Underlying Inequality
Income Equality in The Nordic Countries: Myths, Facts, and Lessons
Magne Mogstad, Kjell Salvanes & Gaute Torsvik
NBER Working Paper, February 2025
Abstract:
Policymakers, public commentators, and researchers often cite the Nordic countries as examples of a social and economic model that successfully combines low income inequality with prosperity and growth. This article aims to critically assess this claim by integrating theoretical perspectives and empirical evidence to illustrate how the Nordic model functions and why these countries experience low inequality. Our analysis suggests that income equality in the Nordics is primarily driven by a significant compression of hourly wages, reducing the returns to labor market skills and education. This appears to be achieved through a wage bargaining system characterized by strong coordination both within and across industries. This finding contrasts with other commonly cited explanations for Nordic income equality, such as redistribution through the tax-transfer system, public spending on goods that complement employment, and public policies aimed at equalizing skills and human capital distribution. We consider the potential lessons for other economies that seek to reduce income equality. We conclude by discussing several underexplored or unresolved questions and issues.
Workplace Stratification and Racial Health Disparities
Kurt Lavetti et al.
NBER Working Paper, February 2025
Abstract:
To what extent is a worker's relative rank within their workplace a determinant of health status, conditional on income? We provide the first US-based evidence on the relationship between relative workplace rank and health status for the near population of workers in one US state. Using a new linkage of commercial all-payer health insurance data to administrative earnings records for workers in Utah from 2013-2015, we quantify the impact of relative workplace rank on health status, the incidence of specific chronic diseases, and racial health disparities. We show that about 70% of SES-health gradient that is commonly interpreted as an income gradient actually operates through relative rank. For an average worker, moving from the 90th to the 10th percentile of within-firm rank holding fixed income, age, location, and health insurance characteristics is associated with a 16.5% increase in morbidity. The racial segregation of jobs in the US leads minority workers to be overrepresented in lower-ranked jobs within firms, which in turn exacerbates racial health disparities.
The Role of Unrealized Gains and Borrowing in the Taxation of the Rich
Edward Fox & Zachary Liscow
Yale Working Paper, January 2025
Abstract:
As deficits rise and concerns about tax avoidance by the rich increase, we study how unrealized gains and borrowing affect Americans' income taxes. We have four main findings: First, measuring "economic income" as currently-taxed income plus new unrealized gains, the income tax base captures 60% of economic income of the top 1% of wealth-holders (and 71% adjusting for inflation) and the vast majority of income for lower wealth groups. Second, adjusting for unrealized gains substantially lessens the degree of progressivity in the income tax, although it remains largely progressive. Third, we quantify for the first time the amount of borrowing across the full wealth distribution. Focusing on the top 1%, while total borrowing is substantial, new borrowing each year is fairly small (1-2% of economic income) compared to their new unrealized gains, suggesting that "buy, borrow, die" is not a dominant tax avoidance strategy for the rich. Fourth, consumption is less than liquid income for rich Americans, partly because the rich have a large amount of liquid income, and partly because their savings rates are high, suggesting that the main tax avoidance strategy of the super-rich is "buy, save, die."
A glass half full of money: Dispositional optimism and wealth accumulation across the income spectrum
Joe Gladstone & Justin Pomerance
Journal of Personality and Social Psychology, January 2025, Pages 147-195
Abstract:
What drives some people to save more effectively for their future than others? This multistudy investigation (N = 143,461) explores how dispositional optimism -- the generalized tendency to hold positive expectations about the future -- shapes individuals' financial decisions and outcomes. Leveraging both cross-sectional and longitudinal designs across several countries, our findings reveal that optimism significantly predicts greater savings over time, even when controlling for various demographic, psychological, and financial covariates. Furthermore, we find that the role of optimism varies based on socioeconomic circumstances: Among lower income individuals, optimism is more strongly associated with saving. This suggests optimism may be particularly beneficial for the financial well-being of economically disadvantaged populations. To ensure the robustness of our conclusions, we employ diverse methodological approaches, including cross-sectional and longitudinal data sets, objective measures of saving behavior to reduce self-report bias, and within-person analyses to control for stable individual differences. These findings suggest that interventions and policies aimed at fostering optimism may be an effective approach to promoting savings and building financial resilience, especially among economically vulnerable populations. More broadly, our work underscores the value of integrating psychological factors into economic models of saving behavior to develop a more comprehensive understanding of how people make financial decisions in the real world.
