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.
Policy Note 2021/2 | May 2021
The Impact of the Emergency Benefit on Poverty and Extreme Poverty in BrazilResearch Scholar Luiza Nassif-Pires, Luísa Cardoso, and Ana Luíza Matos de Oliveira analyze the importance of the “emergency benefit” (Auxílio Emergencial) in containing the increase in poverty and extreme poverty in Brazil during the COVID-19 pandemic. They find the emergency benefit mitigated the loss of income, brought the poverty rate to historically low levels, and reduced inequality: poverty gaps in terms of gender and (to a lesser degree) race narrowed in 2020. However, their simulations show that a planned reduction in transfer levels for 2021 will result in the emergency benefit providing substantially less social protection against loss of income than its more robust 2020 version.Download:Associated Program(s):Author(s):Luiza Nassif Pires Luísa Cardoso Ana Luíza Matos de OliveiraRelated Topic(s):Region(s):Latin America
Working Paper No. 983 | February 2021
A Comparative Analysis for Sub-Saharan African CountriesIn this working paper, we analyze factors that may explain gender differences in the allocation of time to household production in sub-Saharan Africa. The study uses time use survey data to analyze the determinants of time spent on household production by husbands and wives in nuclear families in Ethiopia, Ghana, Tanzania, and South Africa. We assume that the time spent by each spouse is a function of personal and household characteristics. A bivariate Tobit model is used to estimate the marginal impact of a set of key variables that figure recurrently in the literature on time allocation. We observe a high degree of variability in the results for the set of countries, which does not allow us to draw hard general conclusions. We do find some weak evidence that supports time availability and gender ideology theory as well as for the hypothesis that bargaining power plays a role in explaining the intrahousehold allocation of household production.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 967 | September 2020This paper assesses the quality of the statistical matching used in the LIMTIP estimates for Italy for 2008 and 2014. The match combines the 2008–9 and 2013–14 Italian Time Use Survey (IT-TUS) with the Italian data collected for the European Survey on Income and Living Conditions (IT-SILC) in 2009 and 2015. After the matching, the analysis of the joint distributions of the variables shows that the quality is good.
The preliminary results of the LIMTIP estimates in Italy display widespread time poverty, which translates into significant hidden poverty. The LIMTIP also reveals that the increase in the poverty rate between 2008 and 2014 was even higher that what standard poverty measures report.Download:Associated Program(s):The Distribution of Income and Wealth The Levy Institute Measure of Time and Income Poverty The State of the US and World EconomiesAuthor(s):Erica AloèRelated Topic(s):Household production Italy Levy Institute Measure of Time and Income Poverty (LIMTIP) Poverty Statistical matching Time useRegion(s):Europe
Public Policy Brief No. 153 | September 2020After spending over 6 percent of GDP responding to the COVID-19 crisis, Brazil has suffered among the worst per capita numbers in the world in terms of cases and deaths. In this policy brief, Luiza Nassif-Pires, Laura Carvalho, and Eduardo Rawet explore how stark inequalities along racial, regional, and class lines can help account for why the pandemic has had such a damaging impact on Brazil. Although they find that fiscal policy measures have so far neutralized the impact of the crisis with respect to income inequality, the existence of structural inequalities along racial lines in particular have resulted in an unequally shared public health burden. Broader policy changes are necessary for addressing dimensions of inequality that are rooted in structural racism.Download:Associated Program(s):Author(s):Luiza Nassif Pires Laura Carvalho Eduardo RawetRelated Topic(s):Region(s):Latin America
Press Releases | May 2020
Working Paper No. 954 | April 2020
A Microeconometric AnalysisThis paper examines whether relative income and income inequality within reference groups affect household consumption. Using the explanations of consumption behavior based on Dusenberry’s relative income hypothesis, we test if household consumption levels in Turkey are affected by the household’s relative position and inequality in the reference group between 2005–12 by employing cross-sectional household-level data. We find that household consumption is negatively related to the relative income indicator after controlling for absolute income, and positively related to the income inequality of the reference group, as the literature suggests. The paper also shows that household indebtedness has a positive impact on household consumption when inequality in the reference group and the relative position of households are controlled for. We confirm that the results are not sensitive to chosen relative income indicators and income inequality.
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Public Policy Brief No. 149 | April 2020The costs of the COVID-19 pandemic—in terms of both the health risks and economic burdens—will be borne disproportionately by the most vulnerable segments of US society. In this public policy brief, Luiza Nassif-Pires, Laura de Lima Xavier, Thomas Masterson, Michalis Nikiforos, and Fernando Rios-Avila demonstrate that the COVID-19 crisis is likely to widen already-worrisome levels of income, racial, and gender inequality in the United States. Minority and low-income populations are more likely to develop severe infections that can lead to hospitalization and death due to COVID-19; they are also more likely to experience job losses and declines in their well-being.
The authors argue that our policy response to the COVID-19 crisis must target these unequally shared burdens—and that a failure to mitigate the regressive impact of the crisis will not only be unjust, it will prolong the pandemic and undermine any ensuing economic recovery efforts. As the authors note, we are in danger of falling victim to a vicious cycle: the pandemic and economic lockdown will worsen inequality; and these inequalities exacerbate the spread of the virus, not to mention further weaken the structure of the US economy.Download:Associated Program(s):Author(s):Related Topic(s):
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):Related 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
Working Paper No. 879 | December 2016
This paper presents a methodological discussion of two recent “endogeneity” critiques of the Kaleckian model and the concept of distribution-led growth. From a neo-Keynesian perspective, and following Kaldor (1955) and Robinson (1956), the model is criticized because it treats distribution as quasi-exogenous, while in Skott (2016) distribution is viewed as endogenously determined by a series of (exogenous) institutional factors and social norms, and therefore one should focus on these instead of the functional distribution of income per se. The paper discusses how abstraction is used in science and economics, and employs the criteria proposed by Lawson (1989) for what constitutes an appropriate abstraction. Based on this discussion, it concludes that the criticisms are not valid, although the issues raised by Skott provide some interesting directions for future work within the Kaleckian framework.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 873 | September 2016
This document presents a description of the quality of match of the statistical matches used in the LIMTCP estimates prepared for Ghana and Tanzania. For Ghana, the statistical match combines the Living Standards Survey Round 6 (GLSS6) with the Ghana Time Use Survey (GTUS) 2009, and for Tanzania it combines the Household Budget Survey (THBS) 2012 with the time-use data obtained from the Integrated Labor Survey Module (ILFS) 2006. In both cases, the alignment of the two datasets is examined, after which various aspects of the match quality are described. Despite the differences in the survey years, the quality of match is high and the synthetic dataset appropriate for the time poverty analysis.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 871 | August 2016
New methodology for producing employment microsimulations is introduced, with a focus on farms and household nonfarm enterprises. Previous simulations have not dealt with the issue of reduced production in farm and nonfarm household enterprises when household members are placed in paid employment. In this paper, we present a method for addressing the tradeoff between paid employment and the farm and nonfarm business activities individuals may already be engaged in. The implementation of the simulations for Ghana and Tanzania is described and the quality of the simulation results is assessed.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 865 | May 2016
Why Time Deficits Matter
We describe the production of estimates of the Levy Institute Measure of Time and Income Poverty (LIMTIP) for Buenos Aires, Argentina, and use it to analyze the incidence of time and income poverty. We find high numbers of hidden poor—those who are not poor according to the official measure but are found to be poor when using our time-adjusted poverty line. Large time deficits for those living just above the official poverty line are the reason for this hidden poverty. Time deficits are unevenly distributed by employment status, family type, and especially gender. Simulations of the impact of full-time employment on those households with nonworking (for pay) adults indicate that reductions in income poverty can be achieved, but at the cost of increased time poverty. Policy interventions that address the lack of both income and time are discussed.Download:Associated Program(s):The Distribution of Income and Wealth Gender Equality and the Economy The Levy Institute Measure of Time and Income Poverty Hewlett Foundation–Levy Institute ProjectAuthor(s):Related Topic(s):
Working Paper No. 856 | December 2015
Evidence from Europe, 2006–13
We examine the relationship between changes in a country’s public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006–13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU’s Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.Download:Associated Program(s):The State of the US and World Economies The Distribution of Income and Wealth Economic Policy for the 21st CenturyAuthor(s):Markus P.A. Schneider Stephen Kinsella Antoine GodinRelated Topic(s):Region(s):Europe
Working Paper No. 846 | October 2015
Steindl after Summers
The current debate on secular stagnation is suffering from some vagueness and several shortcomings. The same is true for the economic policy implications. Therefore, we provide an alternative view on stagnation tendencies based on Josef Steindl’s contributions. In particular, Steindl (1952) can be viewed as a pioneering work in the area of stagnation in modern capitalism. We hold that this work is not prone to the problems detected in the current debate on secular stagnation: It does not rely on the dubious notion of an equilibrium real interest rate as the equilibrating force of saving and investment at full employment levels, in principle, with the adjustment process currently blocked by the unfeasibility of a very low or even negative equilibrium rate. It is based on the notion that modern capitalist economies are facing aggregate demand constraints, and that saving adjusts to investment through income growth and changes in capacity utilization in the long run. It allows for potential growth to become endogenous to actual demand-driven growth. And it seriously considers the role of institutions and power relationships for long-run growth—and for stagnation.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 835 | March 2015
In recent years, Bolivia has experienced a series of economic and political transformations that have directly affected the labor markets, particularly the salaried urban sector. Real wages have shown strong increases across the distribution, while also presenting a decrease in inequality. Using an intertemporal decomposition approach, we find evidence that changes in demographic and labor market characteristics can explain only a small portion of the observed inequality decline. Instead, the results indicate that the decline in wage inequality was driven by the faster wage growth of usually low-paid jobs, and wage stagnation of jobs that require higher education or are in traditionally highly paid fields. While the evidence shows that the reduction in inequality is significant, we suggest that such an improvement might not be sustainable in the long run, since structural factors associated with productivity, such as workers’ level of education, explain only a small portion of these wage changes.Download:Associated Program:Author(s):Gustavo Canavire-Bacarreza Fernando Rios-AvilaRelated Topic(s):
Policy Note 2015/3 | March 2015
From Bad to WorseIn a recent policy note (A Decade of Flat Wages?) we examined wage trends since 1994, and found that while wages grew between 1994 and 2002, average real wages stagnated or declined after 2002–03. Our latest study provides a more detailed analysis of wage trends for wage-level, age, and education groups, with emphasis on the periods following the 2001 and 2007–09 recessions. There was a more or less cohesive evolution of wages among different groups until 2002–03. However, after controlling for structural changes in the labor force, wages diverged sharply in the years that followed for different age, education, and wage groups, with the majority of workers experiencing real declines in their wages. This was not a short-term decline among a few numerically insignificant groups. Nearly two-thirds of all full-time wage earners have less than a four-year college degree and saw their wages decline compared to peak wages in 2002. Workers aged 44 and younger, representing slightly more than 38 million full-time wage earners or 71.4 percent of all full-time wage earners in the United States, also experienced a large reduction in cumulative wage growth after 2002. In terms of wage groups, the bottom 75 percent of full-time workers saw a decline in real wages, while those at the top of the wage distribution saw their wages rise—clear evidence of increasing wage inequality. Given the downward trend in real wages for the majority of full-time wage earners since 2009, it should come as no surprise that recovery from the Great Recession has been weak. In the absence of an employer-of-last-resort policy, federal and state policy must focus its efforts on increasing wages through measures such as progressive tax policy, raising the minimum wage, ensuring overtime pay laws are enforced, and creating opportunities for the most vulnerable workers.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 830 | January 2015
This paper describes the quality of the statistical match between the Current Population Survey (CPS) March 2011 supplement and the Consumer Expenditure Survey (CEX) 2011, which are used for the integrated inequality assessment model for the United States. In the first part of this paper, the alignment of the datasets is examined. In the second, various aspects of the match quality are described. The results show appropriate balance across different characteristics, with some imbalances within narrow characteristics.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 826 | January 2015
Following a methodology proposed by Jantzen and Volpert (2012), we use IRS Adjusted Gross Income (AGI) data for the United States (1921–2012) to estimate two Gini-like indices representing inequality at the bottom and the top of the income distribution. We also calculate the overall Gini index as a function of the parameters underlying the two indices. Our findings can be summarized as follows. First, we find that the increase in the Gini index from the mid 1940s to the late 1970s seems to be mostly explained by an increase in inequality at the bottom of the income distribution, which more than offsets the decrease in inequality at the top. The implication is that middle incomes gained relative to high incomes, but especially relative to low incomes. Conversely, it is rising inequality at the top that appears to drive the rise in the Gini index since 1981. Second, inequality at the top of the income distribution follows a U-shaped trajectory over time, similar to the pattern of the share of top incomes documented by Piketty and Saez (2003, 2006) and Atkinson, Piketty, and Saez (2011). Third, the welfare effects of the different forces behind an increasing Gini index can be evaluated in light of the Lorenz-dominance criterion proposed by Atkinson (1970): both top-driven and bottom-driven increases in the index appear not to imply strict Lorenz dominance by previous income distributions, and therefore are not associated with lower welfare in an absolute sense. In a relative sense, however, once average growth rates over the two periods are taken into account, the top-driven increase in inequality since 1981 appears to have been welfare reducing.Download:Associated Program:Author(s):Markus P.A. Schneider Daniele TavaniRelated Topic(s):
Working Paper No. 814 | September 2014
The paper examines the long-run fluctuations in growth and distribution through the prism of wage-and profit-led growth. We argue that the relation between distribution of income and growth changes over time. We propose an endogenous mechanism that leads to fluctuations between wage- and profit-led periods. Our model is a linear version of Goodwin’s predator–prey model, but with a reversal of the roles for predator and prey: the growth rate acts as the predator and the distribution of income as the prey. These fluctuations need to be taken into account when someone estimates empirically the effect of a change in distribution on utilization and growth. We also examine our argument in relation to the double movement of Karl Polanyi, the Kuznets curve, and the theories of long swings proposed by Albert Hirschman and Michal Kalecki.Download:Associated Program:Author(s):Related Topic(s):
Research Project Reports | August 2014
The Levy Institute Measure of Time and Income PovertyThis report presents findings from a joint project of the Levy Economics Institute and the Korea Employment Information Service, with the central objective of developing a measure of time and income poverty for Korea that takes into account household production (unpaid work) requirements. Standard measurements of poverty assume that all households have enough time to adequately attend to the needs of household members—including, for example, caring for children. But this assumption is false. For numerous reasons, some households may not have sufficient time, and they thus experience “time deficits.” If a household officially classified as nonpoor has such a time deficit and cannot afford to cover it by buying market substitutes (e.g., hiring a care provider), that household will encounter hardships not reflected in the official poverty measure.To get a more accurate calculus of poverty, we developed the Levy Institute Measure of Time and Income Poverty (LIMTIP), a two-dimensional measure that takes into account both the necessary income and the household production time needed to achieve a minimum living standard. In the case of Korea, our estimates for 2008 (the last year for which data are available) show that the LIMTIP poverty rate of employed households was almost three times higher than the official poverty rate (7.5 percent versus 2.6 percent). The gap between the official and LIMTIP poverty rates was notably higher for “nonemployed male head with employed spouse,” “single female-headed” and “dual-earner” households. Our estimates of the size of the hidden poor—roughly two million individuals—suggest that ignoring time deficits in household production resulted in a serious undercount of the working poor, which has profound consequences for the formulation of policy. In addition, the stark gender disparity in the incidence of time poverty among the employed, even after controlling for hours of employment, suggests that the source of the gender difference in time poverty lies in the greater share of the household production activities that women undertake. Overall, current policies to promote gender equality and economic well-being in Korea need to be reconsidered, based on a deeper understanding of the linkages between the functioning of labor markets, unpaid household production activities, and existing arrangements of social provisioning—including social care provisioning.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):
Public Policy Brief No. 136 | August 2014
Assessing the Korean Experience Using the Levy Institute Measure of Time and Income PovertyIn partnership with the Korea Employment Information Service, Senior Scholar Ajit Zacharias and Research Scholars Thomas Masterson and Kijong Kim investigate the complex issues of gender, changing labor market conditions, and the public provisioning of child care in Korea using the Levy Institute Measure of Time and Income Poverty (LIMTIP), an alternative measure that factors in both time and income deficits in the assessment of poverty.Since the 1997 Asian financial crisis, lifetime employment and single-breadwinner households have given way to increased job insecurity, flexible work arrangements, and rapid growth in dual-earner households in Korea. Add to these factors rising labor force participation by women but little change in the highly unequal division of household production, and many women effectively face a double shift each day: paid employment followed by a second shift of household production.Recognizing the implications of the heavy burden of care work for women’s well-being and employment, Korea introduced public child-care provisioning, via a voucher system for low-income families, in 1992 (the program became universal in 2013). This study analyzes the impact of the voucher program on reducing time and income poverty, and reassesses the overall level of poverty in Korea. While it reveals a much higher level of poverty than official estimates indicate—7.9 percent versus 2.6 percent—due to time deficits, the outsourcing of child-care services reduced the LIMTIP rate from 7.9 percent to 7.5 percent and the number of “hidden poor” individuals from two million to 1.8 million. While these results show that the problem of time poverty in Korea extends beyond child-care needs, the impact of public provisioning through the voucher program clearly has had a positive impact on families with children.The main findings and policy recommendations resulting from this study are presented in detail in the research project report The Measurement of Time and Income Poverty in Korea: The Levy Institute Measure of Time and Income Poverty.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):
Policy Note 2014/4 | June 2014In the late 1990s low unemployment rates, increases in the minimum wage, and improvements in labor productivity contributed to a boost in wages, which translated into 12.4 percent cumulative growth in real wages from the late ‘90s until 2002. Real wages then stagnated despite continued growth in labor productivity. This period between 2002 and 2013 has become known as the decade of flat wages. However, over the same period there were significant changes in the composition of the labor market. In particular, the labor force has aged and become more educated. Increases in age, experience, and education could in fact be propping up observed real wages—meaning that wages of workers with a specific age and education profile may have actually declined over the decade. This is exactly what we uncover in this policy note: what appears to have been a decade of flat real wages was actually a decade of declining real wages within age/education worker profiles.Download:Associated Program:Author(s):Fernando Rios-Avila Julie L. HotchkissRelated Topic(s):
Press Releases | May 2014Download:Associated Program(s):Author(s):Mark Primoff
In the Media | May 2014
By Martin SosnoffForbes, May 19, 2014. All Rights Reserved.
