameters. We find that differences in human capital account for 20-35 percent of the current variation in per-capita GDP among states, with roughly even contributions by school attainment and cognitive skills. Similar results emerge from growth accounting analyses.
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Innovation and Top Income Inequality
Philippe Aghion et al.
NBER Working Paper, June 2015
Abstract:
In this paper we use cross-state panel data to show a positive and significant correlation between various measures of innovativeness and top income inequality in the United States over the past decades. Two distinct instrumentation strategies suggest that this correlation (partly) reflects a causality from innovativeness to top income inequality, and the effect is significant: for example, when measured by the number of patent per capita, innovativeness accounts on average across US states for around 17% of the total increase in the top 1% income share between 1975 and 2010. Yet, innovation does not appear to increase other measures of inequality which do not focus on top incomes. Next, we show that the positive effects of innovation on the top 1% income share are dampened in states with higher lobbying intensity. Finally, from cross-section regressions performed at the commuting zone (CZ) level, we find that: (i) innovativeness is positively correlated with upward social mobility; (ii) the positive correlation between innovativeness and social mobility, is driven mainly by entrant innovators and less so by incumbent innovators, and it is dampened in states with higher lobbying intensity. Overall, our findings vindicate the Schumpeterian view whereby the rise in top income shares is partly related to innovation-led growth, where innovation itself fosters social mobility at the top through creative destruction.
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Firm Market Power and the Earnings Distribution
Douglas Webber
Labour Economics, August 2015, Pages 123–134
Abstract:
Using the Longitudinal Employer Household Dynamics (LEHD) data from the United States Census Bureau, I compute firm-level measures of labor market (monopsony) power. To generate these measures, I extend the empirical strategy of Manning (2003) and estimate the labor supply elasticity facing each private non-farm firm in the US. While a link between monopsony power and earnings has traditionally been assumed, I provide the first direct evidence of the positive relationship between a firm's labor supply elasticity and the earnings of its workers. I also contrast the dynamic model strategy with the more traditional use of concentration ratios to measure a firm's labor market power. In addition, I provide several alternative measures of labor market power which account for potential threats to identification such as endogenous mobility. Finally, I construct a counterfactual earnings distribution which allows the effects of firm market power to vary across the earnings distribution. I estimate the average labor supply elasticity to the firm to be 1.08, however my findings suggest there to be significant variability in the distribution of firm market power across US firms, and that dynamic monopsony models are superior to the use of concentration ratios in evaluating a firm's labor market power. I find that a one-unit increase in the labor supply elasticity to the firm is associated with earnings gains of between 5 and 16 percent. While nontrivial, these estimates imply that firms do not fully exercise their labor market power over their workers. Furthermore, I find that the negative earnings impact of a firm's market power is strongest in the lower half of the earnings distribution, and that a one standard deviation increase in the labor supply elasticity to the firm reduces the variance of the earnings distribution by 9 percent.
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James Feigenbaum & Andrew Hall
Stanford Working Paper, July 2015
Abstract:
Municipal governments oversee many of the most important political matters of daily life in the U.S., yet our understanding of municipal politics remains limited. We combine a large dataset on requests for local government services — such as snow plowing, traffic signal repairs, pothole repairs, and graffiti cleanup — in Boston, Massachusetts, 2011-2015, with fine-grained census data on localized incomes and income inequality. Employing a within-neighborhood design, we establish that, other things equal, higher-income census tracts make more requests for government services. Using data from open-ended text responses submitted by the city, we then connect these requests to the provision of services, showing how the underlying capacity of local communities for communicating requests — i.e., for participating in the process of local government — helps drive inequality in the receipt of services themselves. These results highlight how inequality in economic resources connects to inequality in the non-electoral components of participation in local government.
