Few and far between
Social class and wise reasoning about interpersonal conflicts across regions, persons and situations
Justin Brienza & Igor Grossmann
Proceedings of the Royal Society: Biological Sciences, 20 December 2017
Abstract:
We propose that class is inversely related to a propensity for using wise reasoning (recognizing limits of their knowledge, consider world in flux and change, acknowledges and integrate different perspectives) in interpersonal situations, contrary to established class advantage in abstract cognition. Two studies — an online survey from regions differing in economic affluence (n = 2 145) and a representative in-lab study with stratified sampling of adults from working and middle-class backgrounds (n = 299) — tested this proposition, indicating that higher social class consistently related to lower levels of wise reasoning across different levels of analysis, including regional and individual differences, and subjective construal of specific situations. The results held across personal and standardized hypothetical situations, across self-reported and observed wise reasoning, and when controlling for fluid and crystallized cognitive abilities. Consistent with an ecological framework, class differences in wise reasoning were specific to interpersonal (versus societal) conflicts. These findings suggest that higher social class weighs individuals down by providing the ecological constraints that undermine wise reasoning about interpersonal affairs.
Wealth, Poverty, and Happiness: Social Class Is Differentially Associated With Positive Emotions
Paul Piff & Jake Moskowitz
Emotion, forthcoming
Abstract:
Is higher social class associated with greater happiness? In a large nationally representative U.S. sample (N = 1,519), we examined the association between social class (household income) and self-reported tendencies to experience 7 distinct positive emotions that are core to happiness: amusement, awe, compassion, contentment, enthusiasm, love, and pride. Consistent with past research indicating that social class underlies differential patterns of attending to the self versus orienting to others, higher social class was associated with greater self-oriented feelings of contentment and pride, and with greater amusement. In contrast, lower social class was associated with more other-oriented feelings of compassion and love, and with greater awe. There were no class differences in enthusiasm. We discuss that individuals from different social class backgrounds may exhibit different patterns of emotional responding due to their distinct social concerns and priorities. Whereas self-oriented emotions may follow from, foster, and reinforce upper class individuals’ desire for independence and self-sufficiency, greater other-oriented emotion may enable lower class individuals to form more interdependent bonds to cope with their more threatening environments.
Inequality in 3-D: Income, Consumption, and Wealth
Jonathan Fisher et al.
Federal Reserve Working Paper, January 2018
Abstract:
We do not need to and should not have to choose amongst income, consumption, or wealth as the superior measure of well-being. All three individually and jointly determine well-being. We are the first to study inequality in three conjoint dimensions for the same households, using income, consumption, and wealth from the 1989-2016 Surveys of Consumer Finances (SCF). The paper focuses on two questions. What does inequality in two and three dimensions look like? Has inequality in multiple dimensions increased by less, by more, or by about the same as inequality in any one dimension? We find an increase in inequality in two dimensions and in three dimensions, with a faster increase in multi-dimensional inequality than in one-dimensional inequality. Viewing inequality through one dimension greatly understates the level and the growth in inequality in two and three dimensions. The U.S. is becoming more economically unequal than is generally understood.
Growth Effects of Inequality and Redistribution: What are the Transmission Channels?
Klaus Gründler & Philipp Scheuermeyer
Journal of Macroeconomics, March 2018, Pages 293-313
Abstract:
Evidence from a large panel of harmonized data highlights a negative effect of income inequality on economic growth. Less equal societies tend to have less educated populations and higher fertility rates, but not necessarily lower investment shares. These effects are particularly prevalent if credit availability is limited, while public education spending attenuates the negative effects of inequality. Public redistribution, measured as the difference between Ginis of market and net income, hampers growth via lower investment and increased fertility. Yet, combined with its positive effect through lower inequality, the impact of redistribution is insignificant. In developing countries redistribution can even be growth enhancing.
