Income Inequality and Income Risk in 21st Century

Paper Session

Saturday, Jan. 7, 2017 2:30 PM – 4:30 PM

Hyatt Regency Chicago, Grand Ballroom CD North
Hosted By: American Economic Association
  • Chair: Fatih Guvenen, University of Minnesota

The Rise and Nature of Alternative Work Arrangements in the United States

Lawrence Katz
,
Harvard University
Alan Krueger
,
Princeton University

Abstract

To monitor trends in alternative work arrangements, we conducted a version of the Contingent Worker Survey as part of the RAND American Life Panel (ALP) in late 2015. The findings point to a significant rise in the incidence of alternative work arrangements in the U.S. economy from 2005 to 2015. The percentage of workers engaged in alternative work arrangements – defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers – rose from 10.7 percent in February 2005 to 15.8 percent in late 2015. Longitudinal and time-series evidence point to a limited role for unemployment in the rise of alternative work. Instead, secular changes, such as technological innovations that standardize work and rising inequality, are creating incentives for a fissuring of workplaces.<br />
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Risk, Self-Insurance and Precautionary Saving Response

Andreas Fagereng
,
Statistics Norway
Luigi Guiso
,
Einaudi Institute for Economics and Finance
Luigi Pistaferri
,
Stanford University

Abstract

The theory of precautionary savings states that an increase in risk induces households to defer consumption to the future at the expense of current consumption - i.e. they choose a steeper age-consumption profile to pile precautionary assets. One way to test for precautionary saving effects is to estimate a consumption Euler equation, regressing expected consumption growth on the volatility of future consumption growth. The major problem is to find a measure of the latter that is idiosyncratic, observable, and exogenous. Income volatility is the typical choice adopted in the literature, but it has the problem that it may reflect partly risk, partly choice. To solve this endogeneity problems, we instrument consumption volatility with the firm-specific variance of value added shocks. The instrument is valid because, as we document, firms pass some of their productivity shocks onto wages (i.e., there is only partial insurance). Moreover, for most workers  firm-related shocks are non-manipulable and hard to avoid. We use Norwegian administrative data on income and assets to construct a measure of consumption and implement our research design using matched employer-employee data on wages and measures of firm performance. Our preliminary estimates suggest a coefficient of relative prudence of 2.5, which is in a very plausible range.

Systematic Earnings Risk

Fatih Guvenen
,
University of Minnesota
Samuel Schulhofer-Wohl
,
Federal Reserve Bank of Chicago
Jae Song
,
U.S. Social Security Administration
Motohiro Yogo
,
Princeton University

Abstract

We use administrative data on earnings to estimate how aggregate risk exposure to GDP and stock returns varies across gender, age, earnings level, and industry. Aggregate risk exposure is U-shaped with respect to the earnings level. In the middle of the earnings distribution, males, younger individuals, and those in construction and durable manufacturing are more exposed to aggregate risk. At the top of the earnings distribution, older individuals and those in finance are more exposed to aggregate risk. We then extend the analysis to study how individuals’ earnings covary jointly with average industry wage, average firm wage, in addition to GDP and find interesting variation across the population and firms with different characteristics. We discuss some implications of our findings for macroeconomics and finance.

Global Inequality Dynamics: New Findings from WID.world

Facundo Alvaredo
,
Paris School of Economics
Anthony B. Atkinson
,
University of Oxford
Lucas Chancel
,
Paris School of Economics
Thomas Piketty
,
Paris School of Economics
Emmanuel Saez
,
University of California-Berkeley
Gabriel Zucman
,
University of California-Berkeley

Abstract

This paper presents new findings on global inequality dynamics from the World Wealth and Income Database (WID.world), with particular emphasis on the contrast between the trends observed in the United States, China, France, and the United Kingdom. We observe rising top income and wealth shares in nearly all countries in recent decades. But the magnitude of the increase varies substantially, thereby suggesting that different country-specific policies and institutions matter considerably. Long-run wealth inequality dynamics appear to be highly unstable. We stress the need for more democratic transparency on income and wealth dynamics and better access to administrative and financial data.
JEL Classifications
  • J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers