Net Worthy
The link between income, income inequality, and prosocial behavior around the world: A multiverse approach
Lucía Macchia & Ashley Whillans
Social Psychology, January 2022, Pages 375-386
Abstract:
The questions of whether high-income individuals are more prosocial than low-income individuals and whether income inequality moderates this effect have received extensive attention. We shed new light on this topic by analyzing a large-scale dataset with a representative sample of respondents from 133 countries (N = 948,837). We conduct a multiverse analysis with 30 statistical models: 15 models predicting the likelihood of donating money to charity and 15 models predicting the likelihood of volunteering time to an organization. Across all model specifications, high-income individuals were more likely to donate their money and volunteer their time than low-income individuals. High-income individuals were more likely to engage in prosocial behavior under high (vs. low) income inequality. Avenues for future research and potential mechanisms are discussed.
The psychology of asymmetric zero-sum beliefs
Russell Roberts & Shai Davidai
Journal of Personality and Social Psychology, forthcoming
Abstract:
Zero-sum beliefs reflect the perception that one party’s gains are necessarily offset by another party’s losses. Although zero-sum relationships are, from a strictly theoretical perspective, symmetrical, we find evidence for asymmetrical zero-sum beliefs: The belief that others gain at one’s own expense, but not vice versa. Across various contexts (international relations, interpersonal negotiations, political partisanship, organizational hierarchies) and research designs (within- and between-participant), we find that people are more prone to believe that others’ success comes at their own expense than they are to believe that their own success comes at others’ expense. Moreover, we find that people exhibit asymmetric zero-sum beliefs only when thinking about how their own party relates to other parties but not when thinking about how other parties relate to each other. Finally, we find that this effect is moderated by how threatened people feel by others’ success and that reassuring people about their party’s strengths eliminates asymmetric zero-sum beliefs. We discuss the theoretical contributions of our findings to research on interpersonal and intergroup zero-sum beliefs and their implications for understanding when and why people view life as zero-sum.
Personal relative deprivation and the belief that economic success is zero-sum
Martino Ongis & Shai Davidai
Journal of Experimental Psychology: General, forthcoming
Abstract:
Why do people view economic success as zero-sum? In seven studies (including a large, nationally representative sample of more than 90,000 respondents from 60 countries), we explore how personal relative deprivation influences zero-sum thinking — the belief that one person’s gains can only be obtained at other people’s expense. We find that personal relative deprivation fosters a belief that economic success is zero-sum, and that this is true regardless of participants’ household income, political ideology, or subjective social class. Moreover, in a large and preregistered study, we find that the effect of personal relative deprivation on zero-sum thinking is mediated by lay perceptions of society. The more people see themselves as having been unfairly disadvantaged relative to others, the more they view the world as unjust and economic success as determined by external forces beyond one’s control. In turn, these cynical views of society lead people to believe that economic success is zero-sum. We discuss the implications of these findings for research on social comparisons, the distribution of resources, and the psychological consequences of feeling personally deprived.
Slowing Women's Labor Force Participation: The Role of Income Inequality
Stefania Albanesi & María José Prados
NBER Working Paper, January 2022
Abstract:
The entry of married women into the labor force and the rise in women's relative wages are amongst the most notable economic developments of the twentieth century. The growth in these indicators was particularly pronounced in the 1970s and 1980s, but it stalled since the early 1990s, especially for college graduates. In this paper, we argue that the discontinued growth in female labor supply and wages since the 1990s is a consequence of growing inequality. Our hypothesis is that the growth in top incomes for men generated a negative income effect on the labor supply of their spouses, which reduced their participation and wages. We show that the slowdown in participation and wage growth was concentrated among women married to highly educated and high income husbands, whose earnings grew dramatically over this period. We then develop a model of household labor supply with returns to experience that qualitatively reproduces this effect. A calibrated version of the model can account for a large fraction of the decline relative to trend in married women's participation in 1995-2005 particularly for college women. The model can also account for the rise in the gender wage gap for college graduates relative to trend in the same period.
Global evidence on the selfish rich inequality hypothesis
Ingvild Almås et al.
Proceedings of the National Academy of Sciences, 18 January 2022
Abstract:
We report on a study of whether people believe that the rich are richer than the poor because they have been more selfish in life, using data from more than 26,000 individuals in 60 countries. The findings show a strong belief in the selfish rich inequality hypothesis at the global level; in the majority of countries, the mode is to strongly agree with it. However, we also identify important between- and within-country variation. We find that the belief in selfish rich inequality is much stronger in countries with extensive corruption and weak institutions and less strong among people who are higher in the income distribution in their society. Finally, we show that the belief in selfish rich inequality is predictive of people’s policy views on inequality and redistribution: It is significantly positively associated with agreeing that inequality in their country is unfair, and it is significantly positively associated with agreeing that the government should aim to reduce inequality. These relationships are highly significant both across and within countries and robust to including country-level or individual-level controls and using Lasso-selected regressors. Thus, the data provide compelling evidence of people believing that the rich are richer because they have been more selfish in life and perceiving selfish behavior as creating unfair inequality and justifying equalizing policies.
