If you’re even a little bit interested in income inequality and how it matters, this Browser interview with MIT economist Daron Acemoglu is a must-read. Acemoglu explains how economists generally think about inequality:
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The default position of economists is that inequality reflects the unequal human capital or productive capabilities of different workers. If you start with that premise – that what people earn is commensurate with their contribution to their employer, and also perhaps to society – then greater inequality tells you something about how people’s productivities have evolved over time. This is by no means what every economist believes, but it’s a common view. Economists have cut their teeth on inequality by looking at things like the increase in the college premium over the last 30 years in the U.S. and other economies, as well as the increase in the gap between relatively high earners – the 90th percentile of income distribution – versus the bottom 10th percentile. We’ve seen a big increase in inequality, measured in various ways, and this reflects the fact that the top people, the more educated, high earners have become more skilled. Technology has favored them, globalization has favored them, and inequality has increased for that reason.
It’s one of the ultimate chicken or egg questions: Does democracy lead to increases in education and income, or do education and higher income lead to democracy? It’s a tricky one, considering that over the last 200 years, they’ve essentially moved in tandem across much of the developed world.
So which is affecting which? A new working paper (full version here) by Fabrice Murtin and Romain Wacziarg attempts to untangle the two to understand whether democracy grows from education and higher income, or vice versa. Read More »
Take a wild guess: How much do you think fashion models make? It’s one of those professions that unless you know someone, or work in the biz, there’s not a lot of information out there to have a good view into. Judging by models’ perceived glamour and high society status, not to mention the cut-throat competition they deal with, you might think it’s a lot. I think I did. Which is why this line from a TNR review of the new book Pricing Beauty: The Making of a Fashion Model struck me as amazing:
The median income across America in 2009 for a model was $27,330—income that includes no benefits.
A new RAND research report prepared for the U.S. Army explores the effect of military enlistment on individual earnings and the labor market. The authors used data from applicants to “active-component enlisted service” from 1989 through 2003, and followed them for up to 18 years. From the report:
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The authors find that military enlistment increases earnings in both the short and long-term: The percentage increase in earnings attributable to enlistment is about 40 percent in the first few years following application and diminishes to about 11 percent 14–18 years following application. Enlistment significantly delays college education in the short run. In the longer run, enlistment slightly increases the likelihood of attaining a two-year college degree, but it also decreases the likelihood of attaining a four-year college degree, especially among higher-aptitude youth.
Yesterday we learned that 15.1% of Americans were living in poverty in 2010, the highest level since 1993, and up nearly 1 percentage point from 2009, when it was 14.3%. That data is based on an income measurement which shows that in 2010, 46.2 million Americans were living below the poverty line, defined as $22,314 a year for a family of four.
But income is just one way to measure poverty, and a particularly tricky (and narrow) way at that – so says Notre Dame economist and National Poverty Center research affiliate, James Sullivan, who believes that to measure poverty strictly by income fails to accurately reflect people’s true economic circumstances. Income alone ignores the effects of things like the Earned Income Tax Credit, Medicaid, food stamps, and housing subsidies. From a Notre Dame press release on Sullivan’s recent poverty research:
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“Income received from food stamps, for example, grew by more than $14 billion in 2009. By excluding these benefits in measuring poverty, the Census figures fail to recognize that the food stamps program lifts many people out of actual poverty,” Sullivan says. “If these programs are cut back in the future, actual poverty will rise even more.”
For years, we’ve been hearing from fictional alpha males like Ari Gold and Gordon Gekko that nice guys finish last. Now, according to a collection of studies soon to be released in the Journal of Personality and Social Psychology, there appears to be some truth to the axiom. While nice guys don’t necessarily finish last, they rarely finish first. Researchers Beth A. Livingston of Cornell, Timothy A. Judge of Notre Dame, and Charlice Hurst of the University of Western Ontario, show how “agreeableness” negatively affects monetary earnings. Moreover, their research shows that this “agreeable gap” is more pronounced in men than women, who still trail their male counterparts. Here’s a full version of the study. And here’s the abstract: Read More »
A recent study by the Pew Research Center titled “Living Together: The Economics of Cohabitation,” finds that rates of cohabitation in the U.S. have gone up significantly over the last 15 years. Authors Richard Fry and D’Very Cohn use census data from heterosexual couples who (unlike many of their homosexual counterparts) have a choice between getting married, or simply living together unmarried. Fry and Cohn write:
Cohabitation is an increasingly prevalent lifestyle in the United States. The share of 30- to 44-year-olds living as unmarried couples has more than doubled since the mid-1990s. Adults with lower levels of education—without college degrees—are twice as likely to cohabit as those with college degrees.
Perhaps you already guessed that – the pressure to get married isn’t quite the same as it was 50 years ago. What’s more interesting though is that the level of education makes a big difference as to how the median household income of cohabiters measures up against their married counterparts. Read More »
Reader Chris Fawcett writes in with an intriguing question: How did the women’s liberation movement affect the income gap in the U.S.?
Income inequality has been on the rise in the U.S. since the 1970s, roughly the same time that women began entering the workforce in large numbers. Considering the amount of attention the widening income gap gets these days as a source of our economic woes, it seemed like something worth posting.
Here’s how Chris sees the issue:
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There are a number of ways I believe this has had a big impact (maybe the biggest impact of any single issue):
1. Women’s participation in the workplace has doubled in the past half century.
2. The divorce rate has increased steadily in the past half century.
3. It is more socially acceptable to not have children (through choice or abortion).
4. People are getting married later in life.
In relation to the commonly used CBO “household” income numbers, I think these issues may have had a huge effect on the perception of the widening income gap as follows: