Category Archives: Income Inequality/Gap

Black–White Differences in Intergenerational Economic Mobility in the U.S.

Source: Bhash Mazumder, Federal Reserve Bank of Chicago, Economic Perspectives, Vol. 38, First Quarter, 2014

From the abstract:
In recent decades, blacks have experienced substantially less upward mobility and substantially more downward mobility from one generation to the next than whites. These results are shown to be highly robust to a variety of measurement issues. The author examines rates of intergenerational mobility by race and asks whether such racial differences in the U.S. are likely to be eliminated and, if so, how long it might take.

Saving Horatio Alger: Equality, Opportunity, and the American Dream

Source: Richard V. Reeves, Brookings Institution, Brookings Essays, August 20, 2014

…There is a simple formula here—equality plus independence adds up to the promise of upward mobility—which creates an appealing image: the nation’s social, political, and economic landscape as a vast, level playing field upon which all individuals can exercise their freedom to succeed. Hence the toddlers who show up at daycare centers in T-shirts emblazoned “Future President.” Hence Americans’ culture of competitiveness, their obsession with sports, their frequent and all-purpose references to “the rules of the game” and to “fairness.” Hence the patriotism-tinged pride of the successful, exulting not only in their own grit and prowess, but also in the meritocratic system that gave them scope and opportunity. … While income disparities grab most of the attention & headlines, the gap that matters even more for mobility may turn out to be the one in wealth—and not just any wealth, but inherited wealth. Wealth gaps are already very much higher than income gaps. The top 1 percent takes twice as large a share of the national wealth as of national income. The danger is that these wealth gaps will get even larger in the years ahead. … These disadvantages typically compound each other, with low-income households, unstable families, and struggling parents living in the most hollowed-out communities, containing the worst schools, with the fewest social and institutional supports for those in need. So the barriers to upward mobility get even higher, along with the risks of getting stuck at the bottom of the ladder. … It hardly needs saying that there is no quick and easy fix. But there is also no excuse for sitting on our hands while the idea of opportunity becomes close to a cruel joke for so many. Opportunity is a public good, as well as a private one. …

Prospects For Upward Mobility In America

Source: Diane Rehm Show, August 20, 2014

Woven into the American fabric is the idea that anyone in this country can get ahead if he or she works hard enough. But research shows social mobility is much more fixed in the U.S. than in many other wealthy nations. Put simply, if you’re born poor in America, you’re likely to stay poor. There’s little disagreement among economists that social mobility has remained flat for decades. But there is debate over what to do about it. Democrats tend to believe government policy could do a lot to help those on the bottom move up. Traditional conservatives and Tea Party adherents have other ideas. A discussion about prospects for upward mobility in America.

Richard Reeves – Brookings Institution fellow in Economic Studies and policy director for the Center on Children and Families whose research focuses on economic mobility.
David Leonhardt – editor of The Upshot, a New York Times website covering politics and policy; author of the e-book: “Here’s the Deal: How Washington Can Solve the Deficit and Spur Growth.”
Scott Winship – Walter B. Wriston fellow at the Manhattan Institute for Policy Research; formerly research manager of the Economic Mobility Project of The Pew Charitable Trusts.

The Rise and Rise of the One Percent: Getting to Thomas Piketty’s Wealth Dystopia

Source: Shi-Ling Hsu, Florida State University – College of Law, Public Law Research Paper No. 698, August 8, 2014

From the abstract:
Thomas Piketty’s Capital in the Twenty-first Century, which is surely one of the very few economics treatises ever to be a best-seller, has parachuted into an intensely emotional and deeply divisive American debate: the problem of inequality in the United States. Piketty’s core argument is that throughout history, the rate of return on private capital has usually exceeded the rate of economic growth, expressed by Piketty as the relation r > g. If true, this relation means that the wealthy class – who are the predominant owners of capital – will grow their wealth faster than economies grow, which means that relatively speaking, the non-wealthy will fall behind.

But even if we accept Piketty’s assertion that this has been an “historical fact,” why is r > g most of the time? Piketty offers a few economic factors and a few legal rules, but mostly demurs as to why the “forces of [wealth] divergence” generally overwhelm the “forces of [wealth] convergence.” This review argues that legal rules and institutions exhibit an inherent bias towards some forms of private capital, and serve to inflate returns to private capital – Piketty’s r. Meanwhile, not only is it more difficult to make economic growth – Piketty’s g – keep pace, but it is more contentious. The result is that returns to private capital have indeed commonly exceeded the rate of economic growth. This review argues that this historical truism can be traceable to a capital-friendly bias that inheres in legal rules and institutions. This review identifies several areas of law in which this bias is particularly pronounced, and serves to inflate returns to private capital, driving it above the rate of economic growth, and exacerbating economic inequality. This review closes by arguing for a greater attention paid to funding education, which is not only an equalizing “force of convergence,” but also a predicate to economic growth.

