Measuring precautionary wealth using cross-sectional data: the case of farm households

This study models and investigates the presence of precautionary wealth among farm households, something few studies have attempted. Using pooled farm-level data, we find that self-employed farm households accumulate more wealth. Precautionary savings is about 8% of total household wealth. In addition, we find that age, education, occupation, and operation size are important factors influencing wealth accumulation by US farm households.     

Pareto models for top incomes and wealth

Top incomes are often related to Pareto distribution. To date, economists have mostly used Pareto Type I distribution to model the upper tail of income and wealth distribution. It is a parametric distribution, with interesting properties, that can be easily linked to economic theory. In this paper, we first show that modeling top incomes with Pareto Type I distribution can lead to biased estimation of inequality, even with millions of observations. Then, we show that the Generalized Pareto distribution and, even more, the Extended Pareto distribution, are much less sensitive to the choice of the threshold. Thus, they can provide more reliable results. We discuss different types of bias that could be encountered in empirical studies and, we provide some guidance for practice. To illustrate, two applications are investigated, on the distribution of income in South Africa in 2012 and on the distribution of wealth in the United States in 2013.

     

BLACK-WHITE WEALTH INEQUALITY: IS INHERITANCE THE REASON?

Racial differences in the receipt of financial inheritances he& to explain why the average difference in wealth between black and white households is larger than the average difference in income. Using data from a panel of prime-aged males and from a representative survey of the U.S. population, we document the greater likelihood of white households receiving an inheritance than black households. Controlling for other factors which contribute to racial differences in wealth, we estimate that financial inheritances may account for between 10% and 20% of the average difference in black-white household wealth.     

Wealth Inequality: Historical Trends and Cross‐National Differences

This article provides an overview of the recent literature on wealth inequality from a comparative and historical perspective. I first discuss how the stock, composition, and distribution of wealth changed from the 18^th century onwards. In the second part of the paper, I move on to the causal questions: What factors drive wealth inequality? Why does the distribution of wealth vary across nations? In the third and concluding section I briefly discuss the socio‐political challenges posed by increasing wealth inequality, and identify several key questions for research going forward.     

Inheritances and the distribution of wealth or whatever happened to the great inheritance boom?

Using data from the Survey of Consumer Finances (SCF), we found that on average over the period from 1989 to 2007, about one fifth of American households at a given point of time reported a wealth transfer and these accounted for quite a sizeable figure, about a quarter of their net worth. Over the lifetime, about 30 percent of households could expect to receive a wealth transfer and these would account for close to 40 % of their net worth near time of death. However, there is little evidence of an inheritance “boom.” In fact, from 1989 to 2007, the share of households reporting a wealth transfer fell by 2.5 percentage points, a time trend statistically significant at the one percent level. The average value of inheritances received among all households did increase but at a slow pace, by 10 %; the time trend is not statistically significant. Wealth transfers as a proportion of current net worth fell sharply over this period, from 29 to 19 %, though the time trend once again is not statistically significant. We also found that inheritances and other wealth transfers tend to be equalizing in terms of the distribution of household wealth, though a number of caveats apply to this result.     

Expectations,education, and opportunity

Using a long panel of youths, we establish a causal link between parental expectations regarding education and educational attainment. In particular, we use an instrumental variables approach to find that the child’s chances of obtaining a high school or college degree are increasing in the parent’s expectations of the likelihood of these events. We then use differences between the objective likelihood of a child’s educational attainment and the parents’ subjective probabilities to consider the hypothesis that lower educational outcomes among certain groups are driven by a “culture of despair,” where children are low-achieving because they are expected to underachieve. While we do find that children from households with lower levels of income, wealth, and parental education are less likely to attain high school and college degrees, we reject the hypothesis that this is driven by low subjective expectations of educational success. Rather, we find that parents from disadvantaged groups have expectations for the educational outcomes of their children that differ more from the statistical likelihood of these outcomes than do parents of children from advantaged households. That is, we find that parents in more disadvantaged households are more optimistic about the educational outcomes of their children than those from more advantaged households.     

Wer erbt Mehr? Erbschaften, Sozialstruktur und Alterssicherung

How do inheritances affect social structure, wealth formation, and provision for old age? Who benefits the most from inheritances? We analyse these questions based on the 2001 wave of the Socio-Economic Panel, which gives information on the deceased, and on the type, time, chance, and amount of the inheritance. Our findings confirm the theoretical hypotheses in general. Inheritance research is intergenerational research: most inheritances come from parents and benefit the recipients in the second half of their lives. However, the chances of receiving an inheritance and amounts inherited are distributed very unevenly. West Germans inherit significantly more frequently and larger amounts than East Germans due to the continuing effects of conditions in the former GDR. Foreigners have particularly low chances of receiving an inheritance. Thus, provision for old age through inheritance is limited mainly to specific groups of people. The most advantaged groups are the highly educated classes, which already receive higher (retirement) income.     

From Soviets to oligarchs: inequality and property in Russia 1905-2016

This paper combines national accounts, survey, wealth and fiscal data (including recently released tax data on high-income taxpayers) in order to provide consistent series on the accumulation and distribution of income and wealth in Russia from the Soviet period until the present day. We find that official survey-based measures vastly under-estimate the rise of inequality since 1990. According to our benchmark estimates, top income shares are now similar to (or higher than) the levels observed in the United States. We also find that inequality has increased substantially more in Russia than in China and other ex-communist countries in Eastern Europe. We relate this finding to the specific transition strategy followed in Russia. According to our benchmark estimates, the wealth held offshore by rich Russians is about three times larger than official net foreign reserves, and is comparable in magnitude to total household financial assets held in Russia.     

Bequests and family traditions: the case of nineteenth century France

Like father, like son: is the bequest behavior of children “inherited” from that of their parents? Most economic models (altruistic, paternalistic or exchange models) postulate that bequest behavior does not depend per se on parents’ behavior. Yet because of data limitations, few empirical studies have analyzed the link between bequests left and inheritances received. In this paper, we evaluate the effect of inheritance relative to lifetime income on the amount that individuals bequeath, in the case of France. This study uses original historical data including wealth genealogies covering the nineteenth and first half of the twentieth centuries for the Loire Inférieure département. Empirical evidence suggests that the propensity to bequeath is much greater for inheritance than for human resources: a deceased having inherited twice the average wealth leaves 35–60 % more to his own heirs that the average for his generation. In nineteenth century France, bequests are explained more by inheritance received than by personal savings per se.     

Dynastic inequality,mobility and equality of opportunity

One often heard counter to the concern about rising income and wealth inequality is that it is wrong to focus on inequality of outcomes in a “snapshot”. Intergenerational mobility and “equality of opportunity”, so the argument goes, is what matters for normative evaluation. In response to this counter, we ask what pattern of intergenerational mobility leads to lower inequality not between individuals but between the dynasties to which they belong? And how does this pattern in turn relate to commonly held views on what constitutes equality of opportunity? We revive and revisit here our earlier contributions which were in the form of working papers (Kanbur and Stiglitz 1982, 1986) in order to engage with the current debate. Focusing on bistochastic transition matrices in order to hold constant the steady state snapshot income distribution, we develop an explicit partial ordering which ranks matrices on the criterion of inequality between infinitely lived dynasties. A general interpretation of our result is that when comparing two transition matrices, if one matrix is “further away” from the identity matrix then it will lead to lower dynastic inequality. More specifically, the result presents a computational procedure to check if one matrix dominates another on dynastic inequality. We can also assess “equality of opportunity”, defined as identical prospects irrespective of starting position. We find that this is not necessarily the mobility pattern which minimizes dynastic inequality.     

Equality of opportunity and the distribution of long-run income in Sweden

Equality of opportunity is an ethical goal with almost universal appeal. The interpretation taken here is that a society has achieved equality of opportunity if it is the case that what individuals accomplish, with respect to some desirable objective, is determined wholly by their choices and personal effort, rather than by circumstances beyond their control. We use data for Swedish men born between 1955 and 1967 for whom we measure the distribution of long-run income, as well as several important background circumstances, such as parental education and income, family structure and own IQ before adulthood. We address the question: in Sweden, given its present constellation of social policies and institutions, to what extent is existing income inequality due to circumstances, as opposed to ‘effort’? Our results suggest that several circumstances, importantly both parental income and own IQ, are important for long-run income inequality, but that variations in individual effort account for the most part of that inequality.     

What is so bad about being rich? The representation of wealth in American culture

Abstract

Today, the USA is the Western nation with the greatest percentage of the world's rich and with the greatest gap between rich and poor. However, there is hardly any national debate or outcry about this growth of wealth polarization. From a Cultural Studies perspective, this puzzling absence of protest raises the question whether and in what way culture plays a role in shaping US attitudes toward economic and social inequality. This article traces these changing attitudes by focusing on cultural representations of wealth in four different stages of US cultural history: the 'Protestant ethic', 'robber barons', 'conspicuous consumption' and the recent 'greed' periods. The article concludes by discussing the conflicting attitudes currently at work in the perception and representation of wealth in US culture.     

Geographic decomposition of inequality in health and wealth: evidence from Cambodia

Applying the small-area estimation methods to Cambodia data, we decompose the total inequality in wealth (consumption) and health (child undernutrition) indicators into within-location and between-location components. Because the knowledge of the pattern of spatial disparity in poverty and undernutrition is important for the geographic targeting of resources, we conduct a geographic decomposition of the variance of the Foster-Greere-Thorbecke index in addition to the standard decomposition exercise based on the generalized entropy measures. We find that a sizable proportion of wealth inequality is due to between-location inequality, whereas health inequality is mainly due to within-location inequality.     