At the Sotheby’s May evening auction, Steve Wynn was the successful bidder for Jeff Koons’s life-sized Popeye sculpture, knocked down at a disappointing $28,115,000, and destined for one of Steve’s casino properties. Within this lot is some cautionary metaphor about conspicuous consumption reigning, again. The Koons piece is an immaculate, but exaggerated life sized presence in colorful, shiny sheet steel.
When Wynn took control of the Golden Nugget Casino in Las Vegas some 40 years ago, I sold him my block of stock, a reportable position. He deserved all his successes, a great operator who made Vegas a family destination resort while competition still ran grind joints.
I accept that there are hundreds of art buyers who easily qualify for spending $50 million or more on “name brand” work. Whether this is driven by connoisseurship, emotionality or trading savvy is another story. These big hitters are equivalent to whales at gaming casinos: Alice Walton (the Warhol Coca-Cola), Elaine Wynn (the Bacon) and corporate types like Russian oligarchs and Malaysian honchos, dealers – investors like the Mugrabi family, the jewelry purveyor Graff, even a handful of hedge fund operators.
The economics of taste suggests, long term, elevated art prices don’t hold up, excepting masterpieces. More critical, overindulgence ultimately is divisive for the country by calling attention to how the top 0.1% conduct themselves. Eventually, a public outcry congeals. Congressmen begin to speak out on income inequality. Unions get their raucous voice back.
Our middle-class holds minimal free capital for equity investment. A market rising 32% makes Buffett and his ilk billions richer, year-over-year. For the family with $50,000 in stocks, if that, we are talking chump change. Individual pension fund assets carry a discounted value based upon when they can be withdrawn.
Republicans and major multinational corporations call for tax breaks on the repatriation of offshore earnings, but the facts suggest just the opposite is called for. Corporate income tax rates rest much lower than during the sixties and seventies. Wage earners gain no leverage when the unemployment rate is elevated. Take home pay rises at a measly 2% rate, unless you work for Twitter or other dot com operators and are richly vested in zero cost equity.
Twitter’s insiders disgorged hundreds of millions of shares once their lockup ended. Employees drove Twitter down 17%, overnight. Such action is indicative of a middle class as yet capital starved. Not just machinists, even young computer code writers.
If I were Dan Loeb, instead of coveting Sotheby’s, an overpriced piece of paper that just broke below $40, I’d be driving a Buick and seeking naming opportunities at hospitals and graduate business schools. Buffett and Bill Gates are great role models here, and as far as I know disinterested in $100 million Bacon canvases.
The problem with conspicuous consumption is it can take decades, even centuries before it ends. Never happily. The French Revolution was preceded by bread riots but their political system for centuries exempted the nobility from taxation.
When I compare our present Gilded Age with the past, I see major differentiation. End of 19th century, Robber Barons mainly were industrialists with controlling positions in oil (Rockefeller), steel (Carnegie), railroads (Vanderbilt), the Guggenheims (minerals), Rosenwalds and Hartfords (retailing). Yes – there was J.P. Morgan and Jules Bache and a few Russians, but no Chinese, Japanese and Malaysians throwing their money around in the art world.
Land based wealth existed but yielded minimal returns in rents and farm income. There’s no material book value in Twitter and Facebook excepting cash and intellectual property. We have come a long way from when wealth rested in hard assets – minerals and chemicals, now in serious oversupply.
Art world players mainly are linked to stock market wealth. They include a couple of dozen hedge fund operators. Likewise, private capital operators at KKR, Blackstone, Carlyle and Leon Black. Throw in a dozen VC’s and Internet founders. Although establishment corporate management has learned how to milk their income statements, only a handful walk away billionaires. Unconventionally designed yachts belong to Russians and headman owners like Larry Ellison at Oracle.
If our S&P 500 Index puts together another year like 2013 in the next couple of years, the art market, surely goes through the roof. Deal proliferation would break out all over, too. Analysts would disremember how to punish tech houses with big disparity between GAAP and non-GAAP earnings.
The stock market is capitalized currently at 16 times earnings, not 10 or 11, vulnerable to any sign of a decelerating economy. I don’t know where hedge fund capital comes out in a bearish setting. After all, most of them weren’t bullish enough last year and badly trailed the market.
Obama doesn’t even have an inclination or the power to tax the carried interest of private capital operators at standard rates. Don’t expect any substantive tax reform that redistributes income downward to the poor and lower middle class categories. It could take decades. Infrastructure spending, what the country needs desperately to create jobs, is a stalled initiative for years to come.
The Levy Economics Institute at Bard College rightly underscores that rising income inequality weighs down the economic setting. GDP momentum, absent positive numbers on exports, must depend on rising private borrowing. But, a high debt to income ratio is unsustainable unless the stock market shows late foot.
The distribution of income over three decades flows to the top 1%. They control most of the assets in equities but are themselves vulnerable to a stock market bubble as denouement.
In the sixties and seventies, from my ski chalet in Franconia, New Hampshire I’d zip out in zero degrees early mornings with my band of brown baggers. We sharpened our own skis at home, and ate tons of spaghetti together. My next door neighbor, a dermatologist who was coining money, even in New Hampshire, asked me if it was okay with the group if he bought a new Caddy.
I told him to drop down one price point. The group might frown on such conspicuous consumption. Les did just that. Those days are gone but not forgotten.
Public Policy Brief No. 132 | May 2014Gauging the severity of poverty in a given country requires a reasonably comprehensive measurement of whether individuals and households are surpassing some basic threshold of material well-being. This would seem to be an obvious point, and yet, in most cases, our official poverty metrics fail that test, often due to a crucial omission. In this policy brief, Senior Scholar Ajit Zacharias, Research Scholar Thomas Masterson, and Research Associate Emel Memiş present an alternative measure of poverty for Turkey and lay out the policy lessons that follow. Their research reveals that the number of people living in poverty and the severity of their deprivation have been significantly underestimated. This report is part of an ongoing Levy Institute project on time poverty (the Levy Institute Measure of Time and Income Poverty), which has produced research on Latin America, Korea, and now Turkey, with the aim of extending this approach to other countries.Download:Associated Program(s):Author(s):Related Topic(s):
Research Project Reports | May 2014
The Levy Institute Measure of Time and Consumption Poverty for Turkey
Official poverty lines in Turkey and other countries often ignore the fact that unpaid household production activities that contribute to the fulfillment of material needs and wants are essential for the household to reproduce itself as a unit. This omission has consequences. Taking household production for granted when measuring poverty yields an unacceptably incomplete picture, and therefore estimates based on such an omission provide inadequate guidance to policymakers.
Standard measurements of poverty assume that all households and individuals have enough time to adequately attend to the needs of household members—including, for example, children. These tasks are absolutely necessary for attaining a minimum standard of living. But this assumption is false. For numerous reasons, some households may not have sufficient time, and they thus experience what are referred to as “time deficits.” If a household officially classified as nonpoor has a time deficit and cannot afford to cover it by buying market substitutes (e.g., hire a care provider), that household will encounter hardships not reflected in the official poverty measure. To get a more accurate calculus of poverty, we have developed the Levy Institute Measure of Time and Consumption Poverty (LIMTCP), a two-dimensional measure that takes into account both the necessary consumption expenditures and household production time needed to achieve a minimum living standard.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 798 | May 2014
This paper describes the quality of the statistical matching between the March 2011 supplement to the Current Population Survey and the 2010 American Time Use Survey and Survey of Consumer Finances, which are used as the basis for the 2010 LIMEW estimates for the United States. In the first part of the paper, the alignment of the datasets is examined. In the second, various aspects of the match quality are described. The results indicate that the matches are of high quality, with some indication of bias in specific cases.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 793 | March 2014
The quality of match of the statistical match used in the LIMTIP estimates for South Korea in 2009 is described. The match combines the 2009 Korean Time Use Survey (KTUS 2009) with the 2009 Korean Welfare Panel Study (KWPS 2009). The alignment of the two datasets is examined, after which various aspects of the match quality are described. The match is of high quality, given the nature of the source datasets. The method used to simulate employment response to availability of jobs in the situation in which child-care subsidies are available is described. Comparisons of the donor and recipient groups for each of three stages of hot-deck statistical matching are presented. The resulting distribution of jobs, earnings, usual hours of paid employment, household production hours, and use of child-care services are compared to the distribution in the donor pools. The results do not appear to be anomalous, which is the best that can be said of the results of such a procedure.Download:Associated Program(s):The Distribution of Income and Wealth Gender Equality and the Economy The Levy Institute Measure of Time and Income Poverty Hewlett Foundation–Levy Institute ProjectAuthor(s):Related Topic(s):
One-Pager No. 46 | February 2014The Levy Institute Measure of Time and Consumption Poverty (LIMTCP) is a two-dimensional measure that takes into account both the necessary consumption expenditures and the household production time needed to achieve a minimum standard of living—factors often ignored in official poverty measures. In the case of Turkey, application of the LIMTCP reveals an additional 7.6 million people living in poverty, resulting in a poverty rate that is a full 10 percentage points higher than the official rate of 30 percent.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):
Press Releases | February 2014Download:Associated Program(s):The Levy Institute Measure of Time and Income Poverty The Distribution of Income and Wealth Gender Equality and the EconomyAuthor(s):Mark Primoff
One-Pager No. 45 | January 2014Official poverty lines in Korea and other countries ignore the fact that unpaid household production contributes to the fulfillment of material needs and wants that are essential to attaining a minimum standard of living. By taking household work for granted, these official estimates provide an inaccurate accounting of the breadth and depth of poverty—and can lead policymakers astray.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):
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.
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.
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):Selçuk ErenRelated 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):Author(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):Author(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."
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):Author(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):Author(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):
Working Paper No. 679 | July 2011
We construct estimates of the Levy Institute Measure of Economic Well-Being for France for the years 1989 and 2000. We also estimate the standard measure of disposable cash income (DI) from the same data sources. We analyze overall trends in the level and distribution of household well-being using both measures for France as a whole and for subgroups of the French population. The average French household experienced a slower rate of growth in LIMEW than DI over the period. A substantial portion of the growth in well-being for the middle quintile was a result of increases in net government expenditures and income from wealth. We also found that the well-being of families headed by single females relative to married couples deteriorated much more, while the well-being of households headed by the elderly relative to households headed by the nonelderly improved much more than indicated by the standard measure of disposable income. The conventional measure indicates that a steep decline in economic inequality took place between 1989 and 2000, while our measure indicates no such change. We argue that these outcomes can be traced to the difference in the treatment of the role of wealth in shaping economic inequality. Our measure also indicates that, on balance, government expenditures and taxes did not have an inequality-reducing effect in France for both years. This is, again, contrary to conventional wisdom.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 676 | July 2011
The quality of match for each of four statistical matches used in the LIMEW estimates for France for 1989 and 2000 is described. The first match combines the 1992 Enquête sur les Actifs Financiers with the 1989–90 Enquête Budget de Famille (BDF). The second match combines the 1998 General Social Survey (EDT) with the 1989–90 BDF. The third match combines the 2003–04 Enquête Patrimoine with the 2000–01 BDF. The fourth match combines the 1999 EDT with the 2000 BDF. 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):Author(s):Related Topic(s):
Working Paper No. 663 | March 2011
The quality of match of four statistical matches used in the LIMEW estimates for Great Britain for 1995 and 2005 is described. The first match combines the fifth (1995) wave of the British Household Panel Survey (BHPS) with the 1995–96 Family Resources Survey (FRS). The second match combines the 1995 time-use module of the Office of Population Censuses and Surveys Omnibus Survey with the 1995–96 FRS. The third match combines the 15th wave (2005) of the BHPS with the 2005 FRS. The fourth match combines the 2000 United Kingdom Time Use Survey with the 2005 FRS. 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):Author(s):Related Topic(s):
Working Paper No. 624 | September 2010
We reinterpret unit labor costs (ULC) as the product of the labor share in value added, times a price adjustment factor. This allows us to discuss the functional distribution of income. We use data from India’s organized manufacturing sector and show that while India’s ULC displays a clear upward trend since 1980 (with a decline since the early 2000s), this is exclusively the result of the increase in the price deflator used to calculate the ULC. The labor share of India’s organized manufacturing sector has been on a downward trend, from 60 percent in 1980 to 26 percent in 2007. This means that the sector’s capital share increased from 40 to 74 percent over the same period. We also find that real wages have increased minimally during the period analyzed—well below labor productivity—while the real profit rate and unit capital costs have increased substantially. We conclude that if India’s organized manufacturing sector has lost any competitiveness, it is the result of the increase in unit capital costs. Our analysis questions policy recommendations that advocate wage moderation, which result from simply looking at the evolution of the ULC, and that blame the loss of competitiveness on high or increasing wages.Download:Associated Program(s):Author(s):Jesus Felipe Utsav KumarRelated Topic(s):
Working Paper No. 620 | September 2010
An Empirical Comparison of Multidimensional Approaches Using Data for the US and Spain
This paper presents a comparative analysis of the approaches to poverty based on income and wealth that have been proposed in the literature. Two types of approaches are considered: those that look at income and wealth separately when defining the poverty frontier, and those in which these two dimensions are integrated into a single index of welfare. We illustrate the implications of these approaches on the structure of poverty using data for two industrialized countries—for example, the United States and Spain. We find that the incidence of poverty in these two countries varies significantly depending on the poverty definition adopted. Despite this variation, our results suggest that the poverty problem is robust to changes in the way poverty is measured. Regarding the identification of the poor, there is a high level of misclassification between the poverty indices: for most of the pairwise comparisons, the proportion of households that are misclassified is above 50 percent. Interestingly, the rate of misclassification in the United States is significantly lower than in Spain. We argue that the higher correlation between income and wealth in the United States contributes to explaining the greater overlap between poverty indices in this country.Download:Associated Program:Author(s):Francisco AzpitarteRelated Topic(s):
Working Paper No. 618 | September 2010
The quality of match of four statistical matches used in the LIMEW estimates for the United States for 1992 and 2007 is described. The first match combines the 1992 Survey of Consumer Finances (SCF) with the 1993 March Supplement to the Current Population Survey, or Annual Demographic Supplement (ADS). The second match combines the 1985 American Use of Time Project survey (AUTP) with the 1993 ADS. The third match combines the 2007 SCF with the 2008 March Supplement to the CPS, now called the Annual Social and Economics Supplement (ASEC). The fourth match combines the 2007 American Time Use Survey with the 2008 ASEC. In each case, the alignment of the two datasets is examined, after which various aspects of the match quality are described. Also in each case, the matches are of high quality, given the nature of the source datasets.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 615 | September 2010The quality of match of four statistical matches used in the LIMEW estimates for Canada for 1999 and 2005 is described. The first match combines the 1999 Survey of Financial Security (SFS) with the 1999 Survey of Labour and Income Dynamics (SLID). The second match combines the 1998 General Social Survey (GSS) with the 1999 SLID. The third match combines the 2005 SFS with the 2005 SLID. The fourth match combines the 2005 GSS with the 2005 SLID. In each case, the alignment of the two datasets is examined, after which various aspects of the match quality are described. Also in each case, the matches are of high quality, given the nature of the source datasets.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 610 | August 2010
A Strategy for Effective and Equitable Job CreationMassive job losses in the United States, over eight million since the onset of the “Great Recession,” call for job creation measures through fiscal expansion. In this paper we analyze the job creation potential of social service–delivery sectors—early childhood development and home-based health care—as compared to other proposed alternatives in infrastructure construction and energy. Our microsimulation results suggest that investing in the care sector creates more jobs in total, at double the rate of infrastructure investment. The second finding is that these jobs are more effective in reaching disadvantaged workers—those from poor households and with lower levels of educational attainment. Job creation in these sectors can easily be rolled out. States already have mechanisms and implementation capacity in place. All that is required is policy recalibration to allow funds to be channeled into sectors that deliver jobs both more efficiently and more equitably.Download:Associated Program(s):Employment Policy and Labor Markets The Distribution of Income and Wealth Gender Equality and the EconomyAuthor(s):Related Topic(s):
Working Paper No. 598 | May 2010
Gender Perspectives and Policy ChoicesThis paper looks at the countries of Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS), where economies have been most dramatically hit by the global crisis and its impact is likely to be most long-lasting, especially among poor and vulnerable groups. Using poverty as the main axis, it looks at aspects of economic and social development in countries at similar poverty levels to identify the degree of fiscal space in each, as well as the different policy choices made. The paper argues that despite such economic fundamentals as increasing external debt, worsening current account imbalances, and demands for a balanced budget, governments have policy choices to make about how to protect different groups, especially the most vulnerable—including women.Download:Associated Program(s):Author(s):Fatma Gül Unal Mirjana Dokmanovic Rafis AbazovRelated Topic(s):
Public Policy Brief Highlights No. 110A | April 2010
More Care Less InsuranceThe United States has the most expensive health care system in the world, yet its system produces inferior outcomes relative to those in other countries. This brief examines the health care reform debate and argues that the basic structure of the health care system is unlikely to change, because “reform” measures actually promote the status quo. The authors believe that the fundamental problem facing the US health care system is the unhealthy lifestyle of many Americans. They prefer to see a reduced role for private insurers and an increased role for government funding, along with greater public discussion of environmental and lifestyle factors. A Medicare buy-in (“public option”) for people under 65 would provide more cost control (by competing with private insurance), help to solve the problem of treatment denial based on preexisting conditions, expand the risk pool of patients, and enhance the global competitiveness of US corporations—thus bringing the US health care system closer to the “ideal” low-cost, universal (single-payer) insurance plan.Download:Associated Program:Author(s):
Public Policy Brief Highlights No. 108A | April 2010
In his State of the Union address President Obama acknowledged that “our most urgent task is job creation”—that a move toward full employment will lay the foundation for long-term economic growth and ensure that the federal government creates the necessary conditions for businesses to expand and hire more workers. According to a new study by Levy scholars Rania Antonopoulos, Kijong Kim, Thomas Masterson, and Ajit Zacharias, the government needs to identify and invest in projects that have the potential for massive, and immediate, public job creation. They conclude that social sector investment, such as early childhood education and home-based care, would generate twice as many jobs as infrastructure spending and nearly 1.5 times the number created by investment in green energy, while catering to the most vulnerable segments of the workforce.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 589 | March 2010I find here that the early and mid-aughts (2001 to 2007) witnessed both exploding debt and a consequent “middle-class squeeze.” Median wealth grew briskly in the late 1990s. It grew even faster in the aughts, while the inequality of net worth was up slightly. Indebtedness, which fell substantially during the late 1990s, skyrocketed in the early and mid-aughts; among the middle class, the debt-to-income ratio reached its highest level in 24 years. The concentration of investment-type assets generally remained as high in 2007 as during the previous two decades. The racial and ethnic disparity in wealth holdings, after stabilizing throughout most of the 1990s, widened in the years between 1998 and 2001, but then narrowed during the early and mid-aughts. Wealth also shifted in relative terms, away from young households (particularly those under age 45) and toward those in the 55–74 age group. Projections to July 2009, made on the basis of changes in stock and housing prices, indicate that median wealth plunged by 36 percent and there was a fairly steep rise in wealth inequality, with the Gini coefficient advancing from 0.834 to 0.865.Download:Associated Program:Author(s):Related Topic(s):
Public Policy Brief No. 108 | February 2010In his State of the Union address President Obama acknowledged that “our most urgent task is job creation”—that a move toward full employment will lay the foundation for long-term economic growth and ensure that the federal government creates the necessary conditions for businesses to expand and hire more workers. According to a new study by Levy scholars Rania Antonopoulos, Kijong Kim, Thomas Masterson, and Ajit Zacharias, the government needs to identify and invest in projects that have the potential for massive, and immediate, public job creation. They conclude that social sector investment, such as early childhood education and home-based care, would generate twice as many jobs as infrastructure spending and nearly 1.5 times the number created by investment in green energy, while catering to the most vulnerable segments of the workforce.Download:Associated Program(s):Author(s):Related Topic(s):
LIMEW Reports | November 2009Reports of a postracial society may be premature. Studies continue to show wide racial gaps in income and, especially, wealth; although there is some evidence that income gaps have shrunk over the past half century, wealth inequality is large and persistent.