Unequal resource division occurs in the absence of group division and identity
Eliane Deschrijver & Richard Ramsey
Proceedings of the National Academy of Sciences, 18 February 2025
Abstract:
Based on the seminal minimal group experiment, the widely influential social identity theory has, in the last 45 y, led to the belief that discrimination follows from intergroup relations and social identity. A large body of research evidenced that people discriminate against members of their out versus ingroup, even if groups and identities were assigned on the basis of a quantity estimate, aesthetic judgment, or a chance outcome. But to what extent may unequal resource division be accounted for by ad hoc difference versus sameness, outside of any group division? We show via Bayesian regression analyses in seven preregistered experiments (>1,400 subjects) that unequal resource division strategies persist against a single person that demonstrates a different versus the same quantity estimate, painting preference, or even coin flip (Experiments 1, 2, and 3ab), with 43.1% more money awarded for sameness relative to difference conditions (Experiments 4, 5, and 6). These findings open up the possibility that one key driver of discrimination may exist in a mechanism of interindividual comparison that treats ad hoc difference more negatively than ad hoc sameness. If unequal resource division readily emerges against a single person even after a mere chance difference, discrimination may be more widespread and occur for partly different reasons than is currently assumed. Theoretical implications for understanding cognitive and brain systems of discrimination are discussed.
Because it is fun! Individual differences in effort enjoyment belief relate to behavioral and physiological indicators of effort-seeking
Christopher Mlynski et al.
Journal of Personality and Social Psychology, forthcoming
Abstract:
Effort is commonly characterized as a negative, unpleasant experience. This research explores the extent to which individuals vary in whether they believe effort to be enjoyable or aversive and how this relates to a range of behavioral and physiological indicators of effort exertion. In five studies (N = 2,338), participants either completed an Effort Enjoyment Belief Scale or were experimentally led to believe that effort is enjoyable or aversive. Across our studies, descriptive analyses of the Effort Enjoyment Belief Scale revealed no general tendency among participants to perceive effort as aversive; instead, some participants tended to endorse a belief that effort is enjoyable. Both measured and manipulated effort enjoyment belief predicted difficulty selection on an arithmetic task. Further, the belief predicted effort exertion as assessed via cardiovascular measurements (β-adrenergic sympathetic activity) and was associated with high school grades and subjective evaluation of academic success at university. These results imply that the subjective cost or value of effort may be affected by (social) learning experiences, shaping individuals' effort enjoyment belief and, in turn, their tendency to approach or avoid demanding tasks and the exertion of effort. Thus, when modeling behavior as the result of a cost-benefit analysis, effort may not contribute exclusively to the costs but also add value to a course of action, depending on individuals' effort enjoyment belief.
The intergenerational reproduction of self-direction at work: Revisiting Class and Conformity
Kaspar Burger et al.
Social Forces, forthcoming
Abstract:
In his path-breaking monograph, Class and Conformity, Melvin Kohn reasoned that parents prepare their children for the same conditions of work that they themselves experience. Kohn and his colleagues' research focused on the influence of parental self-direction at work on parental child-rearing values and practices, as well as the self-directed values of children. The intergenerational transmission of occupational self-direction from parents to the succeeding generation of adult children, strongly implied by Kohn's analysis, has not been empirically tested. Using two-generation longitudinal data from the Youth Development Study (N = 1139), we estimate a structural equation model to assess the intergenerational continuity of occupational self-direction. We find evidence supporting a key inference of Kohn's analysis: that self-direction at work, a primary feature of jobs of higher social class standing, is transmitted across generations via self-directed psychological orientations, operationalized here as intrinsic work values. Intrinsic values also significantly predicted second-generation educational attainment, contributing further to the reproduction of socioeconomic inequality. The findings enhance understanding of the intergenerational transmission of advantage.
Keeping the Family Fortune: How Bureaucratic Practices Preserve Elite Multigenerational Wealth
Doron Shiffer-Sebba
American Sociological Review, forthcoming
Abstract:
How do wealthy families preserve their fortunes across generations? A historic peak in wealth inequality in the United States has inspired research on how economic elites benefit from markets, tax rates, and legal entities. However, the ongoing practices through which families maintain their fortunes across generations are less understood. Using six months of ethnographic observations at a wealth manager for the top 0.1 percent, as well as interviews with the manager's clients and a wider sample of managers, I argue that wealthy families adopt what I call "bureaucratic practices" -- activities like meetings, presentations, and signing documents -- to preserve wealth intergenerationally. After erecting legal entities such as corporations, trusts, and foundations, wealth managers help wealthy families implement bureaucratic practices. These practices, which privilege bureaucratic form over substance, constitute a crucial behavioral layer atop the legal infrastructure, facilitating a greater degree of wealth preservation compared with using entities alone. Thus, preserving wealth at the top should be understood not merely as a set of discrete transfers from parents to children, but as an enduring multigenerational process of professional socialization that introduces new behaviors into family life.