The Consequences of Rising Inequality for Mobility and Economic Well-Being
Friday, Jan. 4, 2019 10:15 AM - 12:15 PM
- Chair: David Johnson, University of Michigan
Inequality and Mobility Over the Past Half Century Using Income, Consumption and Wealth
AbstractInequality in income, consumption, and wealth is increasing, and inequality in the joint distributions is increasing faster than inequality in any of the single distributions. Relatedly, increases in inequality may be contributing to decreasing intergenerational mobility. The joint distribution of all three provides more information about well-being over the life-time. Wealth informs about past savings behavior and provides a future capacity to consume. Income higher than consumption indicates that the household is saving and is increasing future consumption, while income lower than consumption indicates the opposite. Similarly, a household with high wealth but low income is very different than a household with high income and high wealth. Thus, studying the joint distribution of income, consumption, and wealth tells us something about past well-being, current well-being, and future well-being.
The Panel Study of Income Dynamics (PSID) follows individuals and families over almost five decades, making it the benchmark source for measuring intergenerational mobility. This paper builds on our previous work, in which we show that there is less income mobility at lower wealth quintiles. In this paper, we supplement the existing data available in the PSID, which includes income every wave since 1968 along with intermittent measures of consumption and wealth. We impute consumption and wealth to the earlier years to obtain measures of inequality and mobility over five decades. The long PSID panel will also allow us to compare intra-generational mobility across cohorts, at least early in their adult lives. We can compare intra-generational mobility for the early Baby Boom cohort (those born 1946-1955) through Generation X. We will be able to assess whether intra-generational mobility differs for a generation that began their working career in a low inequality era (early Baby Boomers) to a generation that began their working career in a time of increasing inequality (Gen X).
Wealth Inequality, Income Volatility, and Race
AbstractWealth inequality has gained attention as a marker of shifting returns to labor and capital. Our attention here is on economic insecurity and the role of wealth as a buffer for households facing income volatility. Among its other roles, wealth provides households with a cushion for coping with emergencies and volatile income. Having sufficient wealth can prevent emergencies from becoming crises and provide slack to manage ups and downs without undue stress. We build from the insight that transitory shocks are only a problem to the degree that households lack wealth and financial mechanisms to cope with them. Economic insecurity is thus a product of exposure to significant risk and the lack of sufficient coping mechanisms, especially wealth. We provide evidence that these elements of economic insecurity vary importantly by race.
First, using panel data from the PSID, we show that large income and wealth gaps persist across race and ethnicity, with blacks and Hispanics faring worst along both dimensions. Added to this, we also find that year-over-year income volatility is highest among black Americans. The largest racial gaps in volatility occur at the bottom of the income distribution, where we observe substantial wealth gaps across race and ethnicity as well. Importantly, the racial and ethnic volatility gaps are robust to the measure of volatility used.
We then use the Federal Reserve Survey of Household Economics and Decision Making (SHED) to show the overlap between exposure to volatility and the lack of sufficient coping mechanisms. Across a series of measures, we show that groups facing the greatest volatility, blacks and Hispanics, also lack adequate coping mechanisms. These patterns hold controlling for income and education.
The Long-Term Effects of Job Search Assistance for Displaced Workers
AbstractThis paper studies the effects of randomly-assigned job search assistance (JSA) on unemployment insurance (UI) claimants’ employment, hours, and earnings over ten years. In the short-run, JSA led to shorter spells of UI receipt; in the long run, it led to a higher probability of employment and more hours. JSA had its largest effects on displaced workers—the workers for whom the program was designed.
- D3 - Distribution