Wealth Inequality, Democracy and Economic Freedom
Rabiul Islam
Journal of Comparative Economics, forthcoming
Abstract:
Using a novel panel data set from the Credit Suisse on the top wealth shares for 46 sample countries spanning 2000-2014, this paper empirically investigates to what extent wealth inequality influences economic freedom and whether this relationship is affected by the level of democracy. Economic freedom is measured by the Fraser Institute's economic freedom summary index as well as its five major sub-indices, such as government size, property rights, access to sound money, freedom to trade, and regulations. Wealth inequality is measured by the top wealth shares. Trade union density is used as an instrument for wealth inequality. Empirical results suggest that the rising wealth inequality significantly hampers overall economic freedom, property rights protection, freedom to trade, soundness of money and regulatory environment. Furthermore, this negative effect of wealth inequality is reinforced at a lower level of democracy. These findings are robust to alternative measures of wealth inequality, economic freedom, treatment for endogeneity, and model specification.
Do Taxes Increase Economic Inequality? A Comparative Study Based on the State Personal Income Tax
Ugo Troiano
NBER Working Paper, December 2017
Abstract:
I present new quasi-experimental evidence on the relationship between tax policies and the distribution of income. I focus on the twentieth century United States, and on the personal income tax, since its inception. I study three major policy events that, as the existing literature shows, significantly raised the revenues from the income tax: the introduction of the state personal income tax, the introduction of tax withholding together with third-party reporting, and the intergovernmental agreements between the federal and state governments to coordinate tax auditing efforts. All the three policies were introduced in a staggered fashion and increased tax revenues, but had different fiscal consequences. Despite this, I find that income inequality raised after all the tax policy events. The result is robust to different measures of economic inequality and econometric specifications.
Recovering the Missing Middle: A Mesocomparative Analysis of Within-Group Inequality, 1970–2011
Tom VanHeuvelen
American Journal of Sociology, January 2018, Pages 1064-1116
Abstract:
This study assesses the causes of within-group inequality, or the inequality occurring among workers and households otherwise similar on observed characteristics. The author situates his research in a longitudinal analysis of local labor markets to determine the heterogeneous set of causes of within-group inequality. A data set is constructed locating within- and between-group portions of male wage, female wage, and household income inequality from nine waves of the integrated public use microdata series from the U.S. census in 722 temporally stable geographical units that cover the entire contiguous United States. Results from heteroscedastic and multilevel repeated-measures regression models reveal that within-group inequality follows economic development along a U-shaped pattern and that the well-established curvilinear relationship between development and inequality occurs specifically through the within-group portion of wages and incomes. Other factors — including sector change, occupational task concentration, educational expansion, urbanization, and deinstitutionalization — contribute to explain the association between within-group inequality and economic development.
The paradox of intelligence: Heritability and malleability coexist in hidden gene-environment interplay
Bruno Sauce & Louis Matzel
Psychological Bulletin, January 2018, Pages 26-47
Abstract:
Intelligence can have an extremely high heritability, but also be malleable; a paradox that has been the source of continuous controversy. Here we attempt to clarify the issue, and advance a frequently overlooked solution to the paradox: Intelligence is a trait with unusual properties that create a large reservoir of hidden gene–environment (GE) networks, allowing for the contribution of high genetic and environmental influences on individual differences in IQ. GE interplay is difficult to specify with current methods, and is underestimated in standard metrics of heritability (thus inflating estimates of “genetic” effects). We describe empirical evidence for GE interplay in intelligence, with malleability existing on top of heritability. The evidence covers cognitive gains consequent to adoption/immigration, changes in IQ’s heritability across life span and socioeconomic status, gains in IQ over time consequent to societal development (the Flynn effect), the slowdown of age-related cognitive decline, and the gains in intelligence from early education. The GE solution has novel implications for enduring problems, including our inability to identify intelligence-related genes (also known as IQ’s “missing heritability”), and the loss of initial benefits from early intervention programs (such as “Head Start”). The GE solution can be a powerful guide to future research, and may also aid policies to overcome barriers to the development of intelligence, particularly in impoverished and underprivileged populations.
Health disparities, politics, and the maintenance of the status quo: A new theory of inequality
Javier Rodriguez
Social Science & Medicine, forthcoming
Abstract:
Individuals participate in politics to influence the politicians that prescribe the policies and programs that distribute the public goods and services that shape the social determinants of health. But the opportunity to participate in politics is conditional on survival, and in the U.S., the haves enjoy a significant survival advantage over the have-nots. This process can be detected looking at the relationship between age and participation: It is inflated by the fact that, as time progresses, a higher proportion of low-SES, low-level participation individuals die and are therefore excluded from the available pool of participants faster than high-SES, high-level participation individuals. We analyze this mechanism applying propensity scores matching and multivariate regressions on data from MIDUS I (Midlife in the United States: A National Study of Health and Well-being) and its 10-year mortality follow-up. Results show that health differences between 10-year survivors and non-survivors explain 56% of their differences in socio-political participation. Survivors participate at higher levels than non-survivors across all age groups and SES levels; without detrimental differences in health, individuals would participate 28% more as they age. The same disadvantaged individuals whose increased participation would pressure for redistributive policies are those who die off from the available pool of participants at much higher rates than socioeconomically advantaged individuals. The proposed conceptual model helps to explain how, through the early disappearance of the poor, continuing socio-political participation of high-SES survivors helps to perpetuate inequality in the status quo.
Is Envy Harmful to a Society's Psychological Health and Wellbeing? A Longitudinal Study of 18,000 Adults
Redzo Mujcic & Andrew Oswald
Social Science & Medicine, February 2018, Pages 103-111
Abstract:
Nearly 100 years ago, the philosopher and mathematician Bertrand Russell warned of the social dangers of widespread envy. One view of modern society is that it is systematically developing a set of institutions -- such as social media and new forms of advertising -- that make people feel inadequate and envious of others. If so, how might that be influencing the psychological health of our citizens? This paper reports the first large-scale longitudinal research into envy and its possible repercussions. The paper studies 18,000 randomly selected individuals over the years 2005, 2009, and 2013. Using measures of SF-36 mental health and psychological well-being, four main conclusions emerge. First, the young are especially susceptible. Levels of envy fall as people grow older. This longitudinal finding is consistent with a cross-sectional pattern noted recently by Nicole E. Henniger and Christine R. Harris, and with the theory of socioemotional regulation suggested by scholars such as Laura L. Carstensen. Second, using fixed-effects equations and prospective analysis, the analysis reveals that envy today is a powerful predictor of worse SF-36 mental health and well-being in the future. A change from the lowest to the highest level of envy, for example, is associated with a worsening of SF-36 mental health by approximately half a standard deviation (p < .001). Third, no evidence is found for the idea that envy acts as a useful motivator. Greater envy is associated with slower -- not higher -- growth of psychological well-being in the future. Nor is envy a predictor of later economic success. Fourth, the longitudinal decline of envy leaves unaltered a U-shaped age pattern of well-being from age 20 to age 70. These results are consistent with the idea that society should be concerned about institutions that stimulate large-scale envy.
Wage Dynamics and Returns to Unobserved Skill
Lance Lochner, Youngmin Park & Youngki Shin
NBER Working Paper, January 2018
Abstract:
Economists disagree about the factors driving the substantial increase in residual wage inequality in the U.S. over the past few decades. We identify and estimate a general model of log wage residuals that incorporates: (i) changing returns to unobserved skills, (ii) a changing distribution of unobserved skills, and (iii) changing volatility in wages due to factors unrelated to skills. Using data from the PSID, we estimate that the returns to unobserved skills have declined by as much as 50% since the mid-1980s despite a sizable increase in residual inequality. Instead, the variance of skills rose over this period due to increasing variability in life cycle skill growth. Finally, we develop an assignment model of the labor market and show that both demand and supply factors contributed to the downward trend in the returns to skills over time, with demand factors dominating for non-college-educated men.
