Category Archives: Income Inequality/Gap

Perpetuating Inequality: What Salary History Bans Reveal About Wages

Source: James E. Bessen, Chen Meng, Erich Denk, Boston University, Date Written: June 1, 2020

From the abstract:
Pay gaps for women and minorities have persisted after accounting for observable differences. Why? If employers can access applicants’ salary histories while bargaining over wages, they can take advantage of past inequities, perpetuating inequality. Recently, a dozen US states have banned employer access to salary histories. We analyze the effects of these salary history bans (SHBs) on employer wage posting and on the pay of job changers in a difference-in-differences design. Following SHBs, employers posted wages more often and increased pay for job changers by about 5%, with larger increases for women (8%) and African-Americans (13%). Salary histories appear to account for much of the persistence of residual wage gaps.

A century of educational inequality in the United States

Source: Michelle Jackson and Brian Holzman, Proceedings of the National Academy of Sciences (PNAS), Vol. 117, no. 32, August 11, 2020

From the abstract:
The “income inequality hypothesis” holds that rising income inequality affects the distribution of a wide range of social and economic outcomes. Although it is often alleged that rising income inequality will increase the advantages of the well-off in the competition for college, some researchers have provided descriptive evidence at odds with the income inequality hypothesis. In this paper, we track long-term trends in family income inequalities in college enrollment and completion (“collegiate inequalities”) using all available nationally representative datasets for cohorts born between 1908 and 1995. We show that the trends in collegiate inequalities moved in lockstep with the trend in income inequality over the past century. There is one exception to this general finding: For cohorts at risk for serving in the Vietnam War, collegiate inequalities were high, while income inequality was low. During this period, inequality in college enrollment and completion was significantly higher for men than for women, suggesting a bona fide “Vietnam War” effect. Aside from this singular confounding event, a century of evidence establishes a strong association between income and collegiate inequality, providing support for the view that rising income inequality is fundamentally changing the distribution of life chances.

Wealth Tax Design: Lessons from Estate Tax Avoidance

Source: Jason Oh, Eric M. Zolt, UCLA School of Law, Law-Econ Research Paper No. 20-01, January 27, 2020

From the abstract:
Presidential candidates Elizabeth Warren and Bernie Sanders have both proposed ambitious new annual wealth taxes based on academic work by Emmanuel Saez and Gabriel Zucman. They project these proposals to raise trillions of dollars over the next ten years. Some critics challenge the Saez-Zucman approach to measuring the aggregate wealth of those subject to a wealth tax. Other critics including Larry Summers and Natasha Sarin have used data from estate tax returns and the relatively small amount of revenue the estate tax currently raises to question the revenue projections of these proposals. This comparison can be useful only if one thinks carefully about specific estate tax strategies and how these strategies translate to an annual wealth tax. This article engages in that exercise. When one takes a closer look at estate tax avoidance and how it maps onto an annual wealth tax, a much more complex narrative emerges.

That narrative has four major themes. First, there are some estate tax planning techniques (like valuation games and charitable contributions) which pose similar challenges to an annual wealth tax. These structures provide some support for critics like Summers and Sarin who argue that the annual wealth tax will struggle to raise the projected revenue. Second, other structures (such as grantor-retained annuity trusts ) work well to minimize estate taxes but are of limited use for structuring around an annual wealth tax. Projecting wealth tax revenue using estate tax revenue without considering the revenue consequences of these strategies will understate wealth tax revenue. Third, other techniques (including the use of lifetime estate/gift exemptions) highlight possible synergies between an estate and wealth tax. In many ways, a robust estate tax will make the wealth tax harder to avoid and vice-versa. The converse is also true: a poorly designed estate/gift tax will undermine an annual wealth tax. Adopting a wealth tax without strengthening the gift and estate makes little sense. Fourth, one of the major lessons of estate tax planning is that it is much easier to minimize estate taxes on future wealth than existing wealth. A myriad of techniques allow taxpayers to “freeze” the value of assets for estate tax purposes. Freezing techniques will also prove helpful in minimizing wealth taxes. It is possible that even a well-designed wealth tax will have a base that shrinks rather than grows over time.

