Category Archives: Income Inequality/Gap

State of the Union: Millennial Dilemma

Source: Stanford Center on Poverty and Inequality, May 2019

The annual Poverty and Inequality Report provides a unified analysis that brings together evidence across such issues as poverty, employment, income inequality, health inequality, economic mobility, and educational access to allow for a comprehensive assessment of where the country stands. In this year’s issue, the country’s leading experts provide the latest evidence on how millennials are faring.

Contents include:

Executive Summary
David B. Grusky, Marybeth Mattingly, Charles Varner, and Stephanie Garlow
With each new generation, there’s inevitably much angst and hand-wringing, but never have we worried as much as we worry about millennials. We review the evidence on whether all that worrying is warranted.

Racial and Gender Identities
Sasha Shen Johfre and Aliya Saperstein
The usual stereotypes have it that millennials are embracing a more diverse and unconventional set of racial and gender identities. Are those stereotypes on the mark?

Student Debt
Susan Dynarski
Often tagged the “student debt generation,” millennials took out more student loans, took out larger student loans, and defaulted more frequently. Here’s a step-by-step accounting of how we let this happen.

Harry J. Holzer
Labor force activity has declined especially rapidly among young workers. The good news: We know how to take on this problem.

Criminal Justice
Bruce Western and Jessica Simes
The imprisonment rate has fallen especially rapidly among black men. Does this much-vaunted trend conceal as much as it reveals?

Florencia Torche and Amy L. Johnson
The payoff to a college degree is as high for millennials as it’s ever been. But it’s partly because millennials who don’t go to college are getting hammered in the labor market.

Income and Earnings
Christine Percheski
When millennials entered the labor market during the Great Recession and its aftermath, there were uniformly gloomy predictions about their fate. Does the evidence bear out such gloomy predictions?

Social Mobility
Michael Hout
Millennials have a mobility problem. And it’s partly because the economy is no longer delivering a steady increase in high-status jobs.

Occupational Segregation
Kim A. Weeden
Are millennial women and men working side by side in the new economy? Or are their occupations just as gender-segregated as ever?

Poverty and the Safety Net
Marybeth Mattingly, Christopher Wimer, Sophie Collyer and Luke Aylward
Millennial poverty rates at age 30 are no higher than those of Gen Xers at the same age. But this stability hides a problem: Millennials are replacing a falloff in earnings with large increases in government assistance programs.

Darrick Hamilton and Christopher Famighetti
Housing reforms during the civil rights era helped to narrow the white-black homeownership gap. But those gains have now been completely lost … and the racial gap in young-adult homeownership is larger for millennials than for any generation in the past century.

Social Networks
Mario L. Small and Maleah Fekete
Millennials are not replacing face-to-face networks with online ones. Rather, they’re a generation that’s found a way to do it all, forging new online ties while also maintaining the usual face-to-face ones.

Mark Duggan and Jackie Li
It might be thought that, for all their labor market woes, at least millennials now have health care and better health. How does this story fall short?

Sheldon Danziger
A comprehensive policy agenda that could help millennials … and other generations too.

The radical plan to change how Harvard teaches economics

Source: Dylan Matthews, Vox, May 22, 2019

Raj Chetty has an idea for introducing students to econ that could transform the field — and society…..

….Chetty has made his name as an empirical economist, working with a small army of colleagues and research assistants to try to get real-world findings with relevance to major political questions. And he’s focused on the roots and consequences of economic and racial inequality. He used huge amounts of IRS tax data to map inequality of opportunity in the US down to the neighborhood, and to show that black boys in particular enjoy less upward mobility than white boys.

Ec 1152 is an introduction to that kind of economics. There’s little discussion of supply and demand curves, of producer or consumer surplus, or other elementary concepts introduced in classes like Ec 10. There is no textbook, only a set of empirical papers. The material is relatively cutting-edge. Of the 12 papers students are required to read, 11 were released in 2010 or after. Half of the assigned papers were released in 2017 or 2018. Chetty co-authored a third of them.

And while most economics courses at Harvard require Ec 10 as a prerequisite, Ec 1152 does not. Freshmen can take it as their first economics course…..