Spending and Happiness: The Role of Perceived Financial Constraints
Rodrigo Dias, Eesha Sharma & Gavan Fitzsimons
Journal of Consumer Research, forthcoming
Abstract:
Perceived financial constraints are ubiquitous, and prior research suggests that consumers who feel financially constrained are especially likely to engage in compensatory consumption to signal positive attributes or offset the aversiveness associated with their state. However, it is unclear whether spending confers greater happiness when consumers feel financially constrained. Seven high-powered studies (N = 7,228) demonstrate that perceived financial constraints decrease the happiness consumers derive from their purchases. This effect is robust across several purchase types and occurs in part because consumers who perceive greater financial constraints are more likely to consider opportunity costs when evaluating their purchases (studies 2A-2B). Consistent with this mechanism, the effect attenuates when all consumers are prompted to consider opportunity costs (study 3) and when consumers consider planned purchases (study 4). The negative effect of perceived financial constraints on purchase happiness results in an important behavioral outcome: less favorable consumer reviews (studies 5A-5B). The authors conclude by meta-analyzing their file drawer (25,765 participants; 42 studies) to explore how the effect differs across several purchase types and discussing theoretical and practical implications for consumers and marketers.
Heritability × SES Interaction for IQ: Is it Present in US Adoption Studies?
John Loehlin et al.
Behavior Genetics, January 2022, Pages 48–55
Abstract:
An interaction between socioeconomic status (SES) and the heritability of IQ, such that the heritability of IQ increases with higher SES, has been reported in some US twin studies, although not in others, and has generally been absent in studies outside the US (England, Europe, Australia). Is such an interaction present in US adoption studies? Data from two such studies, the Texas and the Colorado Adoption Projects, were examined, involving 238–469 adopted children given IQ tests at various ages. A mini multi-level analysis was made of the prediction of the IQs by the SES of the rearing home (a composite of parental education and occupation), by the birth mother’s intelligence, and by the interaction of the two. Neither study showed any substantial heritability × SES interaction: the effect size estimates in units comparable to twin moderation models were negative (− 0.042 and − 0.004), and the meta-analytic estimate for the combined analysis was − 0.27 (SE = 0.042) with a 95% confidence interval of − 0.109 to 0.054. Thus, while we cannot rule out positive moderation based on our two studies, the joint agreement across these studies, and with the non-US twin studies, warrants attention in further research. SES may not fully capture proximal familial-environmental aspects that moderate child IQ.
Assortative Matching at the Top of the Distribution: Evidence from the World's Most Exclusive Marriage Market
Marc Goñi
American Economic Journal: Applied Economics, forthcoming
Abstract:
Using novel data on peerage marriages in Britain, I find that low search costs and marriage-market segregation can generate sorting. Peers courted in the London Season, a matching technology introducing aristocratic bachelors to debutantes. When Queen Victoria went into mourning for her husband, the Season was interrupted (1861–63), raising search costs, and reducing market segregation. I exploit exogenous variation in women's probability to marry during the interruption from their age in 1861. The interruption increased peer-commoner intermarriage by 40% and reduced sorting along landed wealth by 30%. Eventually, this reduced peers' political power and affected public policy in late-19C England.
Movin’ on up? A survey experiment on mobility enhancing policies
Jared Barton & Xiaofei Pan
European Journal of Political Economy, forthcoming
Abstract:
We use a nationwide survey experiment in the United States to measure whether information on intergenerational economic mobility or policy-specific arguments influence support for six pro-mobility policies advocated by political entrepreneurs. We find the information treatments do not affect support, but the argument treatments significantly increase support for three of the policies. We also include a behavioral measure by allowing respondents the opportunity to write their U.S. Senators. We find argument treatments significantly increase the likelihood that letters address economic mobility and significantly promote advocacy for that policy in the letter, but no increase in advocacy from the information treatments. Our results persist after controlling for a variety of robustness measures.
Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter
Carter Braxton et al.