CEO compensation surged 14% in 2019 to $21.3 million – CEOs now earn 320 times as much as a typical worker

Source: Lawrence Mishel and Jori Kandra, Economic Policy Institute, August 18, 2020

From the introduction:
Chief executive officers (CEOs) of the largest firms in the U.S. earn far more today than they did in the mid-1990s and many times what they earned in the 1960s or late 1970s. They also earn far more than the typical worker, and their pay—which relies heavily on stock-related compensation— has grown much more rapidly than typical worker pay. Importantly, rising CEO pay does not reflect rising value of skills, but rather CEOs’ use of their power to set their own pay. And this growing earning power at the top has been driving the growth of inequality in our country.

Occupational Skill Mismatch: Differences by Gender and Cohort

Source: John T. Addison, Liwen Chen, Orgul D. Ozturk, ILR Review, Volume 73 Issue 3, May 2020
(subscription required)

From the abstract:
The authors deploy a measure of occupational mismatch based on the discrepancy between the portfolio of skills required by an occupation and the array of abilities possessed by the worker for learning those skills. Using data from the Occupational Information Network (O*NET) and the 1979 and 1997 National Longitudinal Survey of Youth (NLSY79 and NLSY97), they report distinct gender differences in match quality and changes in match quality over the course of careers. They also show that a substantial portion of the gender wage gap stems from match quality differences among the college educated. College-educated females show a significantly greater likelihood of mismatch than do males. Moreover, individuals with children and those in more flexible occupations tend to experience a larger degree of mismatch. Cohort effects are also evident in the data: College-educated males of the younger cohort (NLSY97) are worse off in terms of match quality compared to the older cohort (NLSY79), even as the younger cohort of women is doing better on average.

The Relationship between Prejudice and Wage Penalties for Gay Men in the United States

Source: Ian Burn, ILR Review, Volume 73 Issue 3, May 2020
(subscription required)

From the abstract:
This article estimates the empirical relationship between prejudicial attitudes toward homosexuality and the wages of gay men in the United States. It combines data on prejudicial attitudes toward homosexuality from the General Social Survey with data on wages from the U.S. Decennial Censuses and American Community Surveys—both aggregated to the state level. The author finds that a one standard deviation increase in the share of individuals in a state who are prejudiced toward homosexuals is correlated with a decrease in the wages of gay men of between 2.7% and 4.0%. The results also suggest that the prejudice of managers is responsible for this correlation. The author finds that a one standard deviation increase in the share of the managers in a state who are prejudiced toward homosexuals is associated with a 1.9% decrease in the wages of gay men. The author finds no evidence that the wage penalty for gay men is correlated with the prejudice of customers or co-workers.

Transgender Status, Gender Identity, and Socioeconomic Outcomes in the United States

Source: Christopher S. Carpenter, Samuel T. Eppink, Gilbert Gonzales, Volume 73 Issue 3, May 2020
(subscription required)

From the abstract:
This article provides the first large-scale evidence on transgender status, gender identity, and socioeconomic outcomes in the United States, using representative data from 35 states in the Behavioral Risk Factor Surveillance System (BRFSS), which asked identical questions about transgender status and gender identity during at least one year from 2014 to 2017. More than 2,100 respondents, aged 18 to 64 years, identified as transgender. Individuals who identify as transgender are significantly less likely to be college educated and less likely to identify as heterosexual than are individuals who do not identify as transgender. Controlling for these and other observed characteristics, transgender individuals have significantly lower employment rates, lower household incomes, higher poverty rates, and worse self-rated health compared to otherwise similar men who are not transgender.