In this report, the authors examine trends in economic well-being between 1959 and 2007 based on the race/ethnicity of households. Using the Levy Institute Measure of Economic Well-Being, they find that changes in household wealth and net government expenditure are the key elements in the story that unfolds about racial differences.
Policy Note 2009 | June 2009
In this Special Report, Levy scholars Ajit Zacharias, Thomas Masterson, and Kijong Kim provide a preliminary assessment of the 2009 American Recovery and Reinvestment Act (ARRA), a package of transfers and tax cuts that is expected to provide relief to low-income and vulnerable households especially hurt by the economic crisis, while at the same time supporting aggregate demand. By the administration’s estimate, ARRA will create or save approximately three and a half million jobs by the end of 2010; while the ameliorating impact of the stimulus plan on the employment situation is surely welcome, say the authors, the government could have achieved far more at the same cost by skewing the stimulus package toward outlays rather than tax cuts. Their analysis points toward the necessity for a comprehensive employment strategy that goes well beyond ARRA. The need for public provisioning of various sorts—ranging from early childhood education centers to public health facilities to the “greening” of public transportation—coupled with the severe underutilization of labor, naturally suggests an expanded role for public employment as a desirable ingredient in any alternative strategy.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 568 | June 2009
A Microsimulation Approach
Over the last two decades, those at the bottom of the income scale have seen their incomes stagnate, while those at the top have seen theirs skyrocket; without intervention, the recession that began in December 2007 was likely to exacerbate this trend. Will the American Recovery and Reinvestment Act of 2009 (ARRA) be able to keep the situation from getting worse for those at the bottom of the income scale? Will ARRA reverse the upward trend in inequality that we’ve seen in the recent past? The authors of this new working paper employ a microsimulation of ARRA to address these questions. They find that, despite a large amount of job creation, ARRA is likely to have little impact on overall income inequality, or on the income gaps between relatively advantaged and disadvantaged groups.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 566 | May 2009
In this paper, we conduct the novel exercise of analyzing the relationship between overall wealth inequality and caste divisions in India using nationally representative surveys on household wealth conducted during 1991–92 and 2002–03. According to our findings, the groups in India that are generally considered disadvantaged (known as Scheduled Castes or Scheduled Tribes) have, as one would expect, substantially lower wealth than the “forward” caste groups, while the Other Backward Classes and non-Hindus occupy positions in the middle. Using the ANOGI decomposition technique, we estimate that between-caste inequality accounted for about 13 percent of overall wealth inequality in 2002–03, in part due to the considerable heterogeneity within the broadly defined caste groups. The stratification parameters indicate that the forward caste Hindus overlap little with the other caste groups, while the latter have significantly higher degrees of overlap with one another and with the overall population. Using this method, we are also able to comment on the emergence and strengthening of a “creamy layer,” or relatively well-off group, among the disadvantaged castes, especially the Scheduled Tribes.Download:Associated Program:Author(s):Ajit Zacharias Vamsi VakulabharanamRelated Topic(s):
LIMEW Reports | April 2009
In this latest LIMEW report, the authors present new evidence on the pattern of economic inequality in the United States that indicates higher inequality in 2004 than in 1959. According to the LIMEW, there was a surge in inequality between 1989 and 2000 that reflects the large increase in income from wealth for the top rungs of the economic ladder; the principal factor behind the official measures was base income (consisting mainly of labor income). The authors’ findings suggest a rather bleak picture for the lower and middle classes in terms of sharing the economic pie.Download:Associated Program(s):Author(s):
LIMEW Reports | February 2009
Over the last half century, government policy has had an important hand in alleviating disparities among population subgroups in the United States; for example, special tax treatment for families with children has meant an improvement in the well-being of single mothers, and Medicare and Social Security have been the driving force in improving well-being among the elderly. Thus, the measure of economic well-being used is critical in assessing changes in disparities between groups.
The Levy Institute Measure of Economic Well-Being (LIMEW) is a comprehensive measure that not only includes estimates of public consumption and household production but also factors in the long-run benefits of wealth ownership. In this report, the authors examine long-term trends in economic well-being in the United States between 1959 and 2004 within various population subgroups based on the following household characteristics: race/ethnicity, age, education, and marital status. With the exception of income from wealth, they find that the gap between nonwhite and white households narrowed between 1959 and 2004, and public consumption increasingly favored nonwhites. Relative well-being for those 65 and older improved significantly, and was 9 percent higher than the average nonelderly household in 2000 (a finding at odds with official measures of economic well-being). In contrast, the under-35 age group experienced a sizable deterioration in relative well-being, as did less educated groups relative to college graduates. The gap between families with a single, female head of household and families with a married head of household also widened further over time.Download:Associated Program(s):Author(s):
LIMEW Reports | February 2009
The Levy Institute Measure of Economic Well-Being (LIMEW) is a more comprehensive measure than either gross money income or extended income because it includes estimates of public consumption and household production, as well as the long-run benefits from the ownership of wealth. As a result, it provides a picture of economic well-being in the United States that is very different from the official measures.
The authors find that median household well-being grew rather sluggishly over the 1959–2004 period compared to the annual growth rate of per capita GDP. They note the crucial role of net government expenditures, and therefore call for the Obama administration’s fiscal stimulus package to improve the broader economic well-being of the poor and the middle class, while also creating jobs.Download:Associated Program(s):Author(s):
Working Paper No. 556 | January 2009
The motivation to construct the LIMEW in lieu of relying on the official measures of well-being is to provide a more comprehensive measure of economic inequality that will also show the disparities among key demographic groups. The authors of this new working paper show that the LIMEW provides a perspective on disparities among population subgroups that differs from the official measures, as well as differing time trends. For example, according to the LIMEW, there has been an almost continuous improvement in the relative well-being of the elderly, which were 9 percent better off than the nonelderly in 2000 because of greater income from wealth. Moreover, the principle factor behind the increase in inequality over the 1959–2004 period was the rising contribution of income derived from nonhome wealth.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 535 | May 2008
Theory and Application to the Levy Institute Measure of Economic Well-Being
This paper summarizes the background, type, logic, and working procedure of the statistical matching used in the Levy Institute Measure of Economic Well-Being (LIMEW) project to combine the various data sets used to produce the synthetic data set with which the LIMEW is constructed. The authors use the match between the 2001 Survey of Consumer Finances and the Annual Demographic Survey of the Current Population Survey data sets to demonstrate the procedure and results of the matching. Challenges confronted in the use of this technique, such as the distribution of weights, are discussed in the conclusion.Download:Associated Program(s):Author(s):Hyunsub Kum Thomas Masterson
Working Paper No. 521 | November 2007
Extending Oaxaca’s Approach
This paper extends the famous Blinder and Oaxaca (1973) discrimination in several directions. First, the wage difference breakdown is not limited to two groups. Second, a decomposition technique is proposed that allows analysis of the determinants of the overall wage dispersion. The authors’ approach combines two techniques. The first of these is popular in the field of income inequality measurement and concerns the breakdown of inequality by population subgroup. The second technique, very common in the literature of labor economics, uses Mincerian earnings functions to derive a decomposition of wage differences into components measuring group differences in the average values of the explanatory variables, in the coefficients of these variables in the earnings functions, and in the unobservable characteristics. This methodological novelty allows one to determine the exact impact of each of these three elements on the overall wage dispersion, on the dispersion within and between groups, and on the degree of overlap between the wage distributions of the various groups.
However, this paper goes beyond a static analysis insofar as it succeeds in breaking down the change over time in the overall wage dispersion and its components (both between and within group dispersion and group overlapping) into elements related to changes in the value of the explanatory variables and the coefficients of those variables in the earnings functions, in the unobservable characteristics, and in the relative size of the various groups.Download:Associated Program(s):Author(s):Joseph Deutsch Jacques Silber
Working Paper No. 517 | October 2007
There is a body of literature that favors universal and unconditional public assurance policies over those that are targeted and means-tested. Two such proposals—the basic income proposal and job guarantees—are discussed here. The paper evaluates the impact of each program on macroeconomic stability, arguing that direct job creation has inherent stabilization features that are lacking in the basic income proposal. A discussion of modern finance and labor market dynamics renders the latter proposal inherently inflationary, and potentially stagflationary. After studying the macroeconomic viability of each program, the paper elaborates on their environmental merits. It is argued that the “green” consequences of the basic income proposal are likely to emerge, not from its modus operandi, but from the tax schemes that have been advanced for its financing. By contrast, the job guarantee proposal can serve as an institutional vehicle for achieving various environmental goals by explicitly targeting environmental rehabilitation, conservation, and sustainability. Finally, in the hope of consensus building, the paper advances a joint policy proposal that is economically viable, environmentally friendly, and socially just.Download:Associated Program(s):Employment Policy and Labor Markets The Distribution of Income and Wealth Economic Policy for the 21st CenturyAuthor(s):Related Topic(s):
Working Paper No. 513 | September 2007
This paper begins by proposing two cardinal measures of inequality in life chances. Using as its database a matrix in which the lines correspond to the social category of parents and the columns to the income distribution of their children, it then highlights the importance of the marginal distributions when comparing social immobility within two populations. It also shows how it is possible to neutralize differences in these margins. The idea is to adapt a method used in the field of occupational segregation measurement that allows one to make a distinction between differences in gross and net social immobility, assuming that the marginal distributions of the two populations are identical. Borrowing ideas from recent literature on the equality of opportunity, the paper then defines the concept of an inequality in circumstances curve and relates it to that of a social immobility curve.
Two empirical datasets are used to determine the usefulness of the concepts presented. The first dataset comes from a survey conducted in France in 1998 and allows one to measure the degree of social immobility and of inequality in circumstances on the basis of the occupation of fathers or mothers and the income class to which sons or daughters belong. The second dataset, drawn from a social survey conducted in Israel in 2003, is the basis for a study of social immobility and inequality in circumstances, emphasizing the transition from the educational level of the fathers to the income class of the children. Both illustrations confirm the usefulness of the analytical tools described in this paper.Download:Associated Program:Author(s):Jacques Silber Amedeo Spadaro
Working Paper No. 502 | June 2007
Rising Debt and the Middle-Class Squeeze
I find here that the early 2000s witnessed both exploding debt and the middle-class squeeze. While median wealth grew briskly in the late 1990s, it fell slightly between 2001 and 2004, while the inequality of net worth increased slightly. Indebtedness, which fell substantially during the late 1990s, skyrocketed in the early 2000s. Among the middle class, the debt-to-income ratio reached its highest level in 20 years. The concentration of investment-type assets generally remained as high in 2004 as during the previous two decades. The racial and ethnic disparity in wealth holdings, after stabilizing during most of the 1990s, widened in the years between 1998 and 2001, but then narrowed during the early 2000s. Wealth also shifted in relative terms, away from young households (particularly those under age 35) and toward those in the 55–64 age group.Download:Associated Program:Author(s):
Working Paper No. 500 | May 2007
The aging of the American population will be a critical public policy issue in the years ahead. This paper surveys the recent literature on the economics of aging, with a special emphasis on government spending on the aged. The US Census Bureau projects that the proportion of the elderly in the total population will increase while the proportion of the working-age population will decline. This demographic shift implies a significant growth in the number of beneficiaries of major federal entitlement programs. Existing rules and escalating health care costs are expected to lead to fiscal pressures and to pose challenges for economic growth. The paper offers the author’s assessment of the forces that determine government spending on retirees. It also examines how the retirement and health care of older citizens might be financed, and measures the potential impact of different reform proposals. Finally, it provides an introduction to an edited volume, Government Spending on the Elderly.Download:Associated Program:Author(s):
LIMEW Reports | April 2007
A New Perspective
Given the aging of the American population and the widening gap between rich and poor—not to mention the controversy surrounding the future viability of Social Security—the economic welfare of the elderly is an extremely topical issue. This report provides a new look at America’s elderly, and shows that the official measures drastically understate their level of economic well-being.
