Financial Crisis and Increase in Income Inequality Across Cities

This paper investigates why the level of income inequality differs across U.S. cities. We also explore why some cities experienced faster increases in the level of inequality than others. Using the Decennial Census and the American Community Survey (ACS) from 1980 to 2011, we explore whether the disparities in the level and the changes in the level of inequality can be explained by MSA characteristics, including labor market conditions, skill distribution, residential mobility, racial concentration, industrial composition and unionization. We also examine how state level policies such as unemployment insurance benefits and minimum wage level is associated with income inequality.

Our findings shows that negative labor market conditions, concentration of skilled workers and racial segregation are positively associated with the level of income inequality. The level of inequality in these cities also tends to rise grow at a faster pace. While the minimum wage do not seem to have any association with income inequality, we find some evidence that the unemployment insurance benefit and percent of union members lower the increase in the income inequality.

Source: Association for Public Policy Analysis and Management

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Why Has Urban Inequality Increased?

The increase in wage inequality since 1980 in the United States has been more pronounced in larger cities, even after accounting for differences in the composition of the workforce across locations. Using Census of Population and Census of Manufacturers data aggregated to the local labor market level, this paper examines the importance of changes in the factor bias of agglomeration economies, capital-skill complementarity, changes in the relative supply of skilled labor, and mutual interactions for understanding the more rapid increases in wage inequality in larger cities between 1980 and 2007. Parameter estimates of a production function that incorporates each of these mechanisms indicate strong evidence of capital-skill complementarity, increasing skill bias of agglomeration economies and declining capital bias of agglomeration economies. Immigration shocks serve as a source of exogenous variation across metropolitan areas in changes to the relative supply of skilled labor versus unskilled labor. The direct relative demand effects of the changing factor biases of agglomeration economies rationalize 77-82 percent of the more rapid increases in wage inequality in more populous local labor markets. Interactions between capital-skill complementarity and changes in the factor bias of agglomeration economies have generated outward and inward shifts in the relative demand for skilled labor in larger cities that approximately offset.

Source: Brown University (and others)

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Teacher Pay Penalty

Snapshot:

There is an increased emphasis in building a quality teacher workforce but little attention paid to the pay penalty teachers face for working in their profession.

Teachers working in the public sector who are represented by a union earn 13.2 percent less than other comparable college graduates. The pay gap is largest for private sector teachers without union representation (-32.1 percent). Separate analyses by gender are also presented given that the overwhelming majority of teachers are women (around 72 percent)—here female teachers were only compared to female non-teacher college-educated workers, and male teachers were only compared to male non-teacher college-educated workers. Compared to female teachers, the teacher pay penalty is worse for male teachers for each of the four teacher groups. In general, teacher pay disadvantages are mitigated if teachers are employed in the public sector—and more so if they have union representation.

Source: Economic Policy Institute

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Salaries of Members of Congress: Congressional Votes, 1990-2014

From the introduction:

The U.S. Constitution, in Article I, Section 6, authorizes compensation for Members of Congress “ascertained by law, and paid out of the Treasury of the United States.” Throughout American history, Congress has relied on three different methods in adjusting salaries for Members. Specific legislation was last used to provide increases in 1990 and 1991. It was the only method used by Congress for many years.

The second method, under which annual adjustments took effect automatically unless disapproved by Congress, was established in 1975. …

A third method for adjusting Member pay is congressional action pursuant to recommendations from the President, based on the recommendations of the Citizens’ Commission on Public Service and Compensation established in the 1989 Ethics Reform Act. Although the Citizens’ Commission should have convened in 1993, it did not and has not met since then.

Source: Congressional Research Service

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The Equity Solution: Racial Inclusion Is Key to Growing a Strong New Economy

America is quickly becoming a majority people of color nation. At the same time, inequality is skyrocketing and racial inequities—from the homogeneity of the tech sector to the segregated suburbs of St. Louis—are wide, persistent, and glaring. Equity—just and fair inclusion of all—has always been a moral imperative in this country, but a new consensus is emerging that equity is also an economic imperative. Scores of economists and institutions like Standard & Poor’s and Morgan Stanley now believe that rising inequality and low wages for workers on the bottom rungs of the economic ladder are stifling growth and competitiveness, and that racial inequities threaten economic growth and prosperity as people of color become the majority.

This brief offers new research to inform the debate about equity and the future of the American economy. Using data on income by race, we calculate what total earnings and economic output would have been for the nation in 2012 if racial differ en ces were eliminated and all groups had similar average incomes as non-Hispanic whites. This analysis does not assume that everyone has the same income, rather that the income distribu-tions do not differ by race and ethnicity. We also examine how much of the income gap is attributable to wage differences versus employment differences (measured by hours worked). 

Source: PolicyLink

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How Much (More) Should CEOs Make? A Universal Desire for More Equal Pay

Abstract: 

Do people from different countries and different backgrounds have similar preferences for how much more the rich should earn than the poor? Using survey data from 40 countries (N = 55,238), we compare respondents’ estimates of the wages of people in different occupations – chief executive officers, cabinet ministers, and unskilled workers – to their ideals for what those wages should be. We show that ideal pay gaps between skilled and unskilled workers are significantly smaller than estimated pay gaps, and that there is consensus across countries, socioeconomic status, and political beliefs for ideal pay ratios. Moreover, data from 16 countries reveals that people dramatically underestimate actual pay inequality. In the United States – where underestimation was particularly pronounced – the actual pay ratio of CEOs to unskilled workers (354:1) far exceeded the estimated ratio (30:1) which in turn far exceeded the ideal ratio (7:1). In sum, respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates.

Source: Perspectives on Psychological Science (forthcoming)

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