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.
Working Paper No. 930 | May 2019This paper describes the application of a semiparametric approach, known as a varying coefficients model (Hastie and Tibshirani 1993), to implement a Oaxaca-Blinder type of decomposition in the presence of self-selection into treatment groups for a continuum of comparison groups. The flexibility of this methodology may allow for detecting heterogeneity of the role of endowment and coefficient effects when analyzing endogenous dose treatments. The methodology is then used to revisit the impact of obesity on wages (Cawley 2004), using body mass index (BMI) as the continuous group variable. The results suggest that body weight does have a negative impact on wages for white women, but the impact decreases for higher BMI levels. For white men, the impact is also negative and significant, but positive for low levels of BMI, which explains why they are not significant in the linear instrumental variables approach.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 928 | May 2019In the Western interpretation of democracy, governments exist in order to manage relations of property, with absence of property ownership leading to exclusion from participation in governance and, in many cases, absence of equal treatment before the law. Democratizing money will therefore ensure equal opportunity to the ownership of property, and thus full participation in the democratic governance of society, as well as equal access to the banking system, which finances the creation of capital via the creation of money. If the divergence between capital and labor—between rich and poor—is explained by the monopoly access of capitalists to finance, then reducing this divergence is crucially dependent on the democratization of money. Though the role of money and finance in determining inequality between capital and labor transcends any particular understanding of the process by which the creation of money leads to inequity, specific proposals for the democratization of money will depend on the explanation of how money comes into existence and how it supports capital accumulation.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 927 | April 2019
Methods for Analyzing the Determinants of Poverty and InequalityRecentered influence functions (RIFs) are statistical tools popularized by Firpo, Fortin, and Lemieux (2009) for analyzing unconditional partial effects on quantiles in a regression analysis framework (unconditional quantile regressions). The flexibility and simplicity of these tools has opened the possibility of extending the analysis to other distributional statistics using linear regressions or decomposition approaches. In this paper, I introduce three Stata commands to facilitate the use of RIFs in the analysis of outcome distributions: rifvar() is an egen extension used to create RIFs for a large set of distributional statistics; rifhdreg facilitates the estimation of RIF regressions, enabling the use of high-dimensional fixed effects; and oaxaca_rif to implement Oaxaca-Blinder type decomposition analysis (RIF decompositions).Download:Associated Program:Author(s):Related Topic(s):
One-Pager No. 57 | September 2018The Levy Institute Measure of Economic Well-Being (LIMEW) was designed to provide a more comprehensive understanding of the changes affecting household living standards. Ajit Zacharias, Thomas Masterson, and Fernando Rios-Avila summarize their latest research on the trends in economic well-being for US households. They reveal historic stagnation in LIMEW growth over the 2000–13 period, as well as a major shift in the composition of well-being. The post-2000 period can be characterized as one of a growing dependence on the government to sustain living standards, with rising net government expenditures offsetting a sharp drop in base income.Download:Associated Program(s):Author(s):Related Topic(s):
Public Policy Brief No. 146 | August 2018
Post-2000 Trends in the United StatesAjit Zacharias, Thomas Masterson, and Fernando Rios-Avila update the Levy Institute Measure of Economic Well-Being (LIMEW) for US households for the period 2000–13. The LIMEW—which comprises base income, income from wealth, net government expenditures, and the value of household production—is aimed at achieving a more comprehensive understanding of trends in living standards. This policy brief analyzes developments during this period at all levels of the LIMEW distribution, with a particular focus on the significant role played by net government expenditures. The overall trend for 2000–13 was one of historic stagnation in the growth of economic well-being for US households, but an examination of the different components of the measure reveals significant shifts taking place behind this headline trend.
A companion document, the Supplemental Tables, features additional data referenced in the policy brief.
