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.
In the Media | August 2013
By Ellen Freilich
Reuters, August 9, 2013. © Thomson Reuters. All Rights Reserved.
The recently passed Senate bill—S. 744, or the Border Security, Economic Opportunity, and Immigration Modernization Act—that would take significant steps toward comprehensive reform, is being held up in the Republican-controlled House of Representatives, with a “path to citizenship” for undocumented immigrants the apparent sticking point.
A recent report from the Congressional Budget Office estimated the following:
All told, relative to the committee-approved bill, the Senate-passed legislation would boost direct spending by about $36 billion, reduce revenues by about $3 billion, and increase discretionary costs related to S. 744 by less than $1 billion over the 2014-2023 period.
Nathan Sheets and Robert Sockin at Citigroup are even more sweeping in their endorsement of immigration’s economic upside:
We find that immigration has been a major driver of growth in the United States, the euro area, and the United Kingdom. Specifically, we find that about one-third of the growth in these economies over the past decade can be attributed to immigration. Stated bluntly, the average immigrant appears to have contributed roughly as much to GDP as the average person in the domestic-born population. We also find that a more rapid pace of immigrant inflows in the decades ahead will result in a corresponding increase in the level and growth rate of GDP.
Yet according to a report rom the Levy Economics Institute, a liberal research group at Bard College, these broad endorsements fail to push back appropriately against the specific claim that is the law’s major point of contention: the purported economic costs of granting amnesty to undocumented immigrants.The Levy research argues that “legalizing a significant proportion of the undocumented immigrant population would not impose serious costs on either the economy in general or the social insurance system in particular.”
In fact, author Selçuk Eren, a Levy research scholar, finds maintaining the status quo would be economically wasteful.
Legalization would lead to increased benefit payouts for social insurance programs, since it would make a portion of the currently undocumented population eligible for benefits. At the same time, bringing undocumented immigrants into the legal labor pool would boost capital accumulation in the U.S. economy, the Institute said. Compared to legal immigrants, undocumented workers end up sending more of their savings back to their home countries as remittances.
Moreover, offering a path to legal immigration status should increase labor productivity as newly legalized immigrants become able to better match their skills to the jobs available without having to maneuver through the shadows of the grey labor market.
When we ran the numbers on a scenario in which 50 percent of undocumented immigrants became legal immigrants, the positive effects of the former outweighed the costs of the latter, leading to net benefits in the form of overall increases in capital stock, output, consumption, and labor productivity. These positive macroeconomic effects would also feed into improvements in the finances of the social insurance system.
As a result, the overall costs to the system would ultimately be negligible: in order to support new beneficiaries, Social Security and unemployment insurance tax rates would need to increase by only 0.13 and 0.01 percentage points, respectively. Moreover, for the sake of simplicity we assumed that all currently undocumented immigrants pay into Social Security and unemployment insurance.
Macroeconomic improvements would be fairly modest, amounting to around one- to two-tenths of 1 percent for many measures, the report said. The Institute also estimates an overall contribution of $36 billion per year to the U.S. economy. But while small, that’s hardly a downside.
Still, Eren concludes:
We cannot reasonably oppose comprehensive immigration reform on the basis of the alleged economic burden of offering a pathway to citizenship. Even when we isolate this most controversial element of reform, maintaining the status quo is the most costly option.Associated Program:
In the Media | August 2013
By Mike SunnucksThe benefits of legalizing many of the 11 million undocumented immigrants under business-backed reforms being considered by Congress outweigh the costs.
That is according to a new study by the Levy Economics Institute at Bard College in New York.
A white paper by Selcuk Eren contends legalized unauthorized immigrants would leave under-the-table jobs and start paying Social Security and other taxes, get better paying jobs and may save and spend more on their lives here in the U.S. rather than sending that money back to family in Mexico and other home countries.
“Legalization should be expected to increase the level of capitalization in the U.S. economy,” Eren said.
Immigrants send as much as $25 billion a year back to home countries, according to the Center for Immigration Studies.
In many cases, undocumented immigrants also live on cash without credit cards or even bank accounts.
Business and economic advocates of legalization argue the reform bill in Congress will bring those workers out of the shadows and into the mainstream economy.
Eren acknowledges legalizing undocumented immigrants could add some strains on social services and welfare programs, but concludes the economic benefits outweigh those costs.
A study earlier this year by Arizona State University's Morrison Institute expects legalization to increase immigrants’ wages by as much as $3,100 each per year. The ASU report said immigrants with legal status can get better jobs and earn higher wages than those being paid under the table or working with fake identification. Currently, unauthorized immigrants in Arizona make $27,100 a year on average.
A Congressional Budget Office report also expects reforms — if passed by Congress — to hike immigrants wages by 12 percent. But the same report said American worker wages would remain flat or decline slightly over the next two decades if reforms pass.
National and Arizona business interests are pushing hard for reforms to pass Congress. Agriculture and construction companies as well as chambers of commerce in Arizona back reforms as do high-tech CEOs such as Facebook’s Mark Zuckerberg, Google’s Eric Schmimdt and Yahoo’s Marissa Meyer. The reform bill increases the number of foreign worker visas, including for engineers and high-tech workers.Associated Program:
One-Pager No. 39 | July 2013Comprehensive immigration reform has long eluded Congress. Although the Senate recently passed a bill—S. 744, or the Border Security, Economic Opportunity, and Immigration Modernization Act—that would take significant steps toward comprehensive reform, it is currently being held up in the Republican-controlled House. The sticking point? The “path to citizenship” provision for undocumented immigrants included in the Senate bill. Yet legalizing a significant proportion of the undocumented immigrant population would not impose serious costs on either the economy in general or the social insurance system in particular. On the contrary: maintaining the status quo would be economically wasteful.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 769 | July 2013
The quality of match of the statistical match used in the Levy Institute Measure of Time and Consumption Poverty (LIMTCP) estimates for Turkey in 2006 is described. The match combines the 2006 Zaman Kullanim Anketi (ZKA 2006) with the 2006 Hanehalki Bütçe Anketi (HBA 2006). These are the national time-use survey and household income and expenditure surveys, respectively. The alignment of the two datasets is examined, after which various aspects of the match quality are detailed. The match is of high quality, given the nature of the source datasets.
The quality of the simulation of employment gains for Turkey in 2006 is then described. All eligible adults not working for pay, as employers, or as unpaid household workers were assigned jobs. In all households that included job recipients, the time spent on household production was imputed for everyone included in the time-use survey. Household consumption was then assigned to each household in the simulation containing a job recipient. The recipient group was compared to the donor group, both in terms of demographic similarity and in terms of the imputed usual hours, earnings, and household production generated in the simulation. In both cases, the simulations were of reasonable quality, given the nature of the challenges in assessing their quality.Download:Associated Program(s):Author(s):
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 Levy Institute Measure of Time and Income Poverty The Distribution of Income and Wealth 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 Levy Institute Measure of Time and Income Poverty The Distribution of Income and Wealth 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):Author(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."