….If this were just a pedagogical shift at Harvard, that would be one thing. But Chetty is aiming to make the course a model for other schools. After the financial crisis, many economists have concluded that Econ 101 is broken across the university system and is not preparing students for a world where markets frequently fail. Chetty’s class offers a new way to teach an introductory course, yet at the same time is more closely aligned with what contemporary economic research looks like. The course’s lecture videos are already available online, for students at other institutions to use…..

Billionaire Taxes

Source: Michael Simkovic, University of Southern California Gould School of Law, USC Law Legal Studies Paper No. 19-7, Last revised: March 27, 2019

From the abstract:
Targeted ultra-high net worth wealth taxes can fund reductions in taxes on wages. Wealth taxes are harder to avoid than existing capital gains taxes and inheritance taxes, and can be more precisely targeted toward extreme wealth. Exit taxes to prevent capital flight are consistent with business law principles governing partnerships. Valuation disputes can be managed through existing property tax mechanisms and through private law provisions called “shotgun clauses.”

Most experts believe that wealth taxes are constitutional. The critical difference between wealth taxes and income taxes, the realization requirement, exists for administrative convenience, not as a constitutional requirement. Constitutional challenges can be discouraged by including in wealth tax legislation a savings clause that would create as a backup an economically equivalent income tax.

Race and the Accumulation of Wealth: Racial Differences in Net Worth over the Life Course, 1989-2009

Source: Melvin Thomas, Cedric Herring, Hayward Derrick Horton, Moshe Semyonov, Loren Henderson, Patrick L Mason, Social Problems, Advance Articles, March 21, 2019

From the abstract:
Using data from the 1989–2009 Panel Study of Income Dynamics, this research examines racial differences in wealth accumulation over the life course. We ask: (1) How have racial differences in wealth changed over time? (2) Do racial wealth gaps change over the life course? (3) Are racial gaps in net worth expanding, contracting, or staying the same over time and over the life course? and (4) Do these patterns differ by cohort? The analysis is informed by (1) the declining significance of race and post-racial perspectives; (2) the cumulative effects of discrimination explanation; and (3) the vintage hypothesis. Results show that African Americans’ wealth as a percentage of whites’ wealth fell in 2009. Results do not support the declining significance of race and post-racial perspectives. Partially consistent with the vintage hypothesis, post-1960s African Americans are relatively better off than are pre-1960s African Americans (compared with whites of the same cohort). Consistent with the cumulative effects of discrimination model, the African American-white wealth gap increases over the life course for each historical period. If current patterns persist, presumed gains made by young African Americans relative to young whites may turn out to be illusory as they progress through the life course.

Income Inequality in the U.S.

Source: Jeremy Cohn, Regional Financial Review, Vol. 29 no. 6, February 2019
(subscription required)

In this article we build two models using two measures of income inequality to test possible explanations of the growing income inequality over the last four decades. State-level data provide a broad and rich dataset for this exercise. While inequality will continue to increase, there is good reason to think that it will do so at a more modest pace than in recent decades.

Closing the Gender Pay Gap: New Approaches to an Old Problem

Source: Kurt Stanberry, Compensation & Benefits Review, First Published March 14, 2019

from the abstract:
This article addresses new approaches to address a long-standing employment compensation problem—the gender pay gap. Existing approaches, including the Equal Pay Act and Title VII, are more than 50 years old, and have only been marginally successful in resolving this problem. A pay gap based on gender remains a problem today. New approaches include the potential passage of the Paycheck Fairness Act at the federal level and a variety of laws at the state level. Some states have passed pay equity laws that are more successful than the federal law due to the use of the comparable work concept. Additionally, some states have passed laws regulating the asking of salary history questions, as well as the use of non-compete and no-poaching agreements, all of which have a chilling effect on pay equity. The result of the combination of these actions is a probable reduction of the gender pay gap, although eliminating it remains a distant goal.