The Amount and Source of Millionaires' Wealth (Moderately) Predicts Their Happiness
Grant Donnelly et al.
Personality and Social Psychology Bulletin, forthcoming
Abstract:
Two samples of more than 4,000 millionaires reveal two primary findings. First, only at high levels of wealth — in excess of $8 million (Study 1) and $10 million (Study 2) — are wealthier millionaires happier than millionaires with lower levels of wealth, though these differences are modest in magnitude. Second, controlling for total wealth, millionaires who have earned their wealth are moderately happier than those who inherited it. Taken together, these results suggest that, among millionaires, wealth may be likely to pay off in greater happiness only at very high levels of wealth, and when that wealth was earned rather than inherited.
Happiness, income satiation and turning points around the world
Andrew Jebb et al.
Nature Human Behaviour, January 2018, Pages 33–38
Abstract:
Income is known to be associated with happiness, but debates persist about the exact nature of this relationship. Does happiness rise indefinitely with income, or is there a point at which higher incomes no longer lead to greater well-being? We examine this question using data from the Gallup World Poll, a representative sample of over 1.7 million individuals worldwide. Controlling for demographic factors, we use spline regression models to statistically identify points of ‘income satiation’. Globally, we find that satiation occurs at $95,000 for life evaluation and $60,000 to $75,000 for emotional well-being. However, there is substantial variation across world regions, with satiation occurring later in wealthier regions. We also find that in certain parts of the world, incomes beyond satiation are associated with lower life evaluations. These findings on income and happiness have practical and theoretical significance at the individual, institutional and national levels. They point to a degree of happiness adaptation and that money influences happiness through the fulfilment of both needs and increasing material desires.
Inferring Inequality with Home Production
Job Boerma & Loukas Karabarbounis
NBER Working Paper, December 2017
Abstract:
We revisit the causes, welfare consequences, and policy implications of the dispersion in households' labor market outcomes using a model with uninsurable risk, incomplete asset markets, and a home production technology. Accounting for home production amplifies welfare-based differences across households meaning that inequality is larger than we thought. Using the optimality condition that households allocate more consumption to their more productive sector, we infer that the dispersion in home productivity across households is roughly three times as large as the dispersion in their wages. There is little scope for home production to offset differences that originate in the market sector because productivity differences in the home sector are large and the time input in home production does not covary with consumption expenditures and wages in the cross section of households. We conclude that the optimal tax system should feature more progressivity taking into account home production.
Neighbourhood income inequality and property crime
Neil Metz & Mariya Burdina
Urban Studies, January 2018, Pages 133-150
Abstract:
This paper examines the relationship between income inequality and property crime using Census block group data from three US cities: Nashville, TN, Portland, OR and Tucson, AZ. This paper is one of very few to examine this relationship at such a fine geographic level, which is typically less than one square mile in size. We find that income inequality across block groups plays a key role in determining the level of property crime. As the income gap with one’s poorest neighbouring block group widens, the level of property crime in the richer block group increases. Also, the poorest block group in an area tends to experience less property crime, holding all else constant.
The Social Origins of Inventors
Philippe Aghion et al.
NBER Working Paper, December 2017
Abstract:
In this paper we merge three datasets - individual income data, patenting data, and IQ data - to analyze the determinants of an individual's probability of inventing. We find that: (i) parental income matters even after controlling for other background variables and for IQ, yet the estimated impact of parental income is greatly diminished once parental education and the individual's IQ are controlled for; (ii) IQ has both a direct effect on the probability of inventing an indirect impact through education. The effect of IQ is larger for inventors than for medical doctors or lawyers. The impact of IQ is robust to controlling for unobserved family characteristics by focusing on potential inventors with brothers close in age. We also provide evidence on the importance of social family interactions, by looking at biological versus non-biological parents. Finally, we find a positive and significant interaction effect between IQ and father income, which suggests a misallocation of talents to innovation.