Details about the sources of data and methods used to construct the estimates in this policy brief are discussed in Levy Institute Working Paper No. 912.Download:Associated Program(s):Author(s):Related Topic(s):
Policy Note 2018/4 | May 2018
Some Lessons from Ghana and TanzaniaIn this policy note, Thomas Masterson and Ajit Zacharias address the nexus between wage employment, consumption poverty, and time deficits in the context of Ghana and Tanzania. Based on a recently completed research project supported by the Hewlett Foundation, the authors apply the Levy Institute Measure of Time and Consumption Poverty (LIMTCP) to estimate whether the jobs that are likely to be available to potential employment-seeking, working-age individuals in consumption-poor households—who are predominantly female in both countries—can serve as vehicles of “economic empowerment.” They investigate this question using two indicators of empowerment, asking (1) whether the individual would be able to move their household to at least a minimal level of consumption via the additional earnings from their new job and (2) whether the individual would be deprived of the time required to meet the minimal needs of care for themselves (personal care), their homes, and their dependents.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 901 | March 2018
A Critical AssessmentDuring the period leading up to the recession of 2007–08, there was a large increase in household debt relative to income, a large increase in measured consumption as a fraction of GDP, and a shift toward more unequal income distribution. It is sometimes claimed that these three developments were closely linked. In these stories, the rise in household debt is largely due to increased borrowing by lower-income households who sought to maintain rising consumption in the face of stagnant incomes; this increased consumption in turn played an important role in maintaining aggregate demand. In this paper, I ask if this story is consistent with the empirical evidence. In particular, I ask five questions: How much household borrowing finances consumption spending? How much has monetary consumption spending by households increased? How much of the rise in household debt-income ratios is attributable to increased borrowing? How is household debt distributed by income? And how has the distribution of consumption spending changed relative to the distribution of income? I conclude that the distribution-debt-demand story may have some validity if limited to the housing boom period of 2002–07, but does not fit the longer-term rise in household debt since 1980.Download:Associated Program(s):Author(s):J. W. MasonRelated Topic(s):
Policy Note 2017/4 | November 2017The predominant framework for measuring poverty rests on an implicit assumption that everyone has enough time available to devote to household production or enough resources to compensate for deficits in household production by purchasing market substitutes. Senior Scholar Ajit Zacharias argues that this implicit bias in our official poverty statistics threatens to undermine the Sustainable Development Goals (SDGs).
The SDGs include the following targets: (1) reduce the incidence of poverty by 50 percent by 2030, and (2) recognize and provide support to the unpaid provision of domestic services and care of persons undertaken predominantly by women in their households. This policy note suggests that a closer link exists between poverty reduction and support for household production activities than is commonly acknowledged. Failure to recognize the link in policy design can contribute to failure on both fronts. To obtain a more accurate assessment of poverty, time deficits in household production must be taken into account.
Download:Associated Program(s):The Levy Institute Measure of Time and Income Poverty Gender Equality and the Economy The Distribution of Income and WealthAuthor(s):Related Topic(s):
Working Paper No. 885 | February 2017
This paper presents the quality analysis of the statistical matching conducted for a research study on household consumption behavior, household indebtedness, and inequality for Turkey. The match has been done for four years (2005, 2008, 2009, and 2012) of Household Budget Surveys (HBS) and the Survey on Income and Living Conditions (SILC). The aim of the statistical matching is to transfer household expenditure data from the HBS to the SILC to create synthetic data sets that have information on household consumption expenditures as well as household income and indebtedness. We are following the methodology of constrained statistical matching, using estimated propensity scores developed in Kum and Masterson (2010) to produce the synthetic data sets that we need. The analysis shows that the match is of high quality.Download:Associated Program:Author(s):Özlem Albayrak Thomas MastersonRelated Topic(s):
Working Paper No. 880 | January 2017
Evidence from Measures of Economic Well-Being
The Great Recession had a tremendous impact on low-income Americans, in particular black and Latino Americans. The losses in terms of employment and earnings are matched only by the losses in terms of real wealth. In many ways, however, these losses are merely a continuation of trends that have been unfolding for more than two decades. We examine the changes in overall economic well-being and inequality as well as changes in racial economic inequality over the Great Recession, using the period from 1989 to 2007 for historical context. We find that while racial inequality increased from 1989 to 2010, during the Great Recession racial inequality in terms of the Levy Institute Measure of Economic Well-Being (LIMEW) decreased. We find that changes in base income, taxes, and income from nonhome wealth during the Great Recession produced declines in overall inequality, while only taxes reduced between-group racial inequality.Download:Associated Program(s):The Distribution of Income and Wealth Gender Equality and the Economy The State of the US and World EconomiesAuthor(s):Related Topic(s):Distribution of income Distribution of wealth Great Recession Levy Institute Measure of Economic Well-being (LIMEW) Race United StatesRegion(s):United States