The Unassuming Economist

From a NBER paper by Rebecca Diamond and Enrico Moretti:

“Income differences across US cities are well documented, but little is known about the level of standard of living in each city—defined as the amount of market-based consumption that residents are able to afford. In this paper we provide estimates of the standard of living by commuting zone for households in a given income or education group, and we study how they relate to local cost of living. Using a novel dataset, we observe debit and credit card transactions, check and ACH payments, and cash withdrawals of 5% of US households in 2014 and use it to measure mean consumption expenditures by commuting zone and income group. To measure local prices, we build income-specific consumer price indices by commuting zone. We uncover vast geographical differences in material standard of living for a given income level. Low-income residents in the most affordable commuting zone enjoy a level of consumption that is 74% higher than that of low-income residents in the most expensive commuting zone.

We then endogenize income and estimate the standard of living that low-skill and high-skill households can expect in each US commuting zone, accounting for geographical variation in both costs of living and expected income. We find that for college graduates, there is essentially no relationship between consumption and cost of living, suggesting that college graduates living in cities with high costs of living—including the most expensive coastal cities—enjoy a standard of living on average similar to college graduates with the same observable characteristics living in cities with low cost of living—including the least expensive Rust Belt cities. By contrast, we find a significant negative relationship between consumption and cost of living for high school graduates and high school drop-outs, indicating that expensive cities offer a lower standard of living than more affordable cities. The differences are quantitatively large: High school drop-outs moving from the most to the least affordable commuting zone would experience a 26.9% decline in consumption.”

On December 7th, 2021, the World Inequality Lab released the World Inequality Report 2022, authored by the Lab’s co-director and economist Lucas Chancel and economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. Through the course of its 10 chapters, the report covers insights on themes like changing global economic inequality, the rise of multimillionaires, the disproportionate burden of labor income discrimination on women, carbon inequalities, tax justice, and sustainability. Some notable statistics from the report yield the following results:

1. Income inequality: Globally, the richest 10% of the population currently earns 52% of the global income, whereas the poorest half of the population earns 8% of it. On average, an individual from the top 10% of the global income distribution earns €87,200 (USD122,100) per year, whereas an individual from the poorest half of the global income distribution makes €2,800 (USD3,920) per year.
2. Wealth inequality: The poorest half of the global population barely owns any wealth at all, possessing just 2% of the total. In contrast, the richest 10% of the global population own 76% of all wealth. On average, the poorest half of the population owns PPP €2,900 per adult, i.e. USD4,100 and the top 10% own €550,900 (or USD771,300) on average.
3. Regional variations in inequality: In Europe, the top 10% income share is around 36%, whereas in MENA it reaches 58%. In between these two levels, we see a diversity of patterns. In East Asia, the top 10% makes 43% of total income and in Latin America, 55%. Moreover, while some countries have experienced spectacular increases in inequality (including the US, Russia and India) others like European countries and China have only experienced a little rise.
4. Nations have become richer, but governments have grown poorer: Private wealth has grown immensely but the share of the public sector in total national wealth is close or euqal to 0 in rich countries.
5. Gender inequalities in labor income: Women’s share of total incomes from work (labor income) neared 30% in 1990 and stands at less than 35% today

The report also includes excerpts from Thomas Piketty’s upcoming book titled, ‘A brief history of inequality‘, slated for release in 2022 in the concluding chapter.

Click here to access the full report.

Abstract of this National Bureau for Economic Research (NBER) working paper (2021) by Jean-Felix Brouillette, Charles I. Jones, and Peter J. Klenow of Standford University:

“We construct a measure of consumption-equivalent welfare for Black and White Americans. Our statistic incorporates life expectancy, consumption, leisure, and inequality, with mortality rates playing a key role quantitatively. According to our estimates, welfare for Black Americans was 43% of that for White Americans in 1984 and rose to 60% by 2019. Going back further in time (albeit with more limited data), the gap was even larger, with Black welfare equal to just 28% of White welfare in 1940. On the one hand, there has been remarkable progress for Black Americans: the level of their consumption-equivalent welfare increased by a factor of 28 between 1940 and 2019 when aggregate consumption per person rose a more modest 5-fold. On the other hand, despite this remarkable progress, the welfare gap in 2019 remains disconcertingly large. Mortality from COVID-19 has temporarily reversed a decade of progress, lowering Black welfare by 17% while reducing White welfare by 10%.”

Click here to read the full paper.

Excerpts from the National Bureau of Economic Research’s (NBER) recent working paper (2021) by authors Jacob Greenspon and Lawrence H. Summers of the Harvard Kennedy School of Government and Anna M. Stansbury of MIT Sloan School of Management:

“We study the productivity-pay relationship in the United States and Canada along two dimensions. The first is divergence: the degree to which the levels of productivity and pay have diverged. The second is delinkage: the degree to which incremental increases in the rate of productivity growth translate into incremental increases in the rate of growth of pay, holding all else equal. We show that in both countries the pay of typical workers has diverged substantially from average labor productivity over recent decades, driven by both rising labor income inequality and a declining labor share of income. Even as the levels of productivity and pay have grown further apart, we find evidence for some linkage between productivity and pay in both countries: a one percentage point increase in the rate of productivity growth is associated with a positive increase in the rate of pay growth, holding all else equal. This linkage appears stronger in the US than in Canada. Overall, our findings lead us to tentatively conclude that policies or trends which lead to incremental increases in productivity growth, particularly in large relatively closed economies like the USA, will tend to raise middle-class incomes. At the same time, other factors orthogonal to productivity growth have been driving productivity and typical pay further apart, emphasizing that much of the evolution in middle-class living standards will depend on measures bearing on relative incomes.”

Click here to read the full paper.

Ahead of December 3rd, 2021 that marked the international day of disabilities, the World Bank Group released its regional report titled, ‘Disability-Inclusion in Latin America and the Caribbean: A Path to Sustainable Development’, calling for the inclusion of nearly 85 million disabled persons, making up 14.7% of the entire population of the world today.

The report quantifies the magnitude of the problem by taking a life-cycle approach. It sheds light on the disappointing fact that nearly 15% of specially-abled children are not able to access education in the world, and even among those who do- dropouts are increasingly the norm. Besides, there is the added burden of social stigma preventing parents from sending children to school, and the segregation that happens in classrooms. Later in life, it has been observed that nearly 1 in every 2 heads of households who live with a disability do not participate in the labor market, thus depressing incomes and future prospects of later generations. The report also deliberates upon the compounding factor with which such deprivations get exacerbated, such as racial and religious differences especially for Africans, Latinos, and people from the Caribbean.

Delving deeper into the prevalence of discrimination in public spaces, jobs, educational opportunities, and other social events, the report goes on to discuss measures to combat such problems such as the use of data to design better-targeted policies, increased participation of the disabled in policymaking procedures, the government’s role in improving access to facilities and public goods, etc.

Click here to read the full blog and access the executive summary of the report.