Income and Wage Gaps Across the US

Source: U.S. Conference of Mayors (USCM), U.S. Metro Economies, August 2014

From the press release:
Jobs gained during the economic recovery from the Great Recession pay an average 23% less than the jobs lost during the recession according to a new report released today by The U.S. Conference of Mayors (USCM) under the leadership of President Sacramento Mayor Kevin Johnson. The annual wage in sectors where jobs were lost during the downturn was $61,637, but new jobs gained through the second quarter of 2014 showed average wages of only $47,171. This wage gap represents $93 billion in lost wages. Under a similar analysis conducted by the Conference of Mayors during the 2001-2002 recession, the wage gap was only 12% compared to the current 23%–meaning the wage gap has nearly doubled from one recession to the next….

The “Business Climate” and Economic Inequality

Source: David Neumark, Jennifer Muz, National Bureau of Economic Research, NBER Working Paper No. 20260, June 2014

From the abstract:
“Business climate indexes” characterize state economic policies, and are often used to try to influence economic policy debate. However, they are also useful in research as summaries of a large number of state policies that cannot be studied simultaneously. Prior research found that business climate indexes focused on productivity and quality of life do not predict economic growth, while indexes emphasizing taxes and costs of doing business indicate that low-tax, low-cost states have faster growth of employment, wages, and output. In this paper, we study the relationship between these two categories of business climate indexes and the promotion of equality or inequality. We do not find that the productivity/quality-of-life indexes predict more equitable outcomes, although some of the policies underlying them suggest they might. We do find, however, that the same tax-and-cost related indexes that are associated with higher economic growth are also associated with increases in inequality.
States with Better ‘Business Climates’ Also Have Higher Inequality
Source: Richard Florida, CityLab, July 17, 2014

There’s a clear connection between economic inequality and low-tax, pro-business policies.

How Reliance on High-Income Consumers Increases Wage Inequality in the U.S. Economy

Source: Nathan Wilmers, Scholars Strategy Network, Key Findings, July 2014

As American incomes become more unequal, gaps in consumption are growing too – almost as much as income inequality. The spending power of the majority of Americans has barely edged up, while a small number of high-income consumers can spend lavishly. According to one study, since 1989 consumer spending by the top five percent of income recipients has grown at a rate of 5.2% per year, while consumer spending by the bottom 95% grew by only 2.8% a year. The disproportionate growth of high-income consumers means that the U.S. economy caters increasingly to the preferences of elite spenders. In turn, as my research shows, the majority of U.S. workers are now employed in industries that earn at least ten percent of their revenues from sales to households earning incomes over $150,000 per year. What does that mean for workers’ wages? Too little is known about the consequences for the economy and U.S. workers of growing reliance on high-end consumers. My research sets out to improve our knowledge of these consequences….

Residual Wage Inequality and Immigration in the USA and the UK

Source: Cinzia Rienzo, LABOUR, Vol. 28, Issue 3, 2014
(subscription required)

From the abstract:
This paper assesses the effects of immigration on the increasing residual wage inequality in the USA and UK from 1994 to 2008. It does so by using an extension of the Lemieux (2006) methodology, whereby counterfactual residual variances are constructed to account not only for composition effects (changes in education‐experience of the workforce), but also for increasing immigration in the labour force. The empirical analysis reveals that residual wage inequality is higher among immigrants than among natives. However, increase in immigration does not seem to represent the major force behind the increase in residual wage inequality for the USA and for the UK.

Global income distribution : from the fall of the Berlin Wall to the great recession

Source: Christoph Lakner, Branko Milanovic, World Bank, Development Research Group, Poverty and Inequality Team, Policy Research Working Paper, no. WPS 6719, December 2013

From the summary:
The paper presents a newly compiled and improved database of national household surveys between 1988 and 2008. In 2008, the global Gini index is around 70.5 percent having declined by approximately 2 Gini points over this twenty year period. When it is adjusted for the likely under-reporting of top incomes in surveys by using the gap between national accounts consumption and survey means in combination with a Pareto-type imputation of the upper tail, the estimate is a much higher global Gini of almost 76 percent. With such an adjustment the downward trend in the Gini almost disappears. Tracking the evolution of individual country-deciles shows the underlying elements that drive the changes in the global distribution: China has graduated from the bottom ranks, modifying the overall shape of the global income distribution in the process and creating an important global “median” class that has transformed a twin-peaked 1988 global distribution into an almost single-peaked one now. The “winners” were country-deciles that in 1988 were around the median of the global income distribution, 90 percent of whom in terms of population are from Asia. The “losers” were the country-deciles that in 1988 were around the 85th percentile of the global income distribution, almost 90 percent of whom in terms of population are from mature economies.

Wealth Levels, Wealth Inequality, and the Great Recession

Source: Fabian T. Pfeffer, Sheldon H. Danziger, and Robert F. Schoeni, Russell Sage Foundation, Recession Brief, June 2014

From the abstract:
In a new Recession Brief for the Recession Trends initiative, Fabian T. Pfeffer (University of Michigan), RSF president Sheldon Danziger, and Robert F. Schoeni (University of Michigan) explore the extent to which the Great Recession altered the level and distribution of American families’ wealth, looking at the period between 2007 and 2013. While the Recession had a major impact on the net worth of families across the socioeconomic spectrum, it disproportionately affected households at the bottom of the wealth distribution. These households lost the largest share of their total wealth. As a result, wealth inequality in the US has been significantly exacerbated since the onset of the Recession. As of the end of 2013, the authors note that there have been few signs of significant recovery from the downturn….