The Widening Education Gap in Developmental Child Care Activities in the United States, 1965–2013

Past research shows that time spent in developmental care activities has been increasing in the United States over recent decades, yet little is known about how this increase is distributed across parents with different levels of education. Have children born into different socioeconomic groups been receiving increasingly equal developmental care from their parents, or is the distribution of parental time investment becoming more unequal? To answer this question, the author analyzed the American Heritage Time Use Study (1965–2013) and showed that the gap between high‐ and low‐educated parents' time investment in developmental child care activities has widened. An increasing absence of fathers in households with low‐educated mothers has exacerbated the trend. This study documents growing inequality in parental time inputs in developmentally salient child care activities in the United States.     

Supporting Critical Multicultural Teacher Educators: Transformative teaching,social justice education,and perceptions of institutional support

ABSTRACT

In most teacher education programmes in Canada and the United States, educators’ opportunities to develop equity-related skills are concentrated into single ‘multicultural’ courses. These courses tend to have a conservative or liberal orientation, focused on appreciating diversity or cultural competence, rather than a critical orientation, focused on preparing teachers to address inequity. In this study, based on a survey of instructors of multicultural and intercultural teacher education courses in Canada and the US (N = 186), we examined the relationship between the criticality of their multicultural teacher education courses and their perceptions of institutional support for the values they teach. We found a negative relationship between the two – the more critical the instructors’ approaches, the less institutional support they perceived.     

Household wealth and the measurement of economic well-being in the United States

We analyze the level and distribution of economic well-being in the United States during the 1980s and 1990s based on the standard measure of money income and a measure in which income from wealth is calculated as the sum of lifetime annuity from nonhome wealth and imputed rental-equivalent for owner-occupied homes. Over the 1982–2000 period, median well-being increases 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. We also find an increasing share of wage and salary income in our expanded definition of income among the richest 1% over the period but do not find that the “working rich” have largely replaced rentiers at the top of the economic ladder.      

Missing the wealthy in the HFCS: micro problems with macro implications

Wealth aggregates implied by the Household Finance and Consumption Survey (HFCS) usually yield much lower amounts than macroeconomic statistics reported in the National Accounts. An important source of this gap may be the under-representation of the wealthiest households in the HFCS. This article therefore combines a semi-parametric Pareto model estimated from top survey data and observations from rich lists with a non-parametric stratification approach to quantify the impact of the missing wealthy households on component-specific micro-macro gaps. We find that unadjusted micro data substantially underestimates wealth inequality. The largest effects are documented for equity. For other components, the missing wealthy explain less than ten percentage points of the micro-macro gap. We find that differences in oversampling strategies limit the cross-country comparability of unadjusted survey-implied wealth distributions and that our top tail adjustment leads to measures that are internationally better comparable.

     

Spouses’ earnings association and inequality: A non-linear perspective

We analyze the association between spouses’ earnings taking account of non-linearities along both spouses’ distribution of earnings. We also document the non-linearity of the relationships between earnings and labor force participation, earnings and couple formation, and earnings and number of children. Using simulations, we then analyze how changes in spouses’ rank-dependence structure, labor force participation and couple formation contribute to the upsurge in inequality in the U.S between 1967 and 2018. We find that an increased tendency towards positive sorting contributed substantially to the rise in inequality only among dual-earner couples, while it contributed little to overall inequality across households. Temporal and distributional heterogeneity are important, as earnings association had a more substantial role in the bottom of the earnings distribution and in recent years. The decline in couple formation contributed substantially to the rise in inequality, while the increase in female labor force participation and the fertility decline had equalizing effects.

     

Polarization and the decline of the middle class: Canada and the U.S.

Several recent studies have suggested that the distribution of income (earnings, jobs) is becoming more polarized. Much of the evidence presented in support of this view consists of demonstrating that the population share in an arbitrarily chosen middle income class has fallen. However, such evidence can be criticized as being range-specific—depending on the particular cutoffs selected. In this paper we propose a range-free approach to measuring the middle class and polarization, based on partial orderings. The approach yields two polarization curves which, like the Lorenz curve in inequality analysis, signal unambiguous increases in polarization. It also leads to an intuitive new index of polarization that is shown to be closely related to the Gini coefficient. We apply the new methodology to income and earnings data from the U.S. and Canada, and find that polarization is on the rise in the U.S. but is stable or declining in Canada. A cross-country comparison reveals the U.S. to be unambiguously more polarized than Canada.     

A new approach to measure socioeconomic inequality in health

This paper introduces a new approach to rank and measure socioeconomic inequality in health. A novel feature of the approach is the use of an income-health matrix that relates socioeconomic class with health status; each row of the matrix corresponds to a socioeconomic class and contains the respective probability distribution of health. By invoking a monotone assumption on the income-health matrix, which is a direct translation of the well-known hypothesis of social gradients in health outcomes, we derive a set of welfare-dominance and inequality-dominance conditions for ranking health distributions. Unlike other existing health inequality measures, our conditions require no cardinal specification of ordinal heath data and, hence, are robust. We then apply the dominance conditions to compare socioeconomic health inequality in the US and Canada using the newly released JCUSH data.