Yours and Mine

Kevin Lewis

August 17, 2011

Income Inequality and Happiness

Shigehiro Oishi, Selin Kesebir & Ed Diener
Psychological Science, forthcoming

Using General Social Survey data from 1972 to 2008, we found that Americans were on average happier in the years with less national income inequality than in the years with more national income inequality. We further demonstrated that this inverse relation between income inequality and happiness was explained by perceived fairness and general trust. That is, Americans trusted other people less and perceived other people to be less fair in the years with more national income inequality than in the years with less national income inequality. The negative association between income inequality and happiness held for lower-income respondents, but not for higher-income respondents. Most important, we found that the negative link between income inequality and the happiness of lower-income respondents was explained not by lower household income, but by perceived unfairness and lack of trust.


Income Inequality and Policy Representation in the American States

Patrick Flavin
American Politics Research, forthcoming

Government representation of public opinion is a central component of democracy. Previous studies have documented a robust congruence between aggregated public opinion and public policies in the American states. However, an equally important question for evaluating the quality of democracy is "Who does government respond to when formulating public policies?" I investigate differential policy representation based on citizens' household incomes and find that citizens with low incomes receive little substantive political representation (compared with more affluent citizens) in the policy decisions made by their state governments. This unequal policy representation occurs for both the general liberalism of state policies and on specific social issues like the death penalty and abortion. These findings suggest that examining the variation in political inequality across the 50 states can help scholars to better understand and explain "unequal democracy" in the United States.


What Motivates Political Preferences? Self-Interest, Ideology, and Fairness in a Laboratory Democracy

Justin Esarey, Timothy Salmon & Charles Barrilleaux
Economic Inquiry, forthcoming

Substantial prior literature has established that subjects in laboratory experiments are typically willing to sacrifice their own well being to make financial allocations more equal among participants. We test the applicability of this result in an environment that contains some of the key contextual issues that are usually excluded from more abstract games, but which might be important in situations involving income redistribution. Our general finding is that votes for a redistributive tax are almost entirely in accordance with self-interest: above-average earners vote for low tax rates and below-average earners vote for high tax rates. A measure of subjects' preferences for fairness or equality, their self-reported economic ideology, is not directly related to their voting behavior in this experiment. Because the ideology measure should be correlated with any intrinsic preferences regarding inequality aversion, we conclude that any preferences for fairness or inequality that our subjects possess are not strong enough to overcome self-interest in this context. We do, however, find evidence for a possible indirect effect of ideology on choice behavior in that more conservative subjects tend to be more responsive to their self-interest than the more liberal subjects.


Social Preferences and Political Participation

Christopher Dawes, Peter John Loewen & James Fowler
Journal of Politics, July 2011, Pages 845-856

Models of political participation have begun to incorporate actors who possess "social preferences." However, these models have failed to take into account the potentially incongruent political goals of different social preference types. These goals are likely to play an important role in shaping political behavior. To examine the effect of distinct social preferences on political activity we conducted an experiment in which participants played five rounds of a modified dictator game (Andreoni and Miller 2002). We used the decisions in these games to determine their preference type and mapped these types to reported political activity. Our results show that subjects who were most interested in increasing total welfare in the dictator game were more likely to participate in politics than subjects with selfish preferences, whereas subjects most interested in reducing the difference between their own well-being and the well-being of others were no more likely to participate than subjects with selfish preferences.


Why Did Poverty Become Less Geographically Concentrated in the 1990s?

Robert Wagmiller
Social Science Quarterly, September 2011, Pages 710-734

Objective: After increasing sharply in the 1970s and 1980s, the number of high-poverty neighborhoods in the United States unexpectedly and dramatically declined in the 1990s. This article examines the roles that residential and income mobility played in this decline.

Methods: Using geocoded data from the Panel Study of Income Dynamics, this study analyzes changes during the 1990s and early 2000s in: (1) patterns of residential mobility between high-poverty and lower-poverty neighborhoods; and (2) patterns of income mobility for residents who remained in high-poverty neighborhoods.

