The Distribution of Income and Wealth
Economic inequality has been a prominent and perennial concern in economics and public policy. The rise in inequality that occurred during the 1970s and early 1980s stimulated interest in the study of its causes and consequences. Experience from the 1990s suggests that economic growth and prosperity no longer dramatically reduce economic inequality. The persistent inequalities within nations and across nations raise several key issues that demand scholarship and innovative policies to aid in their resolution.
Recognizing this, the Levy Institute has maintained, since its inception, an active research program on the distribution of earnings, income, and wealth. Research in this area includes studies on the economic well-being of the elderly, public and private pensions, well-being over the life course, the role of assets in economic well-being, and the determinants of the accumulation of wealth.
It is widely recognized that existing official measures of economic well-being need to be improved in order to generate accurate cross-sectional and intertemporal comparisons. The picture of economic well-being can vary significantly depending on the measure used. Alternative measures are also crucially important for the formulation and evaluation of a wide variety of social and economic policies. The Levy Institute Measure of Economic Well-Being and related research is aimed at bridging this gap.
Public Policy Brief No. 126 | November 2012
Why Time Deficits Matter for Poverty
We cannot adequately assess how much or how little progress we have made in addressing the condition of the most vulnerable in our societies, or provide accurate guidance to policymakers intent on improving each individual’s and household’s ability to reach a basic standard of living, if we do not have a reliable means of measuring who is being left behind. With the support of the United Nations Development Programme and the International Labour Organization, Senior Scholars Rania Antonopoulos and Ajit Zacharias and Research Scholar Thomas Masterson have constructed an alternative measure of poverty that, when applied to the cases of Argentina, Chile, and Mexico, reveals significant blind spots in the official numbers.Download:Associated Program(s):The Distribution of Income and Wealth The Levy Institute Measure of Time and Income Poverty Gender Equality and the EconomyAuthor(s):Related Topic(s):
One-Pager No. 34 | October 2012
The Importance of Time Deficits
Standard poverty measurements assume that all households and individuals have enough time to engage in the unpaid cooking, cleaning, and caregiving that are essential to attaining a bare-bones standard of living. But this assumption is false. With the support of the United Nations Development Programme and the International Labour Organization, Senior Scholars Rania Antonopoulos and Ajit Zacharias and Research Scholar Thomas Masterson have constructed an alternative measure of poverty that, when applied to the cases of Argentina, Chile, and Mexico, reveals significant blind spots in the official numbers.Download:Associated Program(s):The Distribution of Income and Wealth The Levy Institute Measure of Time and Income Poverty Gender Equality and the EconomyAuthor(s):Related Topic(s):
Research Project Reports | August 2012
Implications for the Measurement of Poverty
Customarily, income poverty incidence is judged by the ability of individuals and households to gain access to some level of minimum income based on the premise that such access ensures the fulfillment of basic material needs. However, this approach neglects to take into account the necessary (unpaid) household production requirements without which basic needs cannot be fulfilled. In fact, the two are interdependent and evaluation of standards of living ought to consider both dimensions.
This report provides an analytical and empirical framework that includes unpaid household production work in the very conceptualization and calculations of poverty: the Levy Institute Measure of Time and Income Poverty (LIMTIP). Based on this new analytical framework, empirical estimates of poverty are presented and compared with those calculated according to the official income poverty lines for Argentina, Chile, and Mexico. In addition, an employment-generating poverty-reduction policy is simulated in each country, and the results are assessed using the official and LIMTIP poverty lines.
