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Income and Wealth Distribution in Macroeconomics

Paper Session

Sunday, Jan. 6, 2019 10:15 AM - 12:15 PM

Atlanta Marriott Marquis, M303
Hosted By: Econometric Society
  • Chair: Benjamin Moll, Princeton University

The Great Micro Moderation

Nicholas Bloom
,
Stanford University
Fatih Guvenen
,
University of Minnesota
Luigi Pistaferri
,
Stanford University
Sergio Saldado
,
University of Pennslyvania
John Sabelhaus
,
Federal Reserve Board
Jae Song
,
Social Security Administration

Abstract

The rise in the dispersion of income levels across individuals - i.e., income inequality- is a widely accepted fact of the US economy. However, whether the dispersion of income changes or income growth - what is known as income volatility or instability - has also increased is still the subject of considerable debate. Dispersion in growth rates of earnings may be informative about the degree of uncertainty or risk that workers face, and hence may have important policy implications (although not all volatility observed in the data is necessarily risk; see, e.g., Low et al. (2010); Guvenen and Smith (2014), and the references therein). Following the seminal work of Gottschalk and Mo¢ tt (1994), and with few notable exceptions (Sabelhaus and Song (2009); Sabelhaus and Song (2010)), the broad conclusion of the literature is that income instability has risen over time. This increase in volatility is in contrast with the evolution of most macroeconomic and microeconomic time series, which have shown a large decline in volatility (the so called "Great Moderation"). In this paper, we revisit this important issue by offering two main contributions to the debate: (a) we use more complete and detailed data than those used in the existing literature, and (b) we link trends in wage instability with trends in firm outcomes volatility.

Saving Behavior Across the Wealth Distribution

Andreas Fagereng
,
Statistics Norway
Martin Holm
,
BI Norwegian Business School
Benjamin Moll
,
Princeton University
Gisle Natvik
,
BI Norwegian Business School

Abstract

Do wealthier households save a larger share of their incomes than poorer ones? We use Norwegian administrative panel data on income and wealth to examine how saving rates vary across the wealth distribution. We compare our findings to the prediction of workhorse macro models that saving rates are either independent of or decreasing with wealth. We find that the relation between saving rates and wealth depends on whether saving includes capital gains. Saving rates net of capital gains ("net saving rates") are approximately constant across the wealth distribution, seemingly consistent with workhorse models. However, saving rates including capital gains ("gross saving rates") increase markedly with wealth. Since the predictions of economic theories are about gross saving, our findings challenge workhorse models with approximately constant saving rates. In contrast, our empirical findings are consistent with a theory featuring multiple assets and portfolio adjustment frictions.

Income Volatility and Portfolio Choices

Yongsung Chang
,
University of Rochester and Yonsei University
Jay Hong
,
Seoul National University
Marios Karabarbounis
,
Federal Reserve Bank of Richmond
Yicheng Wang
,
University of Oslo

Abstract

Using a detailed household-level financial and labor-market panel data from Statistics Norway, we examine the effect of structural breaks in the labor market on household's portfolio decisions. Individual structural breaks are identified by sharp changes in the volatility of labor income. We find a clear negative relationship between the volatility in the labor market and household's risky share. According to our estimates, a worker who experiences a 33% increase in income volatility decreases the risky share by 4.4 percentage point. We try to reconcile the facts and interpret the implications in a life-cycle model with portfolio choices.
JEL Classifications
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
  • D3 - Distribution