Inequality and Mobility Using Income, Consumption, and Wealth for the Same Individuals

Abstract

Recent studies of economic inequality almost always separately examine income inequality, consumption inequality, and wealth inequality, and hence, these studies miss the important synergy between the three measures explicit in the life-cycle budget constraint. Using the Panel Study of Income Dynamics (PSID), we study inequality in three dimensions, focusing on the conjoint distributions of income, consumption, and wealth for the same individuals. We find that the trends in inequality in income, consumption, and wealth similarly increase between 1999 and 2013. We examine the pairwise distributions of our measures using the average propensity to consume and the wealth-income ratios. Using the longitudinal nature of the PSID, we follow people over this period and find mobility is similar using income, consumption and wealth. We conclude that while all three types of inequality are rising, wealth increasingly acts as a buffer to cushion income changes, which could reduce mobility – both intra- and inter-generational mobility.

Children and the Elderly: Wealth Inequality Among America’s Dependents

“…In 2013, the parental 1 % accounted for 42 % of all wealth among households with children and had approximately $2.5 million in wealth for each child. With Pfeffer and Schoeni (2016), we worry that the concentration of wealth among so few parents will lead to unequal access for children to the very social institutions that could mitigate wealth inequality (see also Yellen 2016). Moreover, given the rigidity of the wealth distribution—44 % of children who grow up with parents in the top wealth quintile are in the same wealth quintile as adults (Pfeffer and Killewald 2015)—our results suggest that wealth inequality will be high for the foreseeable future.…”

“…Evidence for this comes from Pfeffer and Schoeni (2016), who found more rapid increases in wealth inequality for child households than for childless households (but did not explicitly consider elderly households). The least-wealthy child households may have seen particularly large drops in wealth, further distancing their levels of wealth from child households at the very top of the distribution (Yellen 2016). …”

“…Concurrent with a potential rise in wealth disparities between the elderly and child households is a likely rise in wealth inequality within child households (Yellen 2016). The same factors that other scholars have documented as fueling overall increases in wealth inequality in the United States—a top-heavy wage distribution, a skill-driven economy, and globalization (Saez and Zucman 2016)—may have had even larger effects on the wealth distribution of child households.…”

The PSID in Research and Policy

“… 10. Seminal contributions include income mobility (Solon 1992), wealth (Charles and Hurst 2003), and consumption (Mulligan 1997; Aughinbaugh 2000; Fisher and Johnson 2006 ), and all three together (Fisher et al 2016). …”

Wealth and Debt Homophily, Gender Equality, and Relationship Stability

“…Wealth and debt are central dimensions of economic stratification, but they have only recently been incorporated into family dynamics research (Charles, Hurst, & Killewald, 2013;Eads & Tach, 2016;Schneider, 2011). Wealth is an important resource shaping family wellbeing (Fisher et al, 2016;Keister, 2000;Oliver & Shapiro, 1995;Rauscher, 2016). Debt, or access to credit, can be another key resource, although difficulty repaying debt is a source of financial strain (Conger & Elder, 1994;Dew, 2007;Drentea, 2000).…”