The undertaking of this work was initiated as a result of joint discussions and collaboration between the Levy Economics Institute and United Nations Development Programme Regional Service Centre for Latin America and the Caribbean, particularly the Gender Practice, Poverty, and Millennium Development Goals areas. It addresses an identified need to expand the knowledge base, conceptually, analytically, and empirically, on the links between (official) income poverty and the time allocation of households between paid and unpaid work.Download:Associated Program(s):The Levy Institute Measure of Time and Income Poverty The Distribution of Income and Wealth Gender Equality and the EconomyAuthor(s):Related Topic(s):
Working Paper No. 727 | July 2012
The method for simulation of labor market participation used in the LIMTIP models for Argentina, Chile, and Mexico is described. In each case, all eligible adults not working full-time were assigned full-time jobs. In all households that included job recipients, the time spent on household production was imputed for everyone included in the time-use survey. The feasibility of assessing the quality of the simulations is discussed. For each simulation, the recipient group is compared to the donor group, both in terms of demographic similarity and in terms of the imputed usual hours, earnings, and household production produced in the simulation. In each case, the simulations are of reasonable quality, given the nature of the challenges in assessing their quality.Download:Associated Program(s):The Distribution of Income and Wealth Gender Equality and the Economy The Levy Institute Measure of Time and Income PovertyAuthor(s):Related Topic(s):
In the Media | February 2012
By Rachel Mendleson
Huffington Post Canada, February 3, 2012. Copyright © 2012 TheHuffingtonPost.com, Inc. All rights reserved.
As debate about income inequality mounts, a new study [see Working Paper No. 703] underscores how important public investment in social programs like education and health care is in narrowing the rich-poor divide.
At a time when Ottawa prepares to beat back the deficit with public spending cuts, the findings also show that the effect of Canada’s social safety net on narrowing the income gap waned in the early 2000s.
“There seems to be a decline in the role of transfers on inequality in Canada,” says Andrew Sharpe, director of the Centre for the Study of Living Standards in Ottawa, and co-author of the study by the New York–based Levy Institute of Bard College.
Efforts to quantify the rich-poor divide often focus on basic income—namely, how much households earn in a given year. But in their comparison of income inequality in the U.S. and Canada, the authors of the working paper, released in January, endeavour to take a more comprehensive approach.
According to Sharpe, the aim is to “go beyond standard measures of income” to include other factors that play a role in household wealth: taxes and transfers; government expenditures on goods and services, such as housing, education and health care; time spent on household tasks; and the value of major assets.
Including these other elements when calculating income inequality tends to have a narrowing effect, he explains, “because everybody gets government services and everybody does household work.”
The vast amount of data required to make such comparisons limited the scope of the study somewhat—to 1999 and 2005 in Canada, and 2000 and 2004 in the U.S.—but the snapshots give some indication of how much these other factors have been affecting inequality in recent years.
The authors calculated inequality using two different measures. The first, dubbed Money Income (MI), only takes into account gross income and government transfers. However, the second, called the Levy Institute Measure of Economic Well-Being (LIMEW), also includes the effect of the other factors outlined by Sharpe, many of which are related to the strength of public services and programs.
On both sides of the border, the gap, measured with the Gini coefficient, the standard unit used to gauge inequality, was significantly narrowed when these other sources of wealth were taken into account.
In Canada in 1999, for instance, when inequality was calculated using the LIMEW, the Gini coefficient was 17 per cent lower; in 2005, meanwhile, it was 13 per cent lower.
The findings show that factors besides income (such as government spending on education and health care) do a better job at smoothing out inequality in Canada than in the U.S. But they also demonstrate that, from 1999 to 2005, this package of benefits became less effective at levelling the playing field.
This likely came as little surprise to Sharpe, who recently advocated for greater government investment as a means of curbing income inequality.
In a a report on reducing disparities published in November by Canada 2010—a think-tank established to “create an environment of social and economic prosperity”—Sharpe was among a group of public policy experts and economists who called on Ottawa to “analyze and consider the longer term effects of income polarization, and consider the strategic policy reforms to head off a looming problem.”
Among other fixes, the report suggests addressing the growing gap by imposing an inheritance tax, enhancing child benefits and increasing investment in post-secondary education.
“Public services are . . . an essential element of the redistributive effort of government,” Sharpe wrote. “Erosion of public services will thus tend to increase inequality, something that is not often at the forefront of discussion when cuts are proposed."
Working Paper No. 703 | January 2012
We use the Levy Institute Measure of Economic Well-being (LIMEW), the most comprehensive income measure available to date, to compare economic well-being in Canada and the United States in the first decade of the 21st century. This study represents the first international comparison based on LIMEW, which differs from the standard measure of gross money income (MI) in that it includes noncash government transfers, public consumption, income from wealth, and household production, and nets out all personal taxes.
We find that, relative to the United States, median equivalent LIMEW was 11 percent lower in Canada in 2000. By 2005, this gap had narrowed to 7 percent, while the difference in median equivalent MI was only 3 percent. Inequality was notably lower in Canada, with a Gini coefficient of 0.285 for equivalent LIMEW in 2005, compared to a US coefficient of 0.376—a gap that primarily reflects the greater importance of income from wealth in the States. However, the difference in Gini coefficients declined between 2000 and 2005. We also find that the elderly were better off relative to the nonelderly in the United States, but that high school graduates did better relative to college graduates in Canada.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 692 | October 2011
The quality of match of three statistical matches used in the LIMTIP estimates for Argentina, Chile, and Mexico is described. The first match combines the 2005 Uso del Tiempo (UT 2005) with the 2006 Encuesto Annual de Hogares (EAH) for Argentina. The second match combines the 2007 Encuesta Experimental sobre Uso del Tiempo en el Gran Santiago (EUT 2007) with the 2006 Encuesta Caracteristización Socioeconómica Nacional (CASEN 2006) for Chile. The third match combines the 2008 Encuesta Nacional de Ingresos y Gastos de los Hogares (ENIGH 2008) with the 2009 Encuesta Nacional sobre Uso del Tiempo (ENUT 2009) for Mexico. In each case, the alignment of the two datasets is examined, after which various aspects of the match quality are described. In each case, the matches are of high quality, given the nature of the source datasets.Download:Associated Program(s):The Levy Institute Measure of Economic Well-Being The Distribution of Income and Wealth Gender Equality and the Economy The Levy Institute Measure of Time and Income PovertyAuthor(s):Related Topic(s):
Working Paper No. 690 | October 2011
Official poverty thresholds are based on the implicit assumption that the household with poverty-level income possesses sufficient time for household production to enable it to reproduce itself as a unit. Several authors have questioned the validity of the assumption and explored alternative methods to account for time deficits in the measurement of poverty. I critically review the alternative approaches within a unified framework to highlight the commonalities and relative merits of individual approaches. I also propose a two-dimensional, time-income poverty measure that accounts for intrahousehold disparities in the division of household labor and briefly discuss its uses in thinking about antipoverty policies.Download:Associated Program(s):The Distribution of Income and Wealth Gender Equality and the Economy The Levy Institute Measure of Time and Income PovertyAuthor(s):Related Topic(s):
In the Media | September 2011
By Peter S. Goodman
The Huffington Post, September 1, 2011. Copyright © 2011 TheHuffingtonPost.com, Inc. | “The Huffington Post” is a registered trademark of TheHuffingtonPost.com, Inc. All rights reserved.
As President Obama puts the finish on a much-touted program aimed at promoting job creation, public expectations appear low, owing to national dismay over a deep unemployment crisis and the partisan division ruling Washington.
But put aside the limitations of political possibility—granted, a bit like ignoring gravity—and many economists assert there is much the government could do to put large numbers of Americans back to work.
At the top of many to-do lists is government spending into the tens of billions of dollars to finance large-scale public works projects, a strategy that could address a gaping mismatch: Nearly 14 million Americans are officially out of work, yet a great deal of work needs to be done, from repairing dilapidated roads and bridges, to retrofitting government office buildings with energy-efficient infrastructure.
“If the government spends the money directly on government-funded projects, that puts people on payrolls,” said Gary Burtless, a former Labor Department economist and now a senior fellow at the Brookings Institution in Washington. He added that the bulk of hiring and spending is likely to be confined to the domestic economy. “You can’t get Brazilian workers to pave a road here in the United States, and lots of capital goods that go into infrastructure would also be produced in the United States,” he said.
Critics of infrastructure spending as a proposed fix for unemployment have argued that it can be inefficient: A surge of money let loose through federal and state bureaucracies invites waste and abuse. To which proponents ask, compared to what?
“The other waste that we should keep front and center in our minds is having nine percent of the workforce unemployed,” Burtless said. “If some of the money is wasted because it is spent too quickly, you’ve got to put that in context of the complete waste of the talents and abilities of the 11 million Americans who would be working if we were at full employment today.”
Infrastructure spending is particularly promising, say proponents, because it is likely to generate jobs in the very areas of the economy that have been hardest hit as the housing boom has gone bust—construction and manufacturing.
“We still have mass layoffs in those sectors,” said Pavlina R. Tcherneva, an economist at Franklin & Marshall College. “It seems very obvious that we can absorb large numbers of workers in those sectors for the public good.”
One proposal that has gained favor among some economists in recent months—among them, Jared Bernstein, previously chief economic adviser to Vice President Biden and now a senior fellow at the Center on Budget and Policy Priorities—would direct $50 billion toward repairing aging schools, with a particular focus on making buildings more energy efficient. Proponents say this spending would be financed over a decade by closing $46 billion worth of tax loopholes that now favor the traditional oil and gas industry.
According to an outline of the Fix America’s Schools Today proposal, the nation’s roughly 100,000 public schools confront a backlog of deferred maintenance projects that reaches $270 billion, meaning this money could quickly be absorbed and put to use.
“This is labor-intensive work,” Bernstein told the Huffington Post. “And that’s a good thing. That means more jobs.”
Bernstein helped craft the nearly $800 billion in stimulus spending measures delivered by the Obama administration in early 2009—a package that has since become a symbol of disappointment across the ideological spectrum. Those favoring more aggressive government intervention, led by the economists and Nobel laureates Paul Krugman and Joseph Stiglitz, derided it as too small and poorly targeted to reinvigorate economic growth. Conservatives such as John Taylor, a member of the Council of Economic Advisers in the George H.W. Bush administration, and now a senior fellow at Stanford University’s Hoover Institution, pronounced it a wholesale waste of money that did not create jobs.
But Bernstein and many other economists maintain that the package prevented the unemployment rate from climbing even higher, and he would favor unleashing a new dose of one of its key components: aid for distressed state and local governments, whose budget troubles have prompted deep and sustained layoffs. This is now the dominant force exacerbating joblessness.
“It’s as simple as two plus two,” Bernstein said. “You have states that have to balance their budgets and they are still cutting deeply and they either raise taxes or reduce service, and they have been doing more of the latter, leading to layoffs. State and local fiscal relief would be a great way to get much needed, fast-acting medicine into the system.”
But as Bernstein acknowledges, such proposals are not on the agenda among the decision-makers in Washington, who have instead been consumed with debate over how to reduce the federal budget deficit.
“I don’t see it on anyone’s to do list,” Bernstein said. “It’s very much a should. I’m not sure if it’s a could.”
Among job creation initiatives that experts say could emerge from Washington—albeit, not without considerable congressional wrangling—are the continuation of a temporary reduction on payroll taxes, and the extension of emergency unemployment benefits for people who have been out of work for six months or longer. Both of these temporary programs are set to expire at the end of the year, absent congressional action.
Collectively, they are pumping between $150 billion and $170 billion annually into the economy, Bernstein said.
Beyond the Beltway considerations constraining the scope of policy, some economists advocate more sweeping efforts to generate new jobs by the million.