Wage Differentials, Bargaining Protocols, and Trade Unionism in Mid-Twentieth-Century American Labor Markets

Source: John Pencavel, ILR Review, OnlineFirst, Published June 1, 2020
(subscription required)

From the abstract:
Income inequality in the United States has been lower in periods when trade unionism has been strong. Using observations on wages by occupation, by geography, and by gender in collective bargaining contracts from the 1940s to the 1970s, patterns in movements of wage differentials are revealed. As wages increased, some contracts maintained relative wage differentials constant, some maintained absolute differences in wages constant, others combined these two patterns, and some did not reveal an obvious pattern. The patterns persisted even as price inflation increased in the 1970s. The dominant pattern implies a reduction in inequality as usually measured.

Racial Economic Inequality Amid the COVID-19 Crisis

Source: Bradley L. Hardy, Trevon D. Logan, Hamilton Project, Brookings Institution, Essay 2020-17 August 2020

From the introduction:
COVID-19 confronts Americans with two crises: a public health crisis and an economic crisis. The two operate together, since the public health crisis has dramatically reduced economic activity and overall spending. Moreover, this crisis has broader distributional consequences than any economic event in recent memory, altering most aspects of how we live, work, and conduct business—and in truth, who will survive.

Across the economy and society, the distributional consequences of COVID-19 are uneven: the pandemic and its broader economic and health consequences are disproportionately impacting Black Americans.

The outsized challenges that Black Americans are facing are a reflection of the generally diminished economic position and health status that they faced prior to this crisis. Several pre–COVID-19 economic conditions—including lower levels of income and wealth, higher unemployment, and greater levels of food and housing insecurity—leave Black families with fewer buffers to absorb economic shocks and contribute to Black households’ vulnerability to the COVID-19 economic crisis.

The interaction of those pre–COVID-19 economic and health disparities—including a higher rate of preexisting health conditions such as hypertension and lung disease—has contributed to higher COVID-19 mortality rates for Black Americans (e.g. Benitez, Courtemanche, and Yelowitz 2020; Weimers et al. 2020). According to the APM Research Lab, Black Americans continue to experience the highest overall actual COVID-19 mortality rates (80.4 per 100,000)—more than twice the rate of white Americans (35.9 per 100,000) or Asian Americans (33.1 per 100,000), who have the lowest COVID-19 mortality rates. In 2020 more Black Americans will die of COVID-19 than will succumb to diabetes, strokes, accidents, or pneumonia. In fact, COVID-19 is currently the third leading cause of death for Black Americans (APM Research Lab 2020).

Why is the American South Poorer?

Source: Regina S Baker, Social Forces, Volume 99, Issue 1, September 2020
(subscription required)

From the abstract:
While American poverty research has devoted greater attention to poverty in the Northeast and Midwest, poverty has been persistently higher in the U.S. South than in the other regions. Thus, this study investigates the enduring question of why poverty is higher in the South. Specifically, it demonstrates the role of power resources as an explanation for this regional disparity, yet also considers family demography, economic structure, and racial/ethnic heterogeneity. Using six waves (2000–2016) of U.S. Census Current Population Survey data from the Luxembourg Income Study (N = 1,157,914), this study employs a triangulation of analytic techniques: (1) tests of means and proportion differences, (2) multilevel linear probability models of poverty, and (3) binary decomposition of the South/non-South poverty gap. The comparison of means associated with the power resource hypothesis yields the largest substantive differences between the South and the non-South. In the multilevel models, adjusting for power resources yields the largest declines in the South coefficient. Binary decomposition results indicate power resources are the second most influential factor explaining the South/non-South poverty gap. Overall, power resources are an important source of the South/non-South poverty gap, though economic structure and other factors certainly also play a role. Results also suggest an important interplay between power resources and race. Altogether, these results underscore the importance of macrolevel characteristics of places, including political and economic contexts, in shaping individual poverty and overall patterns of inequality.

….Beyond these factors, this study focuses on the role of politics and policy via power resources theory (PRT). Here,power resources refer to class-based collective political actors, such as labor unions and parties, and the social policies they are able to institutionalize…

October 2019 pre-print version