Income Stratification among Occupational Classes in the United States

Source: Xiang Zhou, Geoffrey T Wodtke, Social Forces, Vol, 97 no. 3, March 2019
(subscription required)

From the abstract:
Stratification and inequality are among the most central concepts in sociology, and although related, they are fundamentally distinct: inequality refers to the extent to which resources are distributed unevenly across individuals or between population subgroups, whereas stratification refers to the extent to which population subgroups occupy distinct hierarchical layers within an overall resource distribution. Despite the centrality of stratification in theories of class structure, prior empirical studies have focused exclusively on measures of inequality, which do not accurately capture the degree of class stratification and suffer from a variety of methodological limitations. In this paper, we employ a novel rank-based index of stratification to measure the degree to which occupational classes inhabit distinct, non-overlapping, and hierarchically arranged layers in the distribution of personal market income. The stratification index is nonparametric, both scale and translation invariant, and independent of the level of inequality. Based on this index, our results show that the US income distribution is highly stratified by occupational class and that the degree of class stratification increased substantially from 1980 to 2016. Moreover, we find that this trend is almost entirely due to growing stratification among aggregate occupational classes rather than among the disaggregate occupations nested within them. Finally, a set of counterfactual analyses indicate that the rise of occupational class stratification is driven by increases in the income returns to education, deunionization, and deindustrialization, although the relative importance of these factors varies by gender.

Why wealth equality remains out of reach for black Americans

Source: Darrick Hamilton, Trevon Logan, The Conversation, February 28, 2019

Black History Month has become the time to reflect on all the progress black Americans have made, but the sobering reality is that when it comes to wealth – the paramount indicator of economic security – there has been virtually no progress in the last 50 years.

Based on data from the Federal Reserve’s Survey of Consumer Finance, the typical black family has only 10 cents for every dollar held by the typical white family.

While there is no magic bullet for racism, access to wealth, and the security to pass it down from one generation to the next, would go a long way toward changing the economic trajectory for blacks.

As researchers who study historical and contemporary racial inequality, we mostly conceive of wealth as a maker of success, but its true value is functional: the independence and economic security that it provides…..

The ‘Hidden Mechanisms’ That Help Those Born Rich to Excel in Elite Jobs

Source: Joe Pinsker, The Atlantic, February 26, 2019

When two sociologists interviewed highly paid architects, TV producers, actors, and accountants, they encountered work cultures that favor the already affluent. ….

Over the past five years, the sociologists Daniel Laurison and Sam Friedman have uncovered a striking, consistent pattern in data about England’s workforce: Not only are people born into working-class families far less likely than those born wealthy to get an elite job—but they also, on average, earn 16 percent less in the same fields of work.

Laurison and Friedman dug further into the data, but statistical analyses could only get them so far. So they immersed themselves in the cultures of modern workplaces, speaking with workers—around 175 in all—in four prestigious professional settings: a TV-broadcasting company, a multinational accounting firm, an architecture firm, and the world of self-employed actors.

The result of this research is Laurison and Friedman’s new book, The Class Ceiling: Why It Pays to Be Privileged, which shows how the customs of elite workplaces can favor those who grew up wealthier. The authors describe a series of “hidden mechanisms”—such as unwritten codes of office behavior and informal systems of professional advancement—that benefit the already affluent while disadvantaging those with working-class backgrounds. ….

…. Laurison: I think that a lot of people, on some level what they think they’re doing when they sponsor young co-workers is spotting talent—they called it “talent-mapping” in the accounting firm we studied. But a lot of people we talked to were also able to reflect and say, “Part of why I was excited about that person, probably, is because they reminded me of a younger version of myself.” The word we use in sociology is homophily—people like people who are like themselves.

One of the big ideas of the book, for me, is it’s really hard for any given individual in any given situation to fully parse what’s actual talent or intelligence or merit, and what’s, Gosh, that person reminds me of me, or I feel an affinity for them because we can talk about skiing or our trips to the Bahamas. Part of it is also that what your criteria are for a good worker often comes from what you think makes you a good worker.

Pinsker: In the workplaces you studied, who tended to lose out in these systems of sponsorship?

Laurison: In three of the four fields we studied, it was poor and working-class people, and also women and people of color. There are lots of axes along which homophily can cloud senior people’s judgment about who’s meritorious. ….