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The Income-Achievement Gap and Adult Outcome Inequality
Eric Reed Nielsen
Federal Reserve Working Paper, May 2015
Abstract:
This paper discusses various methods for assessing group differences in academic achievement using only the ordinal content of achievement test scores. Researchers and policymakers frequently draw conclusions about achievement differences between various populations using methods that rely on the cardinal comparability of test scores. This paper shows that such methods can lead to erroneous conclusions in an important application: measuring changes over time in the achievement gap between youth from high- and low-income households. Commonly-employed, cardinal methods suggest that this "income-achievement gap" did not change between the National Longitudinal Surveys of Youth (NLSY) 1979 and 1997 surveys. In contrast, ordinal methods show that this gap narrowed substantially for reading achievement and may have narrowed for math achievement as well. In fact, any weighting scheme that places more value on higher test scores must conclude that the reading income-achievement gap decreased between these two surveys. The situation for math achievement is more complex, but low-income students in the middle and high deciles of the low-income math achievement distribution unambiguously gained relative to their high-income peers. Furthermore, an anchoring exercise suggests that the narrowing of the income-achievement gap corresponds to an economically significant convergence in lifetime labor wealth and school completion rates for youth from high- and low-income backgrounds.
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Mirae Kim
American Review of Public Administration, July 2015, Pages 402-416
Abstract:
This study examines the hypothesis that a community’s heterogeneous demands for public service, represented by a community’s income inequality and racial-ethnic diversity, together with its level of political engagement, help explain the density of nonprofits in a local area. Using data on more than 3,000 U.S. counties, empirical analyses reveal that communities with a higher level of income inequality and political engagement tend to have more nonprofits per resident than otherwise similar communities. This pattern holds for the nonprofit sector overall and for 6 of the 10 major subsectors examined. These findings suggest that nonprofit organizations may fill a gap in the delivery of public services, especially when a community has a great variety of social and economic needs. This study thus highlights the role of income inequality as a factor in explaining the density of nonprofit organizations at the local level. Implications for public policy and administration are discussed.
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Douglas Frank, Klaus Wertenbroch & William Maddux
Organizational Behavior and Human Decision Processes, September 2015, Pages 160–170
Abstract:
We identify and test a specific psychological mechanism underlying cross-national differences in preferences for performance-based versus redistributive compensation systems. We posit that individuals’ beliefs in the inherent justness and deservedness of individual outcomes (i.e., just world beliefs: JWBs) can help explain individual and culture-level variation in preferences for these compensation systems. Study 1 demonstrates a general correlation between the JWBs of a culturally diverse sample of former managers and their preferences for performance versus equal pay for an individual task. Study 2 shows that American participants exhibit stronger preferences for individual performance pay versus redistributive pay than do French participants, a difference that is mediated by cultural differences in JWBs. Study 3 holds national culture constant and replicates these effects by experimentally manipulating JWBs, demonstrating the causal nature of JWBs in determining preferences for performance-based versus redistributive compensation systems. Implications for organizational incentive systems, culture, and work motivation are discussed.
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Income Inequality, Intergenerational Mobility, and the Great Gatsby Curve: Is Education the Key?
John Jerrim & Lindsey Macmillan
Social Forces, forthcoming
Abstract:
It is widely believed that countries with greater levels of income inequality also have lower levels of intergenerational mobility. This relationship, known as the Great Gatsby Curve (GGC), has been prominently cited by high-ranking public policymakers, bestselling authors, and Nobel Prize–winning academics. Yet, relatively little cross-national work has empirically examined the mechanisms thought to underpin the GGC — particularly with regard to the role of educational attainment. This paper uses the cross-nationally comparable Programme for International Assessment of Adult Competencies (PIAAC) data set to shed new light on this issue. We find that income inequality is associated with several key components of the intergenerational transmission process — including access to higher education, the financial returns on education, and the residual effect of parental education upon labor-market earnings. Thus, consistent with theoretical models, we find that educational attainment is an important driver of the relationship between intergenerational mobility and income inequality. We hence conclude that unequal access to financial resources plays a central role in the intergenerational transmission of advantage.