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Empirical Studies of Distributional Issues

Paper Session

Sunday, Jan. 7, 2018 1:00 PM - 3:00 PM

Loews Philadelphia, Adams
Hosted By: Union for Radical Political Economics
  • Chair: Sergio Cámara Izquierdo, Universidad Autónoma Metropolitana-Azcapotzalco

Household Wealth: Inherited or Merited?

Robert Williams
,
Guilford College

Abstract

A generation ago, several papers (Kotlikoff & Summers, 1981, Modigliani, 1988) sparked a raging debate over the role of family gifts and inheritances in determining household net worth. While Kotlikoff and Summers concluded that 80 percent of household wealth was the result of intergenerational transfers, Modigliani countered with an estimate of only 20 percent. This paper revisits the issue using current evidence and some novel methodologies. While the prior studies used evidence that is now somewhat dated, this analysis uses the 2013 Survey of Consumer Finances, considered by many as the “gold standard” of household wealth surveys. In contrast to much of the literature, this paper argues that family help includes not only in vivo gifts and later bequests, but also college tuition assistance, financial literacy, and the benefits of a family safety net. Further, this paper uses the Wealth Privilege model in favor of the traditional life-cycle models. their wealth status, rather than simply assuming equalized rates of return. Lastly, this paper adopts some key methodological techniques that allow it to avoid some of the challenges faced by earlier efforts. To limit problems caused by wealth’s highly skewed distribution, I use an inverse hyperbolic sine transformation of household net worth. To capture differences in access to varied opportunities, I transform many of the independent variables in deviation form. This allows the analysis to distinguish inherited versus “self-made” wealth by comparing households to their peer-group mean. In this case, peer groups are defined by age as well as by whether households are inheritors or not. I use two different methods, including a conventional Oaxaca-Blinder decomposition, to assess which factors contribute most to the wealth gap between inheritors and non-inheritors. Preliminary results indicate that family support accounts for at least two thirds of current household wealth.

When Does Privatization Process Begin? Total Effects of Privatization in Turkey

Doruk Cengiz
,
University of Massachusetts-Amherst

Abstract

We examine the effects of privatization process as a whole in Turkey. Using the 1993-2015 Istanbul Chamber of Industry Top 500 Manufacturing Firms database, we find that the privatization causes firm-level workforce to decline by 65%, and a proportionate increase in real sales per employee in the long-run. On average, real sales performances of the privatized firms do not change; yet the profit margins (profit per sales) rise rapidly after the sale. In addition, taking advantage of the existence of Privatization Administration, the government agency that takes over the firm's assets before the sale, we show that the privatization is a process that starts before the date of sale of the firm. During the pre-privatization restructuring, firm-level real sales and workforce decline. Therefore, overlooking the downsizing of the firm before the sale severely biases the results, underestimates the disemployment effect, and overestimates the rise in real sales. Based on the evidence presented, we conclude that privatization results in an income transfer from wage-earners to profit-earners.

Rethinking Inequality in 21st Century – Financial Sector, Household Balance Sheet Structures and Distribution in the United States Since 1980s

Hanna Szymborska
,
University of Leeds

Abstract

The aim of this paper is to explore the meaning and determinants of (in)equality in times of financialised capitalism. By explicitly integrating the real and financial sectors of the economy, a hypothesis is drawn that differences in the structure of asset and debt holdings among households have influenced the distribution of income and wealth due to the changing nature of financial sector operations, deregulation and labour market liberalisation policies, which were the most pronounced in USA. On the one hand, financial deregulation and privatisation policies have contributed to the falling wage share of national income. On the other hand, the rise of structured finance has allowed the rich to accumulate high-yielding assets while forcing the middle/low-income groups into unsustainable debt accumulation. This, coupled with stagnating wage growth and growing demand for asset-backed securities among financial investors, has led to massive wealth disparities. The present paper examines this hypothesis with empirical data from the US Survey of Consumer Finances between 1989 and 2013. We first review the evolution of inequality measures utilized in the nine iterations of this survey, and analyse the properties of the distributions of income, net wealth, asset and debt holdings over time. The main contribution of this paper is to develop an explicit transmission mechanism between wealth, inequality and macroeconomic structures based on the Survey of Consumer Finances, focusing on the link between changes in the nature of financial sector operations since 1980s and the growing heterogeneity of household balance sheet composition across the distribution.

Functional Income Distribution and Aggregate Demand: An Analysis of Industrialized vs Semi-Industrialized Economies

Tanadej Vechsuruck
,
University of Utah

Abstract

The demand and distributive regimes are estimated from 62 countries around the world based on the Structuralist Goodwin model. The distributive regime appears to be Marxian/profit-squeeze and the demand exhibits a weekly profit-led regime. The profit-led demand regime and the profit-squeeze distributive regime are stronger in advanced economies than in emerging economies.The results are also supported when the slopes are allowed to be varied across regions. In the long run, the results reveal that the collective wage suppression would result only in declining wage share, and no positive gain in utilization is found both in developed and developing countries.
Discussant(s)
Sergio Cámara Izquierdo
,
Universidad Autónoma Metropolitana-Azcapotzalco
William McColloch
,
Keene State College
JEL Classifications
  • D3 - Distribution
  • C0 - General