The conventional measures of well-being do not adequately reflect income from wealth and net government expenditures. Moreover, in the period from 1989 to 2001, there was an extraordinary increase in income from nonhome wealth, as well as a widening gap in net government expenditures between the elderly and nonelderly. Thus, on the basis of the Levy Institute Measure of Economic Well-Being, which is a more comprehensive measure of income, the economic disadvantage of the elderly relative to the nonelderly appears to be less severe. Nevertheless, inequality has continued to widen within both groups.
The results suggest that government policies and programs that favor the elderly over the nonelderly are misdirected. Rather than cutting back on these programs or redirecting policy, however, the authors advocate the extension of similar programs to the nonelderly, such as universal health care, as well as more generous provisions for the nonelderly in existing social welfare programs.Download:Associated Program(s):Author(s):
Working Paper No. 487 | January 2007
Existing empirical schemas of class structure do not specify the capitalist class in an adequate manner. We propose a schema in which the specification of capitalist households is based on wealth thresholds. Individuals in noncapitalist households are assigned class locations based on their position in the labor process. The schema is designed to address the question of the relationship between class structure and overall economic inequality. Our analysis of the US data shows that class divisions among households, especially the large gaps between capitalist households and everyone else, contribute substantially to overall inequality.Download:Associated Program:Author(s):
Book Series | December 2006
Edited by Edward N. Wolff
The contributors to this comprehensive book compile and analyze the latest data available on household wealth using, as case studies, the United States, Canada, Germany, Italy, Sweden, and Finland during the 1990s and into the 21st century. The authors show that in the United States, trends are highlighted in terms of wealth holdings among the low-income population, along with changes in wealth polarization, racial differences in wealth holdings, and the dynamics of portfolio choices.
The consensus between the authors is that wealth inequality has generally risen among the OECD countries since the early 1980s, although Germany stands out as an exception. In the case of the United States, it is also noted that wealth holdings have generally failed to improve among low-income families and the racial wealth gap widened during the late 1980s.
International Perspectives on Household Wealth also contains new results on a number of topics, including measures and changes of wealth polarization in the United States, measurement and changes of portfolio span in the United States, asset holdings of low-income household in the United States, and the effects of parental resources on asset holdings in Chile.
Academic, government, and public policy economists in OECD countries, as well as those in the so-called middle-income countries around the world, will find much to engage them within this book. It will also appeal to academics and researchers of international and welfare economics and other social scientists interested in the issues of inequality.
LIMEW Reports | December 2006
Who’s at the Top of the Economic Ladder?
This report argues that wealth is an integral aspect of economic well-being. The authors combine income and net worth to demonstrate the importance of wealth inequalities in shaping overall economic inequality and defining the disparities among population subgroups.
Conventional measures of household economic well-being do not adequately reflect the advantages of asset ownership or the disadvantages of financial liabilities. The authors find that the picture of economic well-being in the United States is quite different if the yardstick is their wealth-adjusted income measure (WI) rather than the standard income measure.Download:Associated Program(s):Author(s):
Working Paper No. 482 | November 2006
When the age of death is uncertain, individuals will leave bequests–even if they have no desired bequests–simply because they will hold wealth against the possibility of living longer. Bequests are accidental. Starting from a baseline level of Social Security benefits, an increase in benefits will cause consumption to increase. However, consumption may not increase by as much as the increase in Social Security, which would cause wealth to be greater than under the baseline scenario. The higher wealth levels would translate into greater bequests. Therefore, an increase in Social Security benefits may not be a complete transfer from the younger generation to the older generation: some of the increase in benefits may be bequeathed back to the younger generation. Whether this happens depends on the form of the utility function, the amount of bequeathable wealth, and whether there is a bequest motive. The objective of this paper is to quantify for single persons how much of an increase in Social Security benefits would be bequeathed back to the younger generation. We find that, at least for singles, increases in Social Security benefits are unlikely to be offset by bequests.Download:Associated Program:Author(s):Li Gan Guan Gong Michael Hurd
Working Paper No. 479 | November 2006
This paper examines the generosity of the European welfare state toward the elderly. It shows how various dimensions of the welfare regimes have changed during the past 10 to 15 years and how this evolution is related to the process of economic integration. Dimensions include general generosity toward the elderly and, more specifically, generosity toward early retirement and generosity toward the poor. Using aggregate data (EUROSTAT, OECD) as well as individual data (SHARE, the new Survey of Health, Ageing, and Retirement in Europe), the paper looks at the statistical correlations among those types of system generosity and actual policy outcomes, such as unemployment and poverty rates among the young and the elderly, and the inequality in wealth, income and consumption. While the paper is largely descriptive, it also tries to explain which economic and political forces drive social expenditures for the elderly in the European Union and whether spending for the elderly crowds out spending for the young.Download:Associated Program:Author(s):Axel Börsch-Supan
Working Paper No. 472 | August 2006
A central issue confronting soon-to-retire workers (those aged 47–64) is whether they will have command over enough resources (both private and public) to maintain a decent standard of living in retirement. Typically, the adequacy of projected retirement income is judged in relation to some absolute standard (for example, the poverty threshold) and preretirement income (“replacement rate”). Using data from the Federal Reserve Board's Survey of Consumer Finances for 1983, 1989, and 2001, I find that expected retirement income grew robustly from 1989 to 2001 (by 38 percent in real terms) and the share with expected retirement income less than twice the poverty line fell by 5 percentage points. The percentage-point decline was even greater for minority households (11.6) and single females (5.7). The change in the share with replacement rates over 50 percent was 4.5 percentage points, though in this case much lower for minorities (0.9 percentage points) and single females (1.8 percentage points). However, percentage point changes for minorities and single females were much smaller, at 75 percent and a 100 percent replacement rates, respectively. Moreover, retirement wealth is very unevenly distributed. Whites and married couples had substantially larger wealth accumulations than their respective counterparts.Download:Associated Program:Author(s):
Working Paper No. 471 | August 2006
This paper describes how stochastic population forecasts are used to inform and analyze policies related to government spending on the elderly, mainly in the context of the industrialized nations. The paper first presents methods for making probabilistic forecasts of demographic rates, mortality, fertility, and immigration, and shows how these are combined to make stochastic forecasts of population number and composition, using forecasts of the US population by way of illustration. Next, the paper discusses how demographic models and economic models can be combined into an integrated projection model of transfer systems such as social security. Finally, the paper shows how these integrated models describe various dimensions of policy-relevant risk, and discusses the nature and implications of risk in evaluating policy alternatives.Download:Associated Program(s):Author(s):Shripad Tuljapurkar
Working Paper No. 468 | August 2006
The world's population is aging. Virtually no nation is immune to this demographic trend and the challenges it brings for future generations. Relative growth of the elderly population is fueling debate about reform of social security programs in the United States and other developed nations. In the United States, the total discounted shortfall of Social Security revenues has been estimated at about $11 trillion, nearly two-thirds of that comes after 2050. However, this paper argues that those calling for reform have overstated the demographic challenges ahead. Reformers conclude that aging poses such a serious challenge because they focus on financial shortfalls. If we focus on demographics and on the ability to produce real goods and services today and in the future, the likelihood of a real crisis in social security in the United States and developed nations is highly improbable. Demographic changes are too small relative to the growth of output that will be achieved even with low productivity increases. This paper concludes with policy recommendations that will enhance our ability to care for an aging population in a progressive manner that will not put undue burdens on future workers. Policy formation must distinguish between financial provisioning and real provisioning for the future; only the latter can prepare society as a whole for coming challenges. While individuals can, and should, save financial assets for their individual retirements, society cannot prepare for waves of future retirees by accumulating financial trust funds. Rather, society prepares for aging by investing to increase future real productivity.Download:Associated Program:Author(s):
Working Paper No. 466 | August 2006
We examine the economic well-being of the elderly, using the Levy Institute Measure of Economic Well-Being (LIMEW). Compared to the conventional measures of income, the LIMEW is a comprehensive measure that incorporates broader definitions of income from wealth, government expenditures, and taxes. It also includes the value of household production. We find that the elderly are much better off, relative to the nonelderly, according to our broader measure of economic well-being than by conventional income measures. The main reason for the higher relative LIMEW of the elderly is the much higher values of income from wealth and net government expenditures for the elderly than the nonelderly. There are pronounced differences in well-being among the population subgroups within the elderly. The older elderly are worse off than the younger elderly, nonwhites are worse off than whites, and singles are worse off than married couples. We also find that the degree of inequality in the LIMEW is substantially higher among the elderly than among the nonelderly. In contrast, inequality in the most comprehensive measure of income published by the Census Bureau is virtually identical among the elderly and nonelderly. The main factor behind the degree of inequality, as the decomposition analysis reveals, is the greater size and concentration of income from nonhome wealth in the LIMEW compared to extended income (EI).Download:Associated Program(s):Author(s):
Working Paper No. 464 | July 2006
Young Old-Age, Old Old-Age, and Elder Care
Although elderly men and women share many of the same problems as they age, their lives are likely to follow different courses. Women are more likely than men to live into old old-age and are more likely to spend part of their young old-age caring for husbands or parents. By providing this unpaid care women might enter retirement earlier, rather than prolonging their working lives. Because they live longer, but are less likely than men to live with someone who will care for them, women are also more likely than men to require paid care either at home or in a nursing home. Proposals to reduce government spending on Social Security, Medicare, and Medicaid will thus have different implications for women and men. This paper evaluates changes in these programs, and describes alternative and innovative ways of providing and paying for eldercare in other countries as well as in the United States.Download:Associated Program(s):Author(s):Lois B. Shaw
Working Paper No. 463 | July 2006
The choice of retirement age is the most important portfolio choice most workers will make. Drawing on the Urban Institute's Dynamic Simulation of Income model (DYNASIM3), this report examines how delaying retirement for nondisabled workers would affect individual retiree benefits, the solvency of the Social Security trust fund, and general revenues. The results suggest that delaying retirement by itself does not generate enough additional revenue to make Social Security solvent by 2045. Benefit cuts or supplementary funding sources will be necessary to achieve solvency. However, the size of the benefit cuts or tax increases could be minimized if individuals worked longer. This additional work also substantially increases worker's retirement well-being. Lower-income workers, to the extent they can work longer, have the most to gain from their additional labor. Policy changes that encourage work at older ages will substantially improve both economic and personal well-being in the futureDownload:Associated Program(s):Author(s):Barbara A. Butrica Karen E. Smith C. Eugene Steuerle
Working Paper No. 461 | July 2006
Government spending on the elderly is projected to increase rapidly as the American population becomes older. As a result, many policymakers and budget analysts are concerned about the continued viability of entitlement programs such as Social Security. The Social Security trustees’ economic growth projections receive considerable attention because many people believe that higher growth would significantly improve the program’s actuarial balance (that is, reduce its actuarial deficit). This belief is validated by Social Security trustees’ calculations that show larger 75-year actuarial balances under faster assumed real wage growth rates. Since 2003 the trustees have reported the program’s actuarial balance measured in perpetuity. But they do not provide sensitivity analysis that examines the impact of various assumptions on the infinite-term actuarial balance.
This paper shows analytically that faster wage growth may reduce Social Security’s infinite-term actuarial balance if the ratio of workers to retirees continues to decline rapidly beyond the 75th year. This result holds even if the decline in that ratio ceases after just two decades beyond the 75th year. The paper reports stylized calculations of the impact of real wage growth and demographic change–including time-varying rates of change based on official projections for the US economy–on Social Security’s actuarial balance in a multi-period setting. Finally, the Social Security and Accounts Simulator (SSASIM) actuarial model of Social Security financing is used to estimate the degree to which increased wage growth could negatively affect the system’s infinite-term actuarial balance.
These results raise questions about the conventional wisdom that holds that improved wage growth would affect Social Security’s financing, and how a widely used measure of Social Security’s financing captures those effects.Download:Associated Program(s):Author(s):Jagadeesh Gokhale
Book Series | July 2006
Edited by Dimitri B. Papadimitriou
This book focuses on the distributional consequences of the public sector. It examines and documents, both theoretically and empirically, the effects of government spending and taxation on personal distribution, that is, on families and individuals. In addition, it investigates the relationship between the public sector and the functional distribution of national income. In this respect, three sides of government activity are encompassed: the beneficiaries of government expenditures such as schools, highways, and police and fire departments; the beneficiaries of government transfer programs; and the bearers of the tax burden.
The book also analyzes government activity on the federal level and looks at the distribution of both the costs and benefits of a single government program such as Social Security.
A key feature is the empirical studies of other countries, including countries of the European Union, Poland, Australia, and South Korea, as well as comparative studies among a set of countries.
The chapters of this volume were selected from papers delivered at Levy Institute seminars and conferences aimed at finding policy options to pressing economic problems.
Policy Note 2006/5 | July 2006
Much Ado about Nothing, or Little to Do about Something?Demographers and economists agree that we are aging—individually and collectively, nationally and globally. An aging population results from the twin demographic forces of fewer children per family and longer lives. Most experts recognize the burden that aging causes as the number of retirees supported by each worker rises. This trend is reinforced by the graying of the baby-boom generation, but burdens will continue to rise even after the boomers are buried—albeit at a slower pace.Download:Associated Program:Author(s):
Working Paper No. 454 | June 2006
Evidence from the American Time Use SurveyAlthough income inequality has been studied extensively, relatively little attention has been paid to the role of household production. Economic theory predicts that households with less money income will produce more goods at home. Thus extended income, which includes the value of household production, should be more equally distributed than money income. We find this to be true, but not for the reason predicted by theory. Virtually all of the decline in measured inequality, when moving from money income to extended income, is due to the addition of a large constant--the average value of household production--to money income. This result is robust to alternative assumptions that one might make when estimating the value of household production.Download:Associated Program:Author(s):Harley Frazis Jay Stewart
Working Paper No. 451 | May 2006
Substitutes in Real Terms and Complements in SatisfactionsTime and money are basic commodities in the utility function and are substitutes in real terms. To a certain extent, having time and money is a matter of either/or, depending on individual preferences and budget constraints. However, satisfaction with time and satisfaction with money are typically complements, i.e., individuals tend to be equally satisfied with both domains. In this paper, we provide an explanation for this apparent paradox through the analysis of the simultaneous determination of economic satisfaction and leisure satisfaction. We test some hypotheses, including the hypothesis that leisure satisfaction depends on both the quantity and quality of leisure-where quality is proxied by good intensiveness and social intensiveness. Our results show that both the quantity and the quality of leisure are important determinants of leisure satisfaction, and, since having money contributes to the quality of leisure, this explains the empirical findings of the satisfactions being complementary at the same time as the domains are substitutes. Interestingly, gender matters. Intra-household effects and especially individual characteristics are more pronounced for women than for men for both domain satisfactions. Additionally, good intensiveness is more important for men (e.g., housing conditions), whereas social intensiveness is more important for women (e.g., the presence of children and participation in leisure-time activities).Download:Associated Program:Author(s):J. Bonke M. Deding M. Lausten
Working Paper No. 449 | May 2006Welfare states contribute to people's well-being in many different ways. Bringing all these contributions under a common metric is tricky. Here we propose doing so through the notion of "temporal autonomy": the freedom to spend one’s time as one pleases, outside the necessities of everyday life. Using surveys from five countries (the United States, Australia, Germany, France, and Sweden) that represent the principal types of welfare and gender regimes, we propose ways of operationalizing the time that is strictly necessary for people to spend in paid labor, unpaid household labor, and personal care. The time people have at their disposal after taking into account what is strictly necessary in these three arenas — which we call "discretionary time" — represents people's temporal autonomy. We measure the impact on this of government taxes, transfers, and childcare subsidies in these five countries. In so doing, we calibrate the contributions of the different welfare and gender regimes that exist in these countries, in ways that correspond to the lived reality of people's daily lives.Download:Associated Program(s):Author(s):Robert E. Goodin Antti Parpo James Mahmud Rice
Working Paper No. 447 | May 2006
Why Today's International Financial System Is Unsustainable
The standard official measure of household economic well-being in the United States is gross money income. The general consensus is that such measures are limited because they ignore other crucial determinants of well-being. We modify the standard measure to account for one such determinant: household wealth. We then analyze the level and distribution of economic well-being in the United States during the 1980s and 1990s, using the standard measure and a measure that differs from the standard in that income from wealth is calculated as the sum of lifetime annuity from nonhome wealth and imputed rental-equivalent for owner-occupied homes. Our findings indicate that the level and distribution of economic well-being is substantially altered when money income is adjusted for wealth. Over the 1989–2000 period, median well-being appears to increase faster when these adjustments are made than when standard money income is used. This adjustment also widens the income gap between African Americans and whites, but increases the relative well-being of the elderly. Adding imputed rent and annuities from household wealth to household income considerably increases measured inequality and the share of income from wealth in inequality. However, both measures show about the same rise in inequality over the period. Our results contradict the assertion that the "working rich" have replaced the rentiers at the top of the economic ladder.Download:Associated Program(s):Author(s):
Working Paper No. 442 | February 2006
This paper is the overview chapter of an edited volume on “The Distributional Effects of Government Spending and Taxation.” The paper offers the author’s perspective on the government’s role as a redistributive agent. Taxation and public spending programs are analyzed using the experiences of the United States and other OECD countries. The stark differences among the respective welfare systems are examined from an economic policy lens assessing the success and failure of the tested social policy programs. The measurement and distribution of well-being for special segments of the population, i.e., the elderly and women, are considered.Download:Associated Program:Author(s):
Working Paper No. 440 | February 2006
Time Diary Evidence from the United States and the United Kingdom
This study uses time diary data from the 2003 American Time Use Survey and the United Kingdom Time Use Survey 2000 to examine the time that single, cohabiting, and married parents devote to caring for their children. Time spent in market work, in child care as a primary activity, and in child care as a passive activity are jointly modeled using a correlated, censored regression model. Separate estimates are provided by gender, by country, and by weekend/weekday day. We find no evidence that these time allocation decisions differ for cohabiting and married parents, but there is evidence that single persons allocate time differently - as might be expected, given different household time constraints. In the US single fathers spend significantly more time in primary child care on weekdays and substantially less time in passive child care on weekends than their married or cohabiting counterparts, while in the UK single fathers spend significantly more time in passive child care on weekdays. Single fathers in each country report less time at work on weekdays than their married or cohabiting counterparts. In the US, single mothers work more than married or cohabiting mothers on weekdays, while single mothers in the United Kingdom work less than married or cohabiting mothers on all days.Download:Associated Program:Author(s):Charlene M. Kalenkoski David C. Ribar Leslie S. Stratton
Working Paper No. 439 | February 2006
An Analysis of How Parents Shift and Squeeze Their Time around Work and Child Care
Parents who undertake paid work are obliged to spend time away from their children, and to use nonparental childcare. This has given rise to concern that children are missing out on parental attention. However, time-use studies have consistently shown that parents who are in paid employment do not reduce their parental childcare time on an hour-for-hour basis. Since there are only 24 hours in the day, how do parents continue to be engaged in direct care of their own children while also committing significant time to labor market activities? Using data from the Australian Bureau of Statistics Time Use Survey 1997 (4,059 randomly selected households) to compare the time allocation of employed fathers, employed mothers, and mothers who are not in the labor force, this paper investigates how this phenomenon arises. The strategies available are reducing the time devoted to other activities (principally housework, sleep, leisure, bathing, dressing, grooming, eating), and rescheduling activities (from weekends to weekdays, or changing the time of day at which particular activities are undertaken). The paper investigates whether parents use nonparental care to reschedule as well as to replace their own care.Download:Associated Program:Author(s):Lyn Craig
Working Paper No. 437 | January 2006
Toward Effective Implementation of the Act
The National Rural Employment Guarantee Act of 2005 is a major development in the history of poverty reduction strategies and rural development policies in India. Though the successful passage of the Act is due to the long struggle by NGOs, academics, and some policymakers, its successful implementation is a much bigger challenge. Effective implementation of the Act requires that labor-intensive works be planned for the needy poor on a continuous basis; that the right kind of assets are undertaken to promote the development of the local/regional economy; and that the labor-absorbing capacity of the mainstream economy be raised and assets maintained well and used productively to generate benefits for the poor, as well as to promote pro-poor economy growth.
The past experiences of wage employment programs in India, however, suggest that there are several challenges ahead. These include strengthening the planning component of the program, particularly planning for infrastructure and natural resource management; coordination and conversion of the Employment Guarantee Scheme with ongoing programs; ensuring supply of labor on EGS works; promoting equity in the ownership of the assets; and using assets to improve the employment generation in the long run. This paper discusses these challenges and observes that the Employment Guarantee Act should not be treated as one more poverty alleviation program, but should be seen as an opportunity to eradicate the worst kind of poverty and to empower the poor and promote pro-poor growth of the Indian economy.Download:Associated Program(s):Author(s):
Working Paper No. 434 | January 2006
Household Production under Increasing Income Inequality
Eating requires the raw food materials that make up meals and also the time devoted to buying food, preparing meals and eating them, and cleaning up afterwards. Using time-diary and expenditure data for the United States for 1985 and 2003, I examine how income and time prices affect both time and goods input into this household-produced commodity. By focusing on these two years, between which income and earnings inequality increased, I analyze how household production is affected by changing economic opportunities. The results demonstrate that inputs into eating increase with income, and higher time prices at a given level of income reduce time inputs. Over this period the relative goods intensity of producing this commodity increased, especially at the lower part of the income distribution, and the average time input dropped substantially. The results are consistent with goods-time substitution being relatively difficult for eating and with substitution becoming relatively more difficult as production expands.Download:Associated Program:Author(s):Daniel S. Hamermesh
LIMEW Reports | May 2005
The Effects of Government Deficits and the 2001–02 Recession on Well-BeingThis interim report compares the LIMEW and official measures of economic well-being for 1989–2002, a period marked by the economic boom of the late 1990s and a mild recession in 2001–02. All measures show that the well-being of the average American household was significantly higher in 2000 than in 1989, with most of the improvement occurring in the latter half of the 1990s. In contrast, while the official measures show deterioration in well-being of 2–3 percent for the average household in the period 2000–02, the LIMEW shows a hefty increase of more than 5 percent. Nevertheless, inequality was higher in 2002 than in 1989 according to all measures of well-being.Download:Associated Program(s):Author(s):
Working Paper No. 420 | March 2005
Retirement wealth is often viewed as a great equalizer, offsetting the inequality in standard household net worth. One of the most dramatic changes in the retirement income system over the last two decades has been a decline in traditional Defined Benefit (DB) pension plans and a sharp rise in Defined Contribution (DC) pensions. Using data from the Federal Reserve Board’s Survey of Consumer Finances, I find that retirement wealth (the sum of pension and Social Security wealth) has a considerably weaker offsetting effect on wealth inequality in 2001 than in 1983. Whereas standard net worth inequality increased modestly between 1983 and 2001, the inequality of augmented wealth (the sum of retirement wealth and net worth) surged from 1983 to 2001, very much in line with income inequality. Moreover, whereas median net worth climbed substantially from 1983 to 2001, median augmented wealth actually fell over this period.Download:Associated Program:Author(s):
LIMEW Reports | March 2005This report analyzes regional aspects of economic well-being according to four regions identified by the United States Census Bureau: the Northeast, Midwest, South, and West. Using the official measures and the Levy Institute Measure of Economic Well-Being (LIMEW), the authors examine how the average American household fared from 1989 to 2001 and discuss disparities in well-being among population subgroups and across regions. In light of the 2004 presidential election, the report also examines patterns of well-being in the “red” and “blue” states, where the electoral majority favored George W. Bush and John Kerry, respectively.Download:Associated Program(s):Author(s):
Working Paper No. 416 | January 2005
Using the Panel Study of Income Dynamics, we investigate occupational and industrial mobility of individuals over the 1969–80 and 1981–93 periods in the United States. We find that workers changed both occupations and industries more frequently in the later period. For example, occupational mobility for men ranged from 15 to 20 percent per year during the first period and from 20 to 25 percent per year over the second. We also find that, for men, occupational and industrial changes are associated with lower earnings, though this effect has lessened somewhat over time, while for women the results are mixed. Our results also indicate that older and less educated workers are less likely to shift occupation or industry, as are better paid men but not better paid women.Download:Associated Program:Author(s):
LIMEW Reports | December 2004
This report supplements previous findings of the Levy Institute Measure of Economic Well-Being (LIMEW) research project within our program on the distribution of income and wealth. Some readers have questioned the sensitivity of our estimates in view of our imputation techniques. Therefore, the authors explore the sensitivity of their key findings to changes in the set of assumptions that they use to impute public consumption, which is a major component of the LIMEW.
The authors consider alternative assumptions regarding three components of public consumption: general public consumption, highways, and schooling. New calculations for 1989 and 2000 show that their initial major findings remain intact using alternative estimation procedures: there is a positive correlation between public consumption and the LIMEW, overall inequality is higher in 2000 than 1989, and public consumption reduces inequality. The results show that their measure of economic well-being is robust under alternative assumptions of public consumption. They conclude that government provisioning of amenities plays an important role in sustaining living standards and should be included in a measure of economic well-being.Download:Associated Program(s):Author(s):
Working Paper No. 414 | November 2004This paper describes the composition and distribution of household wealth in Italy. First, the evolution of household portfolios over the last 40 years is described on the basis of newly reconstructed aggregate balance sheets. Second, the characteristics and quality of the main statistical source on wealth distribution, the Bank of Italy’s Survey of Household Income and Wealth, are examined together with the statistical procedures used to adjust for nonresponse, nonreporting and underreporting. The distribution of household net worth is then studied using both adjusted and unadjusted data. Wealth inequality is found to have risen steadily during the 1990s. The increased concentration of financial wealth was an important factor in determining this path.Download:Associated Program:Author(s):Andrea Brandolini Giovanni D’Alessio Luigi Cannari Ivan Faiella
LIMEW Reports | September 2004
Alternative Measures of Income from Wealth
Economic well-being refers to the command or access by members of a household over the goods and services produced in a modern market economy during a given period of time.The Levy Institute Measure of Economic Well-Being (LIMEW) is a comprehensive measure that is constructed as the sum of the following components: base money income (gross money income minus property income and government cash transfers), employer contributions for health insurance, income from wealth, net government expenditures (transfers and public consumption, net of taxes), and the value of household production.
Our previous work provided estimates of the LIMEW and its components for households in the United States, estimates of the LIMEW for some key demographic groups, and estimates of overall economic inequality. These estimates were compared with those based on the official measures (see Wolff, Zacharias, and Caner 2004 for more information regarding our concepts, sources, and methods). Some readers have questioned the sensitivity of our estimates to the particular types of imputation techniques that we use. This document explores the sensitivity of the LIMEW to the underlying assumptions on imputing income from wealth, a major component of the LIMEW. We provide new calculations for 1989 and 2000 that show that our initial major findings using the LIMEW hold up, generally, using alternative estimation procedures: mean income from wealth increases by decile, the share of mean income from wealth rises between 1989 and 2000, and inequality is higher in 2000 than 1989.Download:Associated Program(s):Author(s):
Public Policy Brief No. 78 | June 2004
A Minskyan Assessment
Twenty to 25 years ago, a debate was under way in academe and in the popular press over the War on Poverty. One group of scholars argued that the war, initiated by Presidents Kennedy and Johnson, had been lost, owing to the inherent ineffectiveness of government welfare programs. Charles Murray and other scholars argued that welfare programs only encouraged shiftlessness and burdened federal and state budgets.
In recent years, despite the fact that the extent of poverty has not significantly diminished since the early 1970s, the debate over poverty has seemingly ended. In a country in which middle-class citizens struggle to afford health insurance and other necessities, the problems of the worst-off Americans seem to many remote and less than pressing. Moreover, the welfare reform bill of 1996 has deflected much of the criticism of the welfare state by ending the individual-level entitlement to Aid to Families with Dependent Children benefits (now known as Temporary Assistance to Needy Families) and putting time limits on welfare recipiency, among other measures.Download:Associated Program:Author(s):
Book Series | June 2004
Edited by Edward N. WolffThroughout the 1990s the United States expanded its lead over other advanced industrial nations in terms of conventionally measured per capita income. However, it is not clear that welfare levels in America have grown concomitantly with per capita income, nor that Americans are necessarily better off than citizens of other advanced countries. The contributors to this volume investigate the extent to which welfare has increased in the United States over the post-WWII period and provide a rigorous examination of conventional measures of the standard of living, as well as more inclusive indices.
The chapters cover such topics as race, home ownership, and family structure; the status of children; the consumer price index; a historical perspective on the standard of living; and worker rights and labor strength in advanced economies. In addition, they explore two economic systems for delivering goods: the free enterprise system of the United States and the European social welfare state. They then present international comparisons and highlight the relative advantages and disadvantages of these two systems.
Wolff has included essays by Dimitri B. Papadimitriou; Ajit Zacharias; David S. Johnson; Christopher Jencks, Susan E. Mayer, and Joseph Swingle; Dean Baker; Lars Osberg and Andrew Sharpe; Timothy M. Smeeding and Lee Rainwater; William J. Collins and Robert A. Margo; Seymour Spilerman and Florencia Torche; Richard H. Steckel; Thomas L. Hungerford and Maria S. Floro; Robert Buchele and Jens Christiansen; and Daphne T. Greenwood.
This provocative and accessible volume answers the intriguing question posed by the title and will be of interest to economists, sociologists, policymakers, and policy analysts, as well as students of these fields.
The publication of this collection of essays is the direct outgrowth of a 2001 Levy Institute conference organized by Wolff under the Institute's distribution of income and wealth program. The purpose of the conference was to better understand the many economic aspects of well-being that help define the “quality of life.”
Published By: Edward Elgar Publishing, Inc.
Public Policy Brief Highlights No. 78A | June 2004
A Minskyan Assessment
Twenty to 25 years ago, a debate was under way in academe and in the popular press over the War on Poverty. One group of scholars argued that the war, initiated by Presidents Kennedy and Johnson, had been lost, owing to the inherent ineffectiveness of government welfare programs. Charles Murray and other scholars argued that welfare programs only encouraged shiftlessness and burdened federal and state budgets.
In recent years, despite the fact that the extent of poverty has not significantly diminished since the early 1970s, the debate over poverty has seemingly ended. In a country in which middle-class citizens struggle to afford health insurance and other necessities, the problems of the worst-off Americans seem to many remote and less than pressing. Moreover, the welfare reform bill of 1996 has deflected much of the criticism of the welfare state by ending the individual-level entitlement to Aid to Families with Dependent Children benefits (now known as Temporary Assistance to Needy Families) and putting time limits on welfare recipiency, among other measures.Download:Associated Program:Author(s):
LIMEW Reports | May 2004
United States, 1989, 1995, 2000, and 2001
This report presents the latest findings of the Levy Institute Measure of Economic Well-Being (LIMEW) research project within our program on the distribution of income and wealth. It enhances previous findings about economic well-being and inequality in the United States by extending our analysis to include additional years, 1995 and 2001, and by comparing our results with the Census Bureau's most comprehensive measure of a household's command over commodities, which we refer to as extended income (EI).Download:Associated Program(s):Author(s):
Working Paper No. 407 | May 2004
I find that despite slow growth in income over the 1990s, there have been marked improvements in the wealth position of average families. Both mean and median wealth grew briskly in the late 1990s. The inequality of net worth leveled off even though income inequality continued to rise over this period. Indebtedness also fell substantially during the late 1990s. However, the concentration of investment type assets generally remained as high in 2001 as during the previous two decades. The racial disparity in wealth holdings, after stabilizing during most of the 1990s, widened in the years between 1998 and 2001, and the wealth of Hispanics actually declined in real terms between 1998 and 2001. Wealth also shifted in relative terms away from young households (under age 45) toward elderly ones (age 65 and over).Download:Associated Program:Author(s):
Public Policy Brief Highlights No. 76A | April 2004
Its Persistence in an Expansionary EconomyEconomic growth and a rising stock market in the 1990s gave the impression that everyone was accumulating wealth and asset poverty rates were declining. The impression was supported by the official, income-based poverty measure, which exhibited a sharp decline. According to Senior Scholar Edward N. Wolff and Research Scholar Asena Caner, poverty measures should include wealth as well as income. Their study of asset poverty in the United States between 1984 and 1999 focuses on the lower end of the wealth distribution and shows that asset poverty rates did not decline during the period studied, and that the severity of poverty increased. It also shows that asset poverty is much more persistent than income poverty.Download:Associated Program:Author(s):
Working Paper No. 404 | April 2004
A Minskyan Assessment
Hyman Minsky is best known for his work in the area of financial economics, and especially for his financial instability hypothesis. In recent years, some authors have also recognized his advocacy of the “employer of last resort” as part of his “big government” intervention to help maintain stability. However, very little research has been undertaken regarding Minsky's early involvement in the “War on Poverty.” This paper will trace the development of Minsky's thinking on antipoverty policies to his support for welfare reform and federal job creation programs.Download:Associated Program:Author(s):
Public Policy Brief No. 76 | April 2004
Its Persistence in an Expansionary Economy
Economic growth and a rising stock market in the 1990s gave the impression that everyone was accumulating wealth and asset poverty rates were declining. The impression was supported by the official, income-based poverty measure, which exhibited a sharp decline. According to Senior Scholar Edward N. Wolff and Research Scholar Asena Caner, poverty measures should include wealth as well as income. Their study of asset poverty in the United States between 1984 and 1999 focuses on the lower end of the wealth distribution and shows that asset poverty rates did not decline during the period studied, and that the severity of poverty increased. It also shows that asset poverty is much more persistent than income poverty.Download:Associated Program:Author(s):
LIMEW Reports | February 2004
Concept Measurement and Findings: United States, 1989 and 2000
The Levy Economics Institute has, since its inception, maintained an active research program on the distribution of earnings, income, and wealth. Experience from the 1990s suggests that economic growth alone cannot dramatically reduce economic inequality. Because we are concerned with the improvement of well being, we have initiated a research project, the Levy Institute Measure of Economic Well-Being (LIMEW), within the program on distribution of income and wealth. This project seeks to assess policy options and to provide guidance toward improving the distribution of economic well-being in the United States, and it gives us the opportunity to track the progress of economic well-being using a comprehensive measure. Our expectation is that the LIMEW will become a useful tool for policymakers to assess programs and to design policies that will ensure improvement in economic well-being.
Working Paper No. 398 | January 2004
This paper reports on trends in inequality of the distribution of household disposable wealth in West Germany from 1973 to 1998, and compares the changes in the size distribution of household disposable wealth in West and East Germany between 1993 and 1998. The empirical findings are based on several cross sections of the Income and Consumption Survey (ICS), which is conducted every five years by the German Federal Statistical Office. Since these surveys are large quota samples that exclude the very rich, the institutionalized population, and -- until 1993 -- foreign households, as well as equity in private businesses, the inequality measures derived can be considered the lower bounds of the estimates of their true values.
We also find the well-known hump shape of relative average wealth holdings of age groups, but by looking at the same birth cohorts in the consecutive cross-section samples we can show that the relative position of the two oldest birth cohorts deteriorates only slightly in old age. If one changes the perspective to disposable wealth per household member, one finds that there is only a slight decrease of the relative wealth position but no reduction in the absolute levels of disposable wealth. This is contrary to the predictions of the life cycle model. Bequests between spouses and composition effects can be reasons for this surprising result.
Looking at inequality within household age groups, we see a consistent pattern of highest inequality among the youngest age group that decreases until retirement age, and then increases again. This points to inheritances and gifts inter vivo even at young age.
Comparing West to East Germany, we find greater inequality of the wealth distribution in East Germany but lower inequality of the distribution of disposable income of households and of equivalent income of persons. We also see a strong tendency to a convergence in the distributions of wealth and income between West and East Germany. Closing the gap in GDP per capita between West and East Germany leads to increasing inequality of income but decreasing inequality of wealth in East Germany.Download:Associated Program:Author(s):Richard Hauser Holger Stein
LIMEW Reports | December 2003
United States, 1989 and 2000
The Levy Economics Institute has, since its inception, maintained an active research program on the distribution of earnings, income, and wealth. Experience from the 1990s suggests that economic growth alone cannot dramatically reduce economic inequality. Because we are concerned with the improvement of well being, we have initiated a research project, the Levy Institute Measure of Economic Well-Being (LIMEW), within the program on distribution of income and wealth. This project seeks to assess policy options and to provide guidance toward improving the distribution of economic well-being in the United States, and it gives us the opportunity to track the progress of economic well-being using a comprehensive measure. Our expectation is that the LIMEW will become a useful tool for policymakers to assess programs and to design policies that will ensure improvement in economic well-being.Download:Associated Program(s):Author(s):
Working Paper No. 396 | November 2003
Using data from the Assets and Debts Survey of 1984 and the Survey of Financial Security of 1999, the authors document the evolution of wealth inequality in Canada between 1984 and 1999. Among their principal findings: wealth inequality increased overall, and was associated with substantial declines in real average and median wealth for recent immigrants and young couples with children. Real median and average wealth fell among families whose major income recipient was aged 25–34, and increased among those whose major income recipient was aged 55 and over. Factors that may have contributed to the rise in wealth inequality (which cannot be quantified with existing data sets) include differences in the growth of inheritances, inter vivos transfers, rates of return on savings, and number of years worked full-time. In particular, rates of return on savings may have increased more for wealthy family units than for their poorer counterparts as a result of the booming stock market during the 1990s.Download:Associated Program:Author(s):Rene Morissette Xuelin Zhang Marie Drolet
Working Paper No. 395 | November 2003
Influenced by major tax reform in the early 1990s and by the exceptional boom in the stock market at the end of that decade, overall wealth in Swedish households increased. So did wealth inequality. The large baby-boom cohorts of the 1940s have been successful in accumulating wealth and they also have large claims on the public pension system. The wealth implicit in the form of these claims dominates private wealth in most Swedish households, and in this paper it is argued that private life-cycle savings have been small in Sweden. Most household saving has been done though the public pension systems. However, concern about the future viability of the pension systems probably increased private life-cycle savings in the 1990s.Download:Associated Program:Author(s):N. Anders Klevmarken
Working Paper No. 394 | November 2003
The purpose of this paper is to survey the theoretical literature on wealth transfer taxation. The focus is normative: we are looking at the design of an optimal tax structure from the standpoint of both equity and efficiency. The gist of this survey is that the optimal design closely depends on the assumed bequest motives. Alternative bequest motives are thus analyzed either in isolation or combined.Download:Associated Program:Author(s):Helmuth Cremer Pierre Pestieau
Working Paper No. 393 | November 2003
Changes in the Distribution of Wealth in the US, 1989–2001
From 1989 to 2001, wealth in real terms increased overall among families in the United States. But characterizing distributional changes is much more complex; it depends on the specific questions asked. For example, there is evidence both from Forbes data on the 400 wealthiest Americans and from the SCF, which explicitly excludes families in the Forbes list, that wealth grew relatively strongly at the very top of the distribution. At the same time, the share of total household wealth held by the Forbes group rose. However, while the point estimate of the share of total wealth held by the wealthiest 1 percent of families, as measured by the SCF, also rose, the change is not statistically significant. In 2001, the division of wealth observed in the SCF attributed about a third each to the wealthiest one percent, the next wealthiest nine percent, and the remaining 90 percent of the population. The paper decomposes wealth holdings and distributional shifts in a variety of other ways. Particular attention is given to families with negative net worth, families of older baby boomers, and African American families.Download:Associated Program:Author(s):Arthur B. Kennickell
Working Paper No. 390 | September 2003
Previous work on entrepreneurship and wealth has documented that entrepreneurial households are wealthier and have higher wealth mobility. However, the literature has not paid attention to the components of wealth change. Furthermore, endogeneity problems in the measurement of the interaction between saving rates and entrepreneurship are not well addressed.
In this paper, by reexamining the relationship between entrepreneurship and household wealth more rigorously, I show that while entrepreneurial households save more out of their income, it is not true that they experience higher rates of wealth increase or capital gains. In my analyses, I control for the endogeneity between the decision to start a business and household savings. I find some evidence that the decision to become a business owner is endogenous to the rate of capital gains and to the rate of saving (out of income). My results also show that households do not save more in order to start a business. Therefore, the evidence suggests that business owners save more, but not that those who save more become business owners.Download:Associated Program(s):Author(s):Asena Caner
Working Paper No. 389 | September 2003
Implications for Social Security Reform
When it comes to retirement income policy, there is a general perception that workers have full 40-year working careers before retiring. Further, it is generally assumed that workers with low lifetime earnings have low earnings in each year during a normal working career. The basic research question is why do some workers have low lifetime earnings? Is it due to low earnings in every year, or is it due to some years of no earnings combined with years of relatively modest earnings? The key findings from this paper are: (1) most individuals with minimum (and subminimum) wage lifetime average earnings are women, and (2) most of these women have low lifetime average earnings because of fewer years with earnings, rather than low earnings in each year of a 40-year working career.Download:Associated Program(s):Author(s):Thomas L. Hungerford
Policy Note 2003/3 | June 2003
The Coming Crisis in U.S. Health Care
The time has more than come to begin planning seriously for the aging of the baby-boom generation. The need for planning goes beyond concerns about the solvency of Social Security and Medicare. Another crisis looms in the form of a huge bill for the care of baby boomers who in their old age will need help dressing, eating, taking medication, and performing other daily tasks. Under the current system, most nursing home care is paid for by Medicaid—a program designed primarily to subsidize the acute care of indigent families. This arrangement diverts health care resources from their intended use, thwarts the development of a long-term-care insurance system, and provides meager resources to heavily burdened providers, forcing them to skimp on care needed by a vulnerable population.Download:Associated Program:Author(s):Walter M. Cadette
Working Paper No. 367 | December 2002
This paper focuses on the persistence of hardship from middle age to old age. Proposed status maintenance models suggest that stratification of economic status occurs over the life course (for example, little mobility is seen within the income distribution). Some studies have found evidence to support this, but none have looked at broader measures of well-being. Using 29 years (1968–96) of data from the Panel Study of Income Dynamics (PSID), the author employs hypothesis tests (t-tests) and logistic regression techniques to examine the relationship between middle-age chronic hardships and adverse old-age outcomes. In almost every case, individuals who experience middle-age chronic hardships are significantly (statistically) more likely to experience adverse old-age outcomes.Download:Associated Program:Author(s):Thomas L. Hungerford
Working Paper No. 365 | December 2002
Income Dynamics of the Elderly in the US and Germany
This study examines income dynamics during individuals' first 12 years of retirement. Two questions are asked: (1) Are the economic experiences of the elderly in the United States unique, or are they similar to those of the elderly in Germany? and (2) What is the role of Social Security in shaping these economic experiences? The results show major differences in the experiences of retired individuals as they age in the respective countries. Retired Germans generally maintain their accustomed living standards, whereas retired Americans experience a declining standard of living.Download:Associated Program:Author(s):Thomas L. Hungerford
Working Paper No. 356 | October 2002
Evidence from the Panel Study of Income Dynamic
Using PSID data for the years 1984 to 1999, we estimate the level and severity of asset poverty. Our results indicate that the share of asset-poor households remained almost the same and the severity of poverty increased during this period, despite the growth in the economy and the financial markets. The race, age, education, and marital status of the household head, and homeownership, are important determinants of asset poverty. There seems to be a downward trend in the contribution to asset poverty of being a college graduate, a married elderly or a black head of household, a single mother, or a married person with children. The contributions of not having a college degree, being a 35-to-49 year-old household head, being a childless nonelderly couple, or being an unmarried elderly person seem to have increased. The contribution to net worth poverty of being a homeowner also went up. Descriptive statistics suggest that changes in the value of assets are more effective in transitions into and out of asset poverty than are changes in debt. Some lifetime events, such as changes in marital, homeownership, or business ownership status, are also correlated with the transitions.Download:Associated Program:Author(s):
Working Paper No. 351 | August 2002
We use data from the Current Population Survey (CPS 1994-2001) to document the relationship between gender-specific demographic variations and the gender-poverty gap among eight racial/ethnic groups. We find that black and Puerto Rican women experience a double disadvantage owing to being both women and members of a minority group. As compared with whites, however, gender inequality among other minority groups is relatively small. By utilizing a standardization technique, we are able to estimate the importance of gender-specific demographic and socioeconomic composition in shaping differences in men's and women's poverty rates both within and across racial/ethnic lines. The analysis reveals that sociodemographic characteristics have a distinct effect on the poverty rate of minority women, and that the form and the magnitude of the effect vary across racial/ethnic lines. By incorporating the newly available immigration information in the CPS data, we are also able to document the effect of immigration status on gender inequality. The social and economic implications of the findings for the study of gender inequality are discussed in the last section of the article.Download:Associated Program(s):Author(s):Yuval Elmelech Hsien-Hen Lu
Public Policy Brief Highlights No. 66A | November 2001
Is the Gap Closing?Despite decades of policies aimed at improving the economic position of African Americans in terms of relative income and earnings, they remain substantially behind whites. The research presented in this brief indicates that the wealth gap is even more staggering. Following families over time in order to understand racial differences in the sources and patterns of wealth accumulation, Senior Scholar Edward N. Wolff finds that African Americans would have gained significant ground relative to whites in the past 30 years if they had inherited similar amounts, comparable levels of family income, and more similar portfolio compositions. Therefore, even if the income gap between whites and African Americans were immediately eliminated, it may take another two generations for the wealth gap to close. However, certain policies could help speed up the process.Download:Associated Program:Author(s):
Working Paper No. 341 | November 2001
Using data from the 1994–95 Survey of Families in Israel—which includes 1,607 urban Jewish respondents interviewed on topics relating to work behavior, household income, wealth, assistance received from parents and given to children, and views about financial responsibilities between parents and children—the authors examined attitudes in Israel about intergenerational assistance and the effects of these attitudes on transfer decisions by parents. Views about parental obligations are likely not independent of a country's economic and social organization. In a country with an extensive program of public assistance for young adults, for example, there may be less need for private family transfers and less of a sense of parental responsibility for providing support. Similarly, where young couples face severe liquidity constraints or otherwise require substantial resources in order to begin a household, parental feelings of obligation might be heightened. Israel is a country in which the need for parental support is high and the level of parental involvement in the financial lives of young adults is often considerable.Download:Associated Program:Author(s):
Public Policy Brief No. 66 | November 2001
Is the Gap Closing?
Despite decades of policies aimed at improving the economic position of African Americans in terms of relative income and earnings, they remain substantially behind whites. The research presented in this brief indicates that the wealth gap is even more staggering. Following families over time in order to understand racial differences in the sources and patterns of wealth accumulation, Senior Scholar Edward N. Wolff finds that African Americans would have gained significant ground relative to whites in the past 30 years if they had inherited similar amounts, comparable levels of family income, and more similar portfolio compositions. Therefore, even if the income gap between whites and African Americans were immediately eliminated, it may take another two generations for the wealth gap to close. However, certain policies could help speed up the process.Download:Associated Program:Author(s):
Working Paper No. 332 | June 2001
Income Distribution and the Return of the Aggregate Demand Problem
It is widely believed that the current economic slowdown will be mild and temporary in nature, the result of a momentary wobble in the stock market. This paper argues that the slowdown stands to be more deep-seated, owing to contradictions in the existing process of aggregate demand generation. These contradictions are the result of deterioration in income distribution. They have been held at bay for almost two decades by a range of different demand compensation mechanisms: steadily rising consumer debt, a stock market boom, and rising profit rates. However, these mechanisms are now exhausted, confronting the US economy with a serious aggregate demand generation problem. Fiscal policy adjustments may be the only way out of this impasse, but such adjustments should be accompanied by measures to rectify the structural imbalances at the root of the current impasse. Absent this, the problem of deficient demand will reassert itself, and the next time around public sector finances may not be in such a favorable position to deal with it.Download:Associated Program(s):Author(s):Thomas I. PalleyRegion(s):United States
Working Paper No. 330 | May 2001
Recent work has documented a rising degree of wealth inequality in the United States between 1983 and 1998. In this paper we look at another dimension of the distribution: polarization. Using techniques developed by Esteban and Ray (1994) and extended by D'Ambrosia (2001), we examine whether a similar pattern exists with regard to trends in wealth polarization over this period. The approach followed provides a decomposition method, based on counterfactual distributions, that allows one to monitor which factors modified the entire distribution and precisely where on the distribution these factors had an effect. An index of polarization is provided, as are summary statistics of the observed movements and of distance and divergence among the estimated and the counterfactual distributions. The decomposition method is applied to US data on the distribution of wealth between 1983 and 1998. We find that polarization between homeowners and tenants and among different educational groups continuously increased from 1983 to 1998, while polarization by income class continuously decreased. In contrast, polarization by racial group increased from 1983 to 1989 and then declined from 1989 to 1998, while polarization by age group followed the opposite pattern. We also find that most of the observed variation in the overall wealth density over the 1983-98 period can be attributed to changes in the within-group wealth densities rather than changes in household characteristics.Download:Associated Program:Author(s):Conchita D’Ambrosio Edward N. Wolff
Working Paper No. 321 | January 2001
Long-run differentials in interindustrial profitability are relevant for several areas of theoretical and applied economics because they characterize the overall nature of competition in a capitalist economy. This paper argues that the existing empirical models of competition in the industrial organization literature suffer from serious flaws. An alternative framework, based on recent advances in the econometric modeling of the long run, is developed for estimating the size of long-run profit rate differentials. It is shown that this framework generates separate, industry-specific estimates of two potential components of long-run profit rate differentials identified in economic theory. One component, the noncompetitive differential, stems from factors that do not depend directly on the state of competition; these factors are generally characterized as risk and other premia. The other component, the competitive differential, is due to factors that depend directly on the state of competition (factors such as degree of concentration and economies of scale). Estimates provided here show that during the period under study, the group of industries with statistically insignificant competitive differentials accounted for 72 percent of manufacturing profits and 75 percent of manufacturing capital stock, which is interpreted as lending support to the theories of competition advanced by the classical economists and their modern followers.Download:Associated Program:Author(s):
Public Policy Brief No. 62 | December 2000
Trends in Job Skill Requirements, Technology, and Wage Inequality in the United States
Despite seven years of economic growth a large gap exists in the wages earned by workers at the top of the earnings scale and those at the bottom. The leading explanation for this growth in wage inequality continues to be the skills-mismatch theory. This theory in part posits that gains in technology have resulted in jobs having highly technical skill requirements that have outpaced growth in worker skills; demand for highly skilled workers therefore rises more swiftly than that for less-skilled workers, creating upward pressure on wages for those with the most skills. The empirical evidence is examined here and shows that there is little evidence to support the mismatch theory as there has been little sign of a shortage of workers with computer or general technical skills. If the analysis is correct, then policies currently used to close the wage gap, such as improved education and training, will not alone solve the inequality problem. Rather, the solution may require macroeconomic policies aimed at maintaining economic growth and full employment, and labor policies, such as the minimum wage, that support the earnings of workers at the lower end of the wage scale.Download:Associated Program:Author(s):Michael J. Handel
Public Policy Brief Highlights No. 62A | December 2000
Trends in Job Skill Requirements, Technology, and Wage Inequality in the United StatesDespite seven years of economic growth a large gap exists in the wages earned by workers at the top of the earnings scale and those at the bottom. The leading explanation for this growth in wage inequality continues to be the skills-mismatch theory. This theory in part posits that gains in technology have resulted in jobs having highly technical skill requirements that have outpaced growth in worker skills; demand for highly skilled workers therefore rises more swiftly than that for less-skilled workers, creating upward pressure on wages for those with the most skills. The empirical evidence is examined here and shows that there is little evidence to support the mismatch theory as there has been little sign of a shortage of workers with computer or general technical skills. If the analysis is correct, then policies currently used to close the wage gap, such as improved education and training, will not alone solve the inequality problem. Rather, the solution may require macroeconomic policies aimed at maintaining economic growth and full employment, and labor policies, such as the minimum wage, that support the earnings of workers at the lower end of the wage scale.Download:Associated Program:Author(s):Michael J. Handel
Working Paper No. 319 | December 2000
Empirical studies of intergenerational transfers usually find that bequests are equally divided among heirs while inter vivos gifts tend to be compensatory. Using the 1992 and 1994 waves of the Health and Retirement Study, we find that only 4 percent of parents who give divide their gifts equally among their children. Estimating probit models using family panels, we find that gifts are compensatory in the sense that a child is more likely to receive a gift if she works fewer hours and has lower income than her brothers and sisters; these results carry over to the amounts given. Fixed effects Tobit estimations show that the fewer hours a child works and the lower her income is, the more the parents give. These results imply that gifts are compensatory. The empirical results are, therefore, consistent with the predictions of the altruistic model of intergenerational transfers.Download:Associated Program:Author(s):Stefan Hochguertel Henry Ohlsson
Public Policy Brief No. 61 | November 2000
The Macroeconomics of Social Policy
The idea that saving is the force driving private investment and economic growth has become ever more entrenched in mainstream economic thought as well as in the minds of policymakers and the general public. Even though the empirical evidence that increased household saving will directly stimulate private investment and economic growth is scant, the idea remains prominent and underlies policy debates on topics ranging from Social Security to a balanced federal budget to reducing the national debt. The popular theory underlying these cuts is countered by evidence that private sector investment is financed primarily out of business retained earnings, not household saving, which explains why current policies aimed at raising household saving via cuts to social spending programs have been unsuccessful at raising saving rates. Moreover, government spending on social programs does not necessarily reduce economic growth. Higher government spending could be supported, and a greater degree of investment spending stimulated, through a combination of lower taxes on business income and higher taxes on personal incomes of upper-income households.Download:Associated Program:Author(s):Jamee K. Moudud Ajit Zacharias
Public Policy Brief Highlights No. 61A | November 2000
The Macroeconomics of Social PolicyThe idea that saving is the force driving private investment and economic growth has become ever more entrenched in mainstream economic thought as well as in the minds of policymakers and the general public. Even though the empirical evidence that increased household saving will directly stimulate private investment and economic growth is scant, the idea remains prominent and underlies policy debates on topics ranging from Social Security to a balanced federal budget to reducing the national debt. The popular theory underlying these cuts is countered by evidence that private sector investment is financed primarily out of business retained earnings, not household saving, which explains why current policies aimed at raising household saving via cuts to social spending programs have been unsuccessful at raising saving rates. Moreover, government spending on social programs does not necessarily reduce economic growth. Higher government spending could be supported, and a greater degree of investment spending stimulated, through a combination of lower taxes on business income and higher taxes on personal incomes of upper-income households.Download:Associated Program:Author(s):
Working Paper No. 314 | September 2000
This paper examines cross-generational connections in asset ownership. It begins by presenting a theoretical framework that develops the distinction between the intergenerational transfer of knowledge about financial assets and the direct transfer of dollars from parents to children. Its analysis of data from the Panel Study of Income Dynamics (PSID) reveals intergenerational correlations in asset ownership, and we find evidence to suggest that parental asset ownership or family-based exposure to assets affects adult children's decisions about bank account and stock ownershipDownload:Associated Program:Author(s):Ngina S. Chiteji Frank P. Stafford
Working Paper No. 311 | August 2000
Is the Gap Closing?
A vast literature in economics has examined the economic progress of African Americans during this century. Most of these studies have focused on income--or on even narrower measures of economic well-being, such as earnings--to assess the extent to which any gains made relative to other racial groups can be attributed to such factors as declining racial discrimination, affirmative action policies, changes in industrial composition, or a narrowing gap between the educational levels of African Americans and the rest of the population. However, studies of earnings and income, while important for assessing the extent to which labor market discrimination exists and the ability of African Americans to move closer to whites in terms of acquiring the skills and connections that are currently rewarded by the markets, provide an incomplete picture. This paper therefore explores how African Americans have fared in terms of wealth, a less well-known factor and an important measure of economic well-being.Download:Associated Program:Author(s):Maury Gittleman Edward N. Wolff
Working Paper No. 310 | August 2000
The racial gap in the value of owner-occupied housing has narrowed substantially since 1940, but this narrowing has not been even over time or across space. The 1970s stand out as an unusual decade in which the value gap did not narrow despite continued convergence in the observed characteristics of housing. A decline in the relative value of black-owned homes in central cities appears to have offset gains elsewhere during the 1970s, and this central city decline continued into the 1980s. In further exploration of the 1970s, evidence is found of a rising propensity for higher-income blacks to live in the suburbs. A positive correlation between riots in the 1960s and widening of the value gap during the 1970s in a panel of cities also is found.Download:Associated Program:Author(s):William J. Collins Robert A. Margo
Working Paper No. 308 | August 2000
Sectoral Forces Old and New
National surveys of household economics and well-being in the United States usually focus on income. In those income surveys with supplemental wealth modules, the very rich are underrepresented if not unrepresented. Typically, wealth data are truncated such that they do not afford a view of the extreme top of the distribution. Therefore, we attempt to supplement our knowledge about elite wealth holdings by compiling data on the richest individuals and families in the United States. To do so, we draw from the rosters of the "Forbes 400," which have been published annually by Forbes magazine since 1982. Along with information from other business press reports and standard biographical sources, rosters of the very rich enable research on inequality at the extreme of the wealth distribution during a period of dramatic change in the composition and concentration of wealth. In this study, we focus analytically on economic sectors because we are interested less in the maldistribution of wealth by demographic groups than in inequality between different economic sectors. We will first specify our analytical approach, then examine issues in the use of business press rosters of the very rich as a data source, and follow with a discussion of the dimensions and categories of our sector typology. After presenting our results, we will address how sectoral forces old and new affect economic opportunity and great wealth outcomes.Download:Associated Program:Author(s):Leonard Broom William Shay
Working Paper No. 307 | July 2000
Evidence from the Survey of Consumer Finances
This paper considers the distribution of wealth in the period from 1989 to 1998 as an indicator of the economic condition of households. It examines changes in the distribution of wealth over that period, mostly using data from the Survey of Consumer Finances (SCF). Some of the SCF data used here have previously been studied by Weicher (1996), Wolff (1996), and Kennickell and Woodburn (1992 and 1999). As background, the paper also uses some estimates published by Forbes magazine on the 400 wealthiest people in the United States. The first section of the paper briefly discusses the data. The next section uses the Forbes data to characterize changes at the very top of the wealth distribution. The third section presents a variety of estimates of wealth changes for the population below the "Forbes 400" level using SCF data. The fourth section examines the sensitivity of the SCF estimates to a variety of assumptions about systematic mismeasurement in the data. The final section summarizes the findings of the paper.Download:Associated Program:Author(s):Arthur B. Kennickell
Working Paper No. 306 | July 2000
This paper describes how German households save and how their saving behavior is linked to public policy, notably pension policy. The analysis is based on a synthetic panel of four cross sections of the German Income and Expenditure Survey ("Einkommens- und Verbrauchsstichproben," EVS, 1978, 1983, 1988, and 1993). The paper carefully distinguishes between several saving measures and concepts. It separates discretionary savings from mandatory savings and uses two flow measures: first, the sum of purchases of assets minus the sum of sales of assets and, second, the residual of income minus consumption. Our main finding is a hump-shaped age-saving profile with a high overall saving rate. However, savings remain positive in old age, even for most low-income households. How can we explain what may be termed the "German savings puzzle"? Germany has one of the most generous public pension and health insurance systems in the world, yet private savings are high until old age. We provide a complicated answer that combines historical facts with capital market imperfections and a distinction between the role of discretionary and mandatory savings.Download:Associated Program:Author(s):Axel Börsch-Supan Anette Reil-Held Reinhold Schnabel Joachim Winter
Working Paper No. 304 | July 2000
Longitudinal Exploration of Wealth Accumulation Processes
Researchers have documented racial inequalities in wealth ownership and have offered a variety of explanations to account for these differences. One potentially important contributing factor that has received little attention is racial differences in family structure. This paper explores racial differences in the structure of family of origin and family in adulthood and examines the impact of these differences on wealth accumulation patterns. Using the National Longitudinal Survey of Youth, I find that large family size and family disruptions in childhood are negatively associated with wealth accumulation, portfolio behavior, and wealth mobility in adulthood. My analyses suggest that family size is a more important factor determining wealth accumulation for whites than for blacks or Hispanics and that family disruption is most strongly related to wealth outcomes for Hispanics. I find that family structure in adulthood is only modestly associated with overall wealth but strongly related to portfolio behavior and wealth mobility and that these relationships are relatively fixed across racial groups. My findings lend support to arguments about the importance of the role that resource dilution plays in determining life outcomes. They also suggest that efforts to reduce racial inequality in wealth ownership may be most effective if they seek to reduce the impact of deprivation early in life.Download:Associated Program:Author(s):Lisa A. Keister
Conference Proceedings | June 2000
Coordinated by Senior Scholar Edward N. Wolff of the Levy Institute and New York University, this conference examined wealth trends, and extremes, in the United States in the 1990s. The conference was held June 7–9, 2000, at the Levy Institute's research and conference center at Blithewood on the campus of Bard College, Annandale-on-Hudson, New York.
These proceedings were published as part of the September 2000 Report.Download:Associated Program:
Working Paper No. 300 | May 2000
Using data from the Survey of Consumer Finances, I find that wealth inequality continued to rise in the United States after 1989, though at a reduced rate. The share of the wealthiest 1 percent of households rose by 3.6 percentage points from 1983 to 1989 and by another 0.7 percentage points from 1989 to 1998. Between 1983 and 1998, 53 percent of the total growth in net worth accrued to the top 1 percent of households and 91 percent to the top 20 percent. Another disturbing trend is that median net worth (in constant dollars), after growing by 7 percent from 1983 to 1989, increased by only another 4 percent by 1998. Indeed, the average wealth of the poorest 40 percent fell by 76 percent between 1983 and 1998 and by 1998 was only $1,100. Moreover, the financial resources accumulated by families in the bottom three income quintiles were very meager and dwindled between 1989 and 1998. The new figures also point to the growing indebtedness of the American family, with the overall debt-equity ratio climbing from 0.151 in 1983 to 0.176 in 1998. The ownership of investment assets was still highly concentrated in the hands of the rich in 1998. About 90 percent of the total value of stocks, bonds, trusts, and business equity were held by the top 10 percent. Despite the widening ownership of stock (48 percent of households owned stock shares either directly or indirectly in 1998), the richest 10 percent still accounted for 78 percent of their total value. With regard to racial and ethnic differences, the results show that over the period 1983 to 1998 non-Hispanic African American households made some gains relative to whites in median net worth and home ownership but remained the same in terms of mean net worth. Hispanic households made significant gains on non-Hispanic white households in terms of mean net worth and home ownership but not in terms of median wealth.Download:Associated Program:Author(s):
Working Paper No. 297 | March 2000
Profitability in the United States has been rising since the early 1980s and by 1997 was at its highest level since its postwar peak in the mid 1960s, and the profit share, by one definition, was at its highest point. In this paper I examine the role of the change in the profit share and capital intensity, as well as structural change, on movements in the rate of profit between 1947 and 1997. Its recent recovery is traced to a rise in the profit share in national income, a slowdown in capital-labor growth on the industry level, and employment shifts to relatively labor-intensive industries.Download:Associated Program:Author(s):
Policy Note 2000/3 | March 2000
Measuring the Impact of Welfare Reform
The rules and regulations that were developed to reduce welfare rolls through immediate employment discourage the achievement of economic independence through the pursuit of higher education.Download:Associated Program:Author(s):
Working Paper No. 295 | February 2000
Trends in Job Skill Requirements, Technology, and Wage Inequality in the US
Many economists and other social scientists and policy makers believe that the growth in inequality in the last two decades reflects mostly an imbalance between the demand for and the supply of employee skills driven by technological change, particularly the spread of computers. However, the empirical basis for this belief is not strong. The growth in inequality was concentrated in the recession years of the early 1980s and any imbalance between the supply of and demand for workers with technological skills likely did not occur until later. The growth of the supply of more-educated workers decelerated during the 1980s, but any impact of that likely would not have been felt until the late 1980s and 1990s. However, inequality actually stabilized during this latter period. On the demand side, trends in occupational composition do not suggest that upgrading was particularly rapid in the 1980s and 1990s compared to the 1970s. Computers do not seem to have greatly affected employment in a number of narrow occupations that are likely to be sensitive to technological change (e.g., computer programmers, bank tellers). Computer use itself does seem to be associated with more education, even controlling for occupation, but the causal status of this relationship is uncertain and even the magnitude of the observed association does not seem large enough to have seriously compromised the ability of supply to meet the implied growth in demand. By contrast, the recession of the early 1980s coincides with a dramatic decline of traditionally better paid blue collar workers, particularly in manufacturing. This suggests a need for a closer look at other possible causes of inequality growth, such as macroeconomic forces and the decline of institutional protections for workers.Download:Associated Program:Author(s):Michael J. Handel
Working Paper No. 293 | December 1999
This paper documents the employment disadvantage faced by the less qualified part of the labor force and examines the factors that influence the differing extent of this disadvantage across OECD countries. We argue that employment rates for quartiles of the population ranked by educational qualification provide the best measure of employment disadvantage. We show that differences in these employment rates for the most- and least-educated quartiles vary substantially within Europe, but are not on average higher than those in the USA. The least qualified suffer the greatest employment disadvantage in countries in which the overall employment rates are low and, for men, the literacy test scores for the least qualified are relatively low. A high level of imports from the South appears to be associated with greater employment disadvantage, but there is no discernible tendency for a high level of wage dispersion, low benefits, or weak employment protection legislation to be associated with greater employment disadvantage. Labor market flexibility has not been the route by which some OECD countries have managed to minimize the employment disadvantage of the least qualified.Download:Associated Program:Author(s):Andrew Glyn Wiemer Salverda
Working Paper No. 291 | December 1999
This paper addresses two broad questions. The first one relates to the economic rationale for the existence of the welfare state. To address this question, we review the marginalist arguments and then counterpose a historical and institutional analysis of the rise of the US welfare state. The second question concerns the macroeconomic impacts of welfare spending. We examine the standard neoclassical macroeconomic arguments for and against welfare cutbacks and then propose an alternative growth framework, rooted in the classical and Harrodian traditions, to evaluate social policy. We argue that the alternative framework provides both demand-side and supply-side mechanisms whereby social spending can be supported without harmful long-run macroeconomic effects. Our analysis suggests that, in general, because growth and crises are endogenous, there may be no tension between social policy and economic performance. Specifically, the recent cutbacks in the US are hard to justify on purely economic grounds.Download:Associated Program:Author(s):Jamee K. Moudud Ajit Zacharias
Working Paper No. 290 | December 1999
This paper is an extension of an earlier working paper ("Finance and the Macroeconomic Process in a Classical Growth and Cycles Model," Working Paper No. 253). The basic structure of the model remains unchanged in that it is based on a social accounting matrix (SAM) with endogenous money. Investment in circulating capital adds to output and investment in fixed capital adds to potential output. Driving the model's fast adjustment process, which describes the disequilibrium adjustment between aggregate demand and supply, is the dual disequilibria relationship in which the excess of monetary injections over desired money holdings fuels spending in the markets for goods and services. This excess also spills over into the bond market and lowers the interest rate. The model's slow adjustment process entails adjustments in fixed investment so that actual and normal (desired) capacity utilization fluctuate around each other. Over the long run investment is internally financed and regulated by the rate of profit. The current paper has three innovations. First, inventory investment is treated explicitly. Second, the SAM itself has been split into a current and capital account, thereby making it easier to derive the balance sheet counterpart of the flow matrix. Third, the paper discusses the stability properties of the 4 x 4 nonlinear differential equation system that describes the fast adjustment process. The key to stability is the negative feedback effect of business debt on investment. In the 4 x 4 case, a necessary condition for stability is that the reaction coefficient h2 on the debt term in the circulating investment equation be positive; a necessary and sufficient condition is that h23h2* where h2* is some critical value. In crossing this critical value, the system undergoes a Hopf bifurcation. Finally, if the model is reduced to a 3 x 3 system by considering a budget deficit that is wholly bond financed, then necessary and sufficient conditions for stability can be derived using the "modified" Routh-Hurwitz conditions. These stability conditions, in this case, imply that h2 > 0.Download:Associated Program:Author(s):Jamee K. Moudud
Working Paper No. 289 | November 1999
Renewed interest in a guaranteed income is evident from the number of books that have been published on the topic in the 1990s. This paper compares seven of those books. They are: Arguing for Basic Income: Ethical Foundations for a Radical Reform, edited by Philippe Van Parijs; Real Freedom for All: What (If Anything) Can Justify Capitalism? by Van Parijs; Public Economics in Action: The Basic Income/Flat Tax Proposal, by Anthony Atkinson; The $30,000 Solution, by Robert Schutz; The Benefit of Another's Pains: Parasitism, Scarcity, Basic Income, by Gijs Van Donselaar; "And Economic Justice for All": Welfare Reform for the 21st Century, by Michael Murray; and The National Tax Rebate: A New America with Less Government, by Leonard Greene.Download:Associated Program:Author(s):Karl Widerquist
Working Paper No. 288 | November 1999
During the 1980s, wage inequality increased dramatically and the American economy lost many high wage, low- to medium-skill jobs, which had provided middle class incomes to less skilled workers. Increasingly, less skilled workers seemed restricted to low wage jobs lacking union or other institutional protections. Although "good" jobs for less skilled workers are unlikely to return in their previous form, a number of sociologists, economists, and industrial relations scholars have suggested that a new paradigm of work, often called "high performance," is emerging, which offers such workers more skilled jobs and higher wages. Using a unique national data set we find little evidence that high performance work systems are associated with higher wages.Download:Associated Program:Author(s):Maury Gittleman
Working Paper No. 286 | November 1999
In recent decades the United States has experienced a pronounced widening of its wage structure. For the most part, analysis of the recent rise in wage inequality has taken place with the benefits of hindsight—that is, without placing recent changes in the wage structure in historical context. This paper presents such an historical context, by summarizing what is currently known about the evolution of the wage structure from 1820 to 1970. I argue that this evolution was characterized by both episodic change and secular trends. Perhaps the most important secular trend is a long-term rise in the returns to educated labor beginning before the Civil War and continuing until the turn of the 20th century, followed by a decline over the 1900 to 1940 period. In the 1940s substantial further erosion in wage differentials took place, primarily as a consequence of various government policies and increases in the relative demand for less-skilled labor associated with World War II. Although wage inequality today is high by post–World War II standards, it is not particularly high when measured against the pre–World War II experience. As far as government policy is concerned, there is compelling historical evidence that long-term expansion of educational opportunity has been a potent force in narrowing wage differentials.Download:Associated Program:Author(s):Robert A. Margo
Working Paper No. 285 | October 1999
A leading explanation for the rapid growth in wage inequality in the United States in the last 20 years, consistent with both human capital and postindustrial theories, is that advanced technology has increased job skill requirements and reduced the demand for less skilled workers. Krueger's 1993 study showing a wage premium associated with using computers at work is one of the few that seems to provide direct supportive evidence. In this paper I use previously unexamined data to suggest that measured returns to computer use are upwardly biased. In addition, I find that most of the growth of inequality since 1979 occurred in the early 1980s, which is inconsistent with a primary role for computers. Finally, computer use at work had equalizing impacts on the gender wage gap and elsewhere in the wage distribution, as well as disequalizing impacts on the wage gaps between education groups. When the contribution of computer use to all components of the variance of wages is taken into account, computers seem to have had a net equalizing impact in the period Krueger studied. This casts significant doubt on this technology-based explanation of the growth in wage inequality.Download:Associated Program:Author(s):Michael J. Handel
Working Paper No. 284 | October 1999
A Non-parametric Decomposition
This paper presents a non-parametric procedure to analyze the effects of different factors on observed movements in any distribution. These effects are estimated by applying kernel density methods to weighted samples in order to obtain counterfactual distributions. The advantage of this approach is that it provides a direct means of investigating if these factors have an impact and where in the density they do so, and it offers a new decomposition method of within and between group components. The approach to the decomposition analysis applied in this paper differs from the classical one of additively decomposable inequality indexes. If the purpose of the analysis is to understand what determined the variation in relative inequality, there is no doubt that the decomposition of the indexes belonging to the generalized entropy family is the best method. If, instead, the aim is to monitor what factors modified the entire distribution, where precisely on the distribution these factors had an effect, and what determined the variation in the level of polarization observed, then that method is useless. The non-parametric method proposed is the one to use, but with one caveat: All the results assume that there are no general equilibrium effects. The paper contains summary statistics of the observed movements and of distance and divergence among the estimated and counterfactual distributions; an original modification of an index of polarization; and an application of the method to the Italian distribution of wages.Download:Associated Program:Author(s):Conchita D’Ambrosio
Working Paper No. 280 | September 1999
The concept of the minimum wage has undergone several rhetorical permutations. Originally conceived as a living wage, which would function as a family wage, it ultimately became a matter of macroeconomic policy, the goals of which were to achieve greater efficiency and in some case economic development. In recent years, the rhetoric has narrowed to a debate that pits a youth disemployment effect against assisting the poor. This paper traces the rhetorical evolution of the minimum wage and shows how the rhetoric employed by various groups has been shaped by the specifics of the political and economic environment.Download:Associated Program:Author(s):Oren Levin-Waldman
Public Policy Brief Highlights No. 54A | July 1999
An Inside Look at the Out of the Labor Force PopulationDespite a long period of strong economic growth, more than 28 million working-age persons were categorized by the Bureau of Labor Statistics as out of the labor force in 1998. A small portion of this population will move into the labor force, but the majority will remain without work. This brief examines the demographics of the out-of-the-labor-force population, their reasons for not working, the likelihood that they will move into the labor force, and the adverse effects on them of prolonged joblessness. Current labor market policies, and especially welfare reform measures, have proved ineffective for the "hard-core" jobless because the policies are predicated on the mistaken notion that the private labor market is dynamic and flexible enough to accommodate anyone who wants to work. A public employment program would complement the operation of the private market, providing those who are able and willing with income, a sense of worth, the opportunity to make a social and economic contribution, and preparation for entry into the labor force.Download:Associated Program:Author(s):
Public Policy Brief No. 54 | July 1999
An Inside Look at the Out of the Labor Force Population
Despite a long period of strong economic growth, more than 28 million working-age persons were categorized by the Bureau of Labor Statistics as out of the labor force in 1998. A small portion of this population will move into the labor force, but the majority will remain without work. This brief examines the demographics of the out-of-the-labor-force population, their reasons for not working, the likelihood that they will move into the labor force, and the adverse effects on them of prolonged joblessness. Current labor market policies, and especially welfare reform measures, have proved ineffective for the “hard-core” jobless because the policies are predicated on the mistaken notion that the private labor market is dynamic and flexible enough to accommodate anyone who wants to work. A public employment program would complement the operation of the private market, providing those who are able and willing with income, a sense of worth, the opportunity to make a social and economic contribution, and preparation for entry into the labor force.Download:Associated Program:Author(s):Marc-André Pigeon L. Randall Wray
Public Policy Brief No. 46 | November 1998
Net Earnings Capacity versus Income for Measuring Poverty
The United States' official poverty measure defines the poor in terms of a family’s actual, yearly cash income relative to an estimate of the income needed to sustain a minimally acceptable standard of living. An alternative definition, designed to reflect a family’s ability to achieve economic independence, would instead rest on its capacity for generating income. Net earnings capacity (NEC) is an indicator of the income a family could earn if all working-age family members work full-time, full-year, at earnings consistent with their age, education, and other characteristics, with an adjustment made for child care costs. NEC is not intended as a replacement for the official measure, but as a supplement. The official measure identifies the population in need of short-term monetary assistance, whereas NEC identifies the population in need of longer-term skill-enhancing assistance in order to become self-reliant. Two general policy approaches to reduce the prevalence of NEC poverty are to increase the level of education and other income-generating characteristics of those with low earnings capacity and to increase the returns they receive for work.Download:Associated Program:Author(s):Robert Haveman Andrew Bershadker
Public Policy Brief Highlights No. 46A | November 1998
Net Earnings Capacity versus Income for Measuring PovertyThe United States' official poverty measure defines the poor in terms of a family’s actual, yearly cash income relative to an estimate of the income needed to sustain a minimally acceptable standard of living. An alternative definition, designed to reflect a family’s ability to achieve economic independence, would instead rest on its capacity for generating income. Net earnings capacity (NEC) is an indicator of the income a family could earn if all working-age family members work full-time, full-year, at earnings consistent with their age, education, and other characteristics, with an adjustment made for child care costs. NEC is not intended as a replacement for the official measure, but as a supplement. The official measure identifies the population in need of short-term monetary assistance, whereas NEC identifies the population in need of longer-term skill-enhancing assistance in order to become self-reliant. Two general policy approaches to reduce the prevalence of NEC poverty are to increase the level of education and other income-generating characteristics of those with low earnings capacity and to increase the returns they receive for work.Download:Associated Program:Author(s):Robert Haveman Andrew Bershadker
Working Paper No. 236 | May 1998
The standard neoclassical model is the foundation of most mainstream macroeconomics. Its basic structure dominates the analyis of macroeconomic phenomena, the teaching of the subject, and even the formation of economic policy. And, of course, the modern quantity theory of money and its attendant monetarist prescriptions are grounded in the model's strict separation between real and nominal variables. It is quite curious, therefore, to discover that this model contains an inconsistency in its treatment of the distribution of income. And when this seemingly small discrepancy is corrected, without any change in all of the other assumptions, many of the model's characteristic results disappear.
Two instances are of particular interest. First, the strict dichotomy between real variables and nominal variables breaks down, so that, for example, an increase in the exogenously given money supply changes real variables such as household income, consumption, investment, the interest rate, and hence real money demand. Secondly, since the price level depends on the interaction of real money demand and the nominal money supply, and since the former is now affected by the latter, price changes are no longer proportional to changes in the money supply. Indeed, we will demonstrate that prices can even fall when the money supply rises. The link to the quantity theory of money, and to monetarism, is severed.Download:Associated Program:Author(s):Wynne Godley Anwar M. Shaikh
Working Paper No. 211 | November 1997
The distribution of income is conspicuous by its absence from most mainstream macroeconomic analysis. Visiting Scholar Malcolm Sawyer, of the University of Leeds, makes an effort to remedy this situation by discussing three aspects of the relationship between macroeconomics and the distribution of income: the effect of conflicts over the distribution of income on the NAIRU (nonaccelerating inflation rate of unemployment), the effect of the distribution of income on aggregate demand, and the effect of monetary policy on the distribution of income.Download:Associated Program(s):Author(s):
Public Policy Brief Highlights No. 33A | September 1997
No Easy Answers: Labor Market Problems in the United States versus EuropeRebecca M. Blank considers how the flexibility of American labor markets and the regulation and redistribution policies of European labor markets may determine employers’ responses to worldwide economic transformations that result in increasing wage disparity in the United States and continuing high unemployment in Europe. She suggests that since the transformations will undoubtedly continue, governments should seek to develop plans to offset and reduce the adverse labor market effects.Download:Associated Program(s):Author(s):Rebecca M. Blank
Public Policy Brief No. 33 | August 1997
No Easy Answers: Labor Market Problems in the United States versus Europe
Rebecca M. Blank considers how the flexibility of American labor markets and the regulation and redistribution policies of European labor markets may determine employers’ responses to worldwide economic transformations that result in increasing wage disparity in the United States and continuing high unemployment in Europe. She suggests that since the transformations will undoubtedly continue, governments should seek to develop plans to offset and reduce the adverse labor market effects.Download:Associated Program(s):Author(s):Rebecca M. Blank
Working Paper No. 205 | August 1997
Distinguished Scholar Wynne Godley creates a numerical simulation model that attempts a synthesis between the monetary theory of Hicks and Kaldor, the asset allocation theory of James Tobin, and the Keynesian theory of income and output determination. Methodologically, it substitutes Walrasian rigor for the usual narrative exposition used by post-Keynesian writers—and indeed, by Keynes himself—before the computer age. The meaning of the title is that the model describes neither an equilibrium where prices clear markets nor a disequilibrium where price signals do not work properly because of the rigidities, information inadequacies, etc. characteristic of, for instance, "New Keynesian" macroeconomics.Download:Associated Program:Author(s):
Public Policy Brief No. 28 | November 1996
Wage Insurance for the Working Poor
Barry Bluestone of the University of Massachusetts and Teresa Ghilarducci of the University of Notre Dame show that although the poverty rate for elderly Americans has declined over the past three decades, the total number of persons in poverty has grown and the number of poor nonelderly adults in poverty has nearly doubled since 1970. The authors argue for a comprehensive and coherent strategy aimed at the working poor and those susceptible to highly fluctuating incomes. Two essential components of a wage insurance system already exist in the earned income tax credit (EITC) and the minimum wage. Neither by itself is an ideal solution to the wage poverty problem, but the two programs complement one another. What makes the two fit together so well is that the existence of a higher minimum wage actually reduces the negative productivity, fiscal impact, and moral hazard effects of the EITC, while the EITC makes up for the weak target efficiency and income adequacy of the minimum wage.Download:Associated Program(s):Author(s):Barry Bluestone Teresa Ghilarducci
Public Policy Brief No. 18 | January 1995
Can We Afford Grandma and Grandpa?
S. Jay Levy presents a preliminary study of the consumption patterns of retirees and nonretirees during the 1980s, paying particular attention to the distribution of the national consumer product. The consumer product increased in aggregate size during the period, but the retirees’ portion of it grew four times faster than the working households’ share. Indeed, the standard of living for much of the working population declined. Levy finds that the incremental portion of the “economic pie” absorbed by retirees is tantamount to a “tax” on nonretirees that falls most heavily on lower-income people. Although analysts anticipate a peak in the proportion of retirees to workers in the population around the year 2025, Levy asserts that problems created by this situation are, to a serous degree, already present. He recommends raising the retirement age and encouraging retirees to engage in public service activities. He believes, however, that the fundamental issue in enlarging the economic pie for everyone is unemployment. Levy cites as results of unemployment the increasingly common early retirement programs and the unwillingness of employers to undertake the costs of training older workers. He also contrasts the policies of the early postwar era that emphasized economic growth and enterprise with contemporary policies that are influenced by the interests of retirees in preserving their income and wealth.Download:Associated Program:Author(s):S. Jay Levy
Book Series | June 1994
Edited by Dimitri B. Papadimitriou
The essays in this volume explore several aspects of wealth and income distribution during the 1980s, a decade characterized not only by economic expansion, but also by a widening disparity of income and wealth. The changing fortunes of American households and individuals as manifested in demographic and structural changes are examined from different perspectives, and factors affecting saving behavior and poverty rates and earning gaps relating to gender, education, and race of the head of household are examined. The observed inequalities are compared with those of other industrialized nations, and policies to remedy these developments are suggested. Among the contributors are Robert B. Avery, Rebecca M. Blank, Alan S. Blinder, Gordon Green, Thomas Juster, James Morgan, Edmund Phelps, Isabel V. Sawhill, Paul Sarbanes, Erik Thorbecke, and Howard Wachtel.
Book Series | December 1993
Edited by Dimitri B. Papadimitriou and Edward N. Wolff
The fact that levels of poverty and inequality showed an unprecedented rise in the 1980s in the United States despite a sustained expansion beginning in 1983 raises concerns about appropriate policy actions needed to offset these developments. The papers in this volume explore manifestations of this inequality, including unexpectedly high poverty rates, shrinkage of the middle class, a growing intergenerational wage gap, a growing earnings gap between college and high school graduates, and increasing dispersion of the distribution of family income even with increased participation of female household members in the labor force. Measurement issues explored include the use of earnings capacity, health status, and indicators of living conditions to define poverty status. Contributors to this volume include Robert B. Avery, Rebecca M. Blank, Alan S. Blinder, David Bloom, Sheldon Danziger, William T. Dickens, Greg Duncan, Richard B. Freeman, Robert Haveman, Christopher Jencks, Susan E. Mayer, Timothy M. Smeeding, Barbara Wolfe, and Edward N. Wolff.