Does the Cream Always Rise to the Top? The Misallocation of Talent in Innovation
Murat Alp Celik
University of Toronto Working Paper, September 2017
Abstract:
The misallocation of talent between routine production versus innovation activities is shown to have a first-order impact on the welfare and growth prospects of an economy. Surname level empirical analysis combining patent and inventor micro-data with census data reveals new stylized facts: (1) People from richer backgrounds are more likely to become inventors; but those from more educated backgrounds are not. (2) People from more educated backgrounds become more prolific inventors; but those from richer backgrounds exhibit no such aptitude. Motivated by this discrepancy, a heterogeneous agents model with production and innovation sectors is developed. Individuals compete against each other for scarce inventor training in a tournament setting. Those from richer families can become inventors even if they are of mediocre talent by excessive spending on credentialing. This is individually rational but socially inefficient. The model is calibrated to match the new stylized facts via indirect inference. A thought experiment in which the credentialing spending channel is shut down reveals that the rate of innovation can be increased by 10% of its value. Optimal progressive bequest taxes serve to increase social welfare by 6.20% in consumption equivalent terms.
Economic Policy and Equality of Opportunity
Sang Yoon (Tim) Lee & Ananth Seshadri
Economic Journal, forthcoming
Abstract:
We employ equality of opportunity (EOP) definitions from the literature on distributive justice to a quantitative model featuring intergenerational human capital investments and luck. When calibrated to the US, the model-implied degree of EOP differs substantially depending on whether one considers it ethical to reward offspring for the effort of previous generations. Despite reducing intragenerational inequality, education subsidies do little to promote EOP. This is because if one thinks intergenerational investments should be rewarded, there is little room for improvement to begin with; in the opposite case, much stronger redistribution is needed for the policies to have a quantitative impact.
An Egalitarian Argument against Reducing Deprivation
Julia Mosquera
Ethical Theory and Moral Practice, November 2017, Pages 957–968
Abstract:
Deprivations normally give rise to undeserved inequality. It is commonly thought that one way of improving a situation with respect to equality is by reducing the incidence of deprivations. In this paper I argue that there is at least one respect in which reducing the incidence of deprivations can make things worse from the point of view of equality. While eliminating deprivations leads to the elimination of inequalities, reducing the incidence of deprivations leads to an uneven distribution of the pairwise relations of inequality of a population, which leads to the concentration of pairwise relations of inequality in the worse off. If my argument is correct, egalitarians have reasons to broaden their dimensions of concern: egalitarians should not only be concerned about the unequal distribution of goods, but also about the unequal distribution of pairwise relations of inequality of a population.
Artificial Intelligence and Its Implications for Income Distribution and Unemployment
Anton Korinek & Joseph Stiglitz
NBER Working Paper, December 2017
Abstract:
Inequality is one of the main challenges posed by the proliferation of artificial intelligence (AI) and other forms of worker-replacing technological progress. This paper provides a taxonomy of the associated economic issues: First, we discuss the general conditions under which new technologies such as AI may lead to a Pareto improvement. Secondly, we delineate the two main channels through which inequality is affected – the surplus arising to innovators and redistributions arising from factor price changes. Third, we provide several simple economic models to describe how policy can counter these effects, even in the case of a “singularity” where machines come to dominate human labor. Under plausible conditions, non-distortionary taxation can be levied to compensate those who otherwise might lose. Fourth, we describe the two main channels through which technological progress may lead to technological unemployment – via efficiency wage effects and as a transitional phenomenon. Lastly, we speculate on how technologies to create super-human levels of intelligence may affect inequality and on how to save humanity from the Malthusian destiny that may ensue.