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  5. Wealth Disparities and Wealth Accumulation among Low Income Populations
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Wealth Disparities and Wealth Accumulation among Low Income Populations

Paper Session

Sunday, Jan. 5, 2025 1:00 PM - 3:00 PM (PST)

Hilton San Francisco Union Square, Continental Ballroom 7&8
Hosted By: American Economic Association
  • Chairs:
    Megan Stevenson, University of Virginia
  • Winnie van Dijk, Yale University

The Historical Incarceration Penalty in the U.S.

Desmond Ang
,
Harvard Kennedy School
Ellora Derenoncourt
,
Princeton University
Kyle Hancock
,
Princeton University
Jing Wu
,
Princeton University

Abstract

The U.S. has both the highest incarceration rate and the largest prison population worldwide. Furthermore, this reliance on incarceration in criminal justice policy is not only a modern phenomenon but dates back to the late 19th century. An active literature seeks to understand the social and economic impacts of this policy in the U.S., including the labor market effects of incarceration, reaching mixed conclusions. In this paper, we trace the labor market trajectories of incarcerated vs. non-incarcerated individuals in the U.S. during the first major increase in incarceration, from 1870-1940. We provide estimates of the incarceration penalty, the difference in labor market outcomes such as occupation, earnings, employment, and labor force participation between incarcerated and non-incarcerated men across this full time period. We find a penalty in occupation-based income scores ranging from 5-15% over the period, with the penalty increasing over time as incarceration rates increased. Using double-linked samples and a linked sample of brothers, we show the penalty remains even after controlling for observed and unobserved measures of family background. We discuss the potential explanations behind a rising penalty, including selection, changes in the earnings distribution, evolving criminal justice practices, and shifts in the labor market consequences of past criminal justice involvement.

The G.I. Bill and Black-White Wealth Disparities

Lukas Althoff
,
Stanford University
Christiane Szerman
,
University College London

Abstract

The World War II G.I. Bill provided veterans with generous benefits for education, employment, and housing, contributing significantly to the development of the middle class in the United States. It remains one of the most comprehensive economic policies in the country's history. This paper reexamines the G.I. Bill's influence on the racial wealth gap in the U.S., integrating historical and contemporary data to analyze the policy's effects on veterans and their descendants. We introduce a novel instrumental variable approach based on birth quarter to evaluate the intergenerational effects of being a veteran's descendant. This method exploits the fact that children born after the third quarter of 1946 were more likely to be descendants of veterans who returned from World War II. We then isolate the intergenerational effects of the G.I. Bill from other differences that emerge between children of veterans and non-veterans, such as the positive selection into military service and the effects of wartime service. Our preliminary findings reveal significant positive wealth effects for descendants of white veterans, but not their Black counterparts.

Revisiting the Lasting Effects of Incarceration: Evidence from Virginia

John Eric Humphries
,
Yale University
Aurelie Ouss
,
University of Pennsylvania
Megan Stevenson
,
University of Virginia
Winnie van Dijk
,
Yale University

Abstract

In this paper, we provide new evidence on how incarceration affects the accumulation of wealth and human capital. We measure wealth using home and car ownership, two of the main wealth components among the low income population. To identify the impacts of incarceration, we use a difference-in-differences design that leverages discontinuities in the probability of incarceration resulting from Virginia's sentence guidelines scoring system. We first replicate recent findings that incarceration leads to only short-term, incapacitative declines in employment, wages and recidivism. We can reject even small adverse effects on these outcomes at seven years post-incarceration. However, we show that incarceration has lasting impacts on the accumulation of wealth and human capital. Seven years after sentencing, the incarcerated group is less likely to own a home or a car or to have any postsecondary education.

Root Causes of the Racial Wealth Gap: Stratification Economics vs. the Fed View

William Darity Jr.
,
Duke University
Stephan Lefebvre
,
Bucknell University

Abstract

Economists at the Board of Governors and the Cleveland and Boston branches of the Federal Reserve argue that black-white earnings differences, anchored primarily on differences in levels of “human capital” are the fundamental source of black-white differences in wealth. This can be labeled the Fed View. In contrast, stratification economics posits that black-white differences in the transmission of resources across generations are the fundamental source of black-white differences. This paper details the precise structure of each position and provides a critical analysis of the comparative strengths and weaknesses of each. We conclude that the weight of the evidence favors the stratification economics view of the root causes of the racial disparity in wealth in the United States.

The Unequal Effects of Up-Zoning: Evidence from Cook County

Rebecca Diamond
,
Stanford University
Timothy James McQuade
,
University of California-Berkeley
Zong Huang
,
Stanford University

Abstract

Despite the growing ``affordability crisis," in many land-use restrictive cites, few cities have voluntarily eased zoning restrictions. In this paper we quantify the winners and losers of up-zoning by estimating a structural model of development decisions of profit-maximizing real-estate developers. We find the winners and losers of up-zoning is extremely heterogeneous due to which types of neighborhoods and properties are profitable for redevelopment. Since building new construction often requires demolishing existing structures on a property, developers will find it most profitable to target new developments to lots that currently have low-value structures, located in neighborhoods where new construction can command a high price, a fact we show in the data. Under a counterfactual doubling of all parcels' floor-area ratio maximums, we find the largest increase in new development happens in lower-income, higher minority areas, due to the ability to build more housing units.
JEL Classifications
  • J0 - General
  • K0 - General