Results: Both patterns of residential and income mobility changed in the 1990s and early 2000s. While patterns of residential migration to high-poverty neighborhoods were largely unchanged over this period, patterns of residential migration from high-poverty neighborhoods changed significantly, with poor individuals-especially poor blacks-becoming more likely to relocate from high-poverty to lower-poverty neighborhoods. Patterns of income mobility for residents who remained in high-poverty neighborhoods also changed significantly, with nonpoor residents becoming less likely to become poor and poor residents becoming more likely to exit poverty.

Conclusion: Poverty rates in high-poverty neighborhoods fell primarily because of the net upward income mobility of residents who remained in these neighborhoods.


Common Trends and Shocks to Top Incomes: A Structural Breaks Approach

Jesper Roine & Daniel Waldenström
Review of Economics and Statistics, August 2011, Pages 832-846

We use newly compiled top income data and structural breaks techniques to estimate common trends and breaks in inequality across countries over the twentieth century. Our results both confirm earlier findings and offer new insights. In particular, the division into an Anglo-Saxon and a Continental European experience is not as clear-cut as previously suggested. Some Continental European countries seem to have, experienced increases in top income shares, just as Anglo-Saxon countries have, but typically with a lag. Most notably, Nordic countries display a marked Anglo-Saxon pattern, with sharply increased top income shares, especially when including realized capital gains. Our results help inform theories about the causes of the recent rise in inequality.


Entrepreneurs, Chance, and the Deterministic Concentration of Wealth

Joseph Fargione, Clarence Lehman & Stephen Polasky
PLoS ONE, July 2011, e20728

In many economies, wealth is strikingly concentrated. Entrepreneurs - individuals with ownership in for-profit enterprises - comprise a large portion of the wealthiest individuals, and their behavior may help explain patterns in the national distribution of wealth. Entrepreneurs are less diversified and more heavily invested in their own companies than is commonly assumed in economic models. We present an intentionally simplified individual-based model of wealth generation among entrepreneurs to assess the role of chance and determinism in the distribution of wealth. We demonstrate that chance alone, combined with the deterministic effects of compounding returns, can lead to unlimited concentration of wealth, such that the percentage of all wealth owned by a few entrepreneurs eventually approaches 100%. Specifically, concentration of wealth results when the rate of return on investment varies by entrepreneur and by time. This result is robust to inclusion of realities such as differing skill among entrepreneurs. The most likely overall growth rate of the economy decreases as businesses become less diverse, suggesting that high concentrations of wealth may adversely affect a country's economic growth. We show that a tax on large inherited fortunes, applied to a small portion of the most fortunate in the population, can efficiently arrest the concentration of wealth at intermediate levels.


Tournaments Without Prizes: Evidence from Personnel Records

Jordi Blanes i Vidal & Mareike Nossol
Management Science, forthcoming

We use a quasi-experimental research design to study the effect of giving workers feedback on their relative performance. The setting is a firm in which workers are paid piece rates and where, for exogenous reasons, management begins to reveal to workers their relative position in the distribution of pay and productivity. We find that merely providing this information leads to a large and long-lasting increase in productivity that is costless to the firm. Our findings are consistent with the interpretation that workers' incipient concerns about their relative standing are activated by information about how they are performing relative to others.


Family Structure and the Intergenerational Transmission of Educational Advantage

Molly Martin
Social Science Research, forthcoming

I examine whether the effect of parents' education on children's educational achievement and attainment varies by family structure and, if so, whether this can be explained by differential parenting practices. Using data from the National Education Longitudinal Study of 1988, I find that as parents' education increases, children in single mother families experience a lower boost in their achievement test scores, likelihood of attending any post-secondary schooling, likelihood of completing a four-year college degree, and years of completed schooling relative to children living with both biological parents. Differences in parents' educational expectations, intergenerational closure, and children's involvement in structured leisure activities partially explain these status transmission differences by family structure. The findings imply that, among children with highly educated parents, children of single mothers are less likely to be highly educated themselves relative to children who grow up with both biological parents.


Providential Partners? Tocqueville's Take on Equality and Centralization

Steven Pittz
Journal of Politics, July 2011, Pages 797-807

In Democracy in America, Alexis de Tocqueville predicted that America's love of equality would lead it to centralize administrative power. In The Old Regime and the Revolution, Tocqueville argues that centralization of administrative power began prior to the French Revolution - a revolution largely aimed at instituting equality. In fact, he argues that centralization led to greater equality in France and was therefore a major cause of the Revolution itself. This apparent contradiction is resolved, and the logics of the two books are made coherent, if equality and centralization constitute a circular causal relationship. Whether the point of departure is equality (America) or centralization (France), the other ultimately follows. This circular relationship exemplifies Tocquevillian "equilibrium analysis," as each phenomenon reinforces the other to stabilize democratic society. Yet such equilibrium was anathema to Tocqueville, who through his writings sought to protect the political freedom he called "this first of my passions."


Running in Place: Low-Income Students and the Dynamics of Higher Education Stratification

Michael Bastedo & Ozan Jaquette
Educational Evaluation and Policy Analysis, September 2011, Pages 318-339

The increasing concentration of wealthy students at highly selective colleges is widely perceived, but few analyses examine the underlying dynamics of higher education stratification over time. To examine these dynamics, the authors build an analysis data set of four cohorts from 1972 to 2004. They find that low-income students have made substantial gains in their academic course achievements since the 1970s. Nonetheless, wealthier students have made even stronger gains in achievement over the same period, in both courses and test scores, ensuring a competitive advantage in the market for selective college admissions. Thus, even if low-income students were "perfectly matched" to institutions consistent with their academic achievements, the stratification order would remain largely unchanged. The authors consider organizational and policy interventions that may reverse these trends.


Who Benefits Most from Financial Aid? The Heterogeneous Effect of Need-Based Grants on Students' College Persistence

Sigal Alon
Social Science Quarterly, September 2011, Pages 807-829

Objectives: This study assesses whether need-based grants are equally conducive to the college persistence of students from various economic strata and the extent to which a redistribution of funds can narrow economic-based inequality in college persistence.

Methods: To estimate the causal effect of need-based grants on several persistence outcomes the discontinuity created in the dollar amounts of Pell grants when the students have siblings attending college is exploited. The analyses use a nationally representative sample of students enrolled at four-year institutions in 1995.

Results: While the allocation of Pell Grants responds to students' pecuniary constraints, institutional and state grants expand the circle of recipients to more well-off students. Yet, it is only the persistence of students from the bottom half of the income distribution that is sensitive to aid amounts. If the need-based funds granted to affluent students had been diverted to these students, the gap in first-year persistence would have been closed.

Conclusions: For a redistribution of funds to boost degree attainment and achieve equality of educational opportunity it must be based on stricter means-tested allocations of nonfederal funds as they are the main source of need-based aid.


The Measurement of Inequality of Opportunity: Theory and an Application to Latin America

Francisco Ferreira & Jérémie Gignoux
Review of Income and Wealth, forthcoming

Building on the existing literature, this paper constructs a simple scalar measure of inequality of opportunity and applies it to six Latin American countries. The measure - which captures between-group inequality when groups are defined exclusively on the basis of predetermined circumstances - is shown to yield a lower-bound estimate of true inequality of opportunity. Absolute and relative versions of the index are defined, and alternative parametric and non-parametric methods are employed to generate robust estimates. In the application to Latin America, we find inequality of opportunity shares ranging from one quarter to one half of total consumption inequality. An opportunity-deprivation profile that identifies the worst-off types in each society is also formally defined, and described for the same six countries. In three of them, 100 percent of the opportunity-deprived were found to be indigenous or Afro-descendants.

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