NBER Working Paper, December 2021
Abstract:
For whom has earnings risk changed, and why? To answer these questions, we develop a filtering method that estimates parameters of an income process and recovers persistent and temporary earnings for every individual at every point in time. Our estimation flexibly allows for first and second moments of shocks to depend upon observables as well as spells of zero earnings (i.e., unemployment) and easily integrates into theoretical models. We apply our filter to a unique linkage of 23.5m SSA-CPS records. We first demonstrate that our earnings-based filter successfully captures observable shocks in the SSA-CPS data, such as job switching and layoffs. We then show that despite a decline in overall earnings risk since the 1980s, persistent earnings risk has risen for both employed and unemployed workers, while temporary earnings risk declined. Furthermore, the size of persistent earnings losses associated with full year unemployment has increased by 50%. Using geography, education, and occupation information in the SSA-CPS records, we refute hypotheses related to declining employment prospects among routine and low-skill workers as well as spatial theories related to the decline of the Rust-Belt. We show that rising persistent earnings risk is concentrated among high-skill workers and related to technology adoption. Lastly, we find that rising persistent earnings risk while employed (unemployed) leads to welfare losses equivalent to 1.8% (0.7%) of lifetime consumption, and larger persistent earnings losses while unemployed lead to a 3.3% welfare loss.
The Smart Money is in Cash? Financial Literacy and Liquid Savings Among U.S. Families
Neil Bhutta, Jacqueline Blair & Lisa Dettling
Federal Reserve Working Paper, November 2021
Abstract:
Most financial advisors recommend storing three to six months of expenses in liquid assets in case of an emergency. Yet we estimate that more than half of U.S. families do not have at least three months of their non-discretionary expenses in liquid savings. We find that financial literacy is strongly predictive of having three months of liquid savings, controlling for income, income variability, and even parental resources. We also find that financial literacy predicts liquid savings across the income distribution. These results indicate that accumulation of an emergency fund is not simply a function of income. Finally, financial literacy is predictive of liquid savings even among high illiquid wealth households. This suggests that the phenomenon of "wealthy hand-to-mouth" families may reflect financial mistakes rather than portfolio optimization. Our paper highlights the importance of financial knowledge in explaining families' preparedness to deal with unexpected expenses or disruption in their income.
The Expected, Perceived, and Realized Inflation of U.S. Households before and during the COVID19 Pandemic
Michael Weber, Yuriy Gorodnichenko & Olivier Coibion
NBER Working Paper, January 2022
Abstract:
As the pandemic spread across the U.S., disagreement among U.S. households about inflation expectations surged along with the mean perceived and expected level of inflation. Simultaneously, the inflation experienced by households became more dispersed. Using matched micro data on spending of households and their macroeconomic expectations, we study the link between the inflation experienced by households in their daily shopping and their perceived and expected levels of inflation both before and during the pandemic. In normal times, realized inflation barely differs across observable dimensions but low income, low education, and Black households experienced a larger increase in realized inflation than other households did. Dispersion in realized and perceived inflation explains a large share of the rise in dispersion in inflation expectations.
A Different Land of Opportunity: The Geography of Intergenerational Mobility in the Early 20th-Century US
Hui Ren Tan
Journal of Labor Economics, forthcoming
Abstract:
Has the geography of intergenerational mobility in the US changed over time? Constructing a large historical linked sample, I show that upward mobility in the early 20th century was greater for those who grew up in the coastal and industrial regions, in contrast to more recent times where mobility is higher among persons who were raised in the middle of the country. The historical patterns are not driven by imperfections in record linkage or measurement error in economic status.
The Second World War, Inequality and the Social Contract in England
Leander Heldring, James Robinson & Parker Whitfill
NBER Working Paper, January 2022
Abstract:
What is the impact of warfare on inequality and the social contract? Using local data on bombing, the evolution of wealth inequality and vote shares for the Labour Party in England around World War II we establish two results. First, on average, we find no impact of bombing on inequality. However, there is considerable heterogeneity and this result is driven by the south. In the north of England bombing led to significant falls in inequality. Second, heavier bombing led to a significant increase in the vote share for Labour after the War everywhere, but this effect is transitory in the south while it is permanent in the north. Our results obtain both in a simple difference-in-differences framework as well as in a panel-regression discontinuity framework in which we exploit the limited range of German fighter escort planes. Our results provide novel causal evidence for the inequality reducing impact of warfare and we interpret them as consistent with the notion that the impact of the War also led to a reconfiguration of the social contract in England.
The billion pound drop: The Blitz and agglomeration economies in London
Gerard Dericks & Hans Koster
Journal of Economic Geography, December 2021, Pages 869–897
Abstract:
We exploit locally exogenous variation from the Blitz bombings to quantify the effect of redevelopment frictions and identify agglomeration economies at a micro-geographic scale. Employing rich location and office rental transaction data, we estimate reduced-form analyses and a spatial general equilibrium model. Our analyses demonstrate that more heavily bombed areas exhibit taller buildings today, and that agglomeration elasticities in London are large, approaching 0.2. Counterfactual simulations show that if the Blitz had not occurred, the concomitant reduction in agglomeration economies arising from the loss of higher-density redevelopment would cause London’s present-day gross domestic product to drop by some 10% (or £50 billion).