Tcherneva, the Franklin & Marshall economist, says we need a modern version of the Works Progress Administration, one of the most ambitious undertakings of the New Deal, the federal government’s response to the alarming joblessness of the Great Depression. Then, the government directly employed millions of people, aiming them at building out public works projects of enduring value—dams, highways, parks and firehouses. This time, the federal government could channel funds to state and local government that could then employ private sector firms to build and revamp the needed infrastructure of today, adding light rail to reduce traffic congestion in major cities, upgrading parks and improving access to public education.
“There is such a wide need out there,” Tcherneva said. “The private sector is not creating enough jobs. We need an explicit government commitment to put the jobless to work.”
Some economists argue that infrastructure spending, while a potentially useful way to generate jobs, is not the most potent channel. A paper published last year by the Levy Economics Institute of Bard College concludes that so-called social care—meaning early childhood education and home health care for the elderly—could generate even more jobs per federal dollar spent than infrastructure projects.
“It gives you about twice as many jobs per buck as infrastructure,” said Thomas Masterson, an economist at the Levy Institute and one of the paper’s authors. “And it’s more targeted for women who tend to be disadvantaged.”
The paper calls for $50 billion in annual government spending to hire early childhood educators who would provide child care for young children whose parents cannot afford it. The money would also provide home health care aides for the elderly.
Both of these areas of the economy provide large numbers of jobs to people lacking college degrees—a group now struggling with particularly severe unemployment. Among high school graduates 25 years and older who did not complete college, less than 55 percent are now employed, according to the Department of Labor. That is down from 60 percent four years ago.
Beyond the direct employment benefits, such a program would enable parents now unable to pay for child care to earn income outside their homes, while boosting the skills of children receiving care, Masterson said. Many states are now slashing support for subsidized childcare programs, while also cutting cash assistance programs for poor single mothers.
Other economists assert that the key to job creation is a focus on the people who should be cutting the paychecks, generating fresh incentives for employers to hire.
Two years ago, when the economy was still shedding hundreds of thousands of jobs each month, Aaron Edlin, an economist at the University of California at Berkeley and Edmund Phelps, an economist and Nobel laureate at Columbia University, delivered a paper calling for targeted tax credits for employers who hire low-wage workers.
“The credits would quickly boost the number of low-wage people that businesses employ,” the scholars asserted in their paper. “As the market for low-wage people tightened, the competition for them would pull up low-end pay rates.”
Edlin told HuffPost that this approach is now more urgently needed than ever.
“We have a serious risk of a double-dip recession,” he said. “If one is willing to ignore the political constraints, the best way to get large numbers of people back to work is to give tax credits or subsidies to employers for employing people, and particularly the people who have suffered the most, and that’s low wage people.”
Debate centers on whether such programs would produce sufficient benefits in an economy now painfully short of demand for goods and services, as consumers battered by years of diminishing fortunes pull back on spending.
Masterson, the Levy Institute economist, said that most employers are too worried about weak sales prospects to respond to an incentive to hire.
“If they can’t sell the stuff that they can make now, then why are they going to hire more people?” he said.
But in an economy the size of the United States’, some companies are always expanding. The tax incentives might coax those employers to hire more people than they would have otherwise. And once those workers have extra wages, they would distribute them at other businesses, thus creating more jobs—a virtuous cycle. This is the theory, at least.
“If workers are temporaily on sale,” said Brookings’ Burtless, “that will give employers a reason to add to their payrolls sooner rather than later.”
Working Paper No. 680 | July 2011
This report presents estimates of the Levy Institute Measure of Economic Well-Being (LIMEW) for a representative sample of Canadian households in 1999 and 2005. The results indicate that there was only modest growth in the average Canadian household’s total command over economic resources in the six years between 1999 and 2005. Although inequality in economic well-being increased slightly over the 1999–2005 period, the LIMEW was more equally distributed across Canadian households than more common income measures (such as after-tax income) in both 1999 and 2005. The median household’s economic well-being was lower in Canada than in the United States in both years.Download:Associated Program(s):Author(s):Andrew Sharpe Alexander Murray Benjamin Evans Elspeth HazellRelated Topic(s):