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DSOC 2090: Study Guide
Question of the day (lec 8)
Why is economic inequality rising, especially in the US?
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1. Immigration
2: Skill-Biased Technological Change (SBTC)
- 2A. [dominant economic account (until very recently) changing demand for skills inequality as byproduct of free markets]
3: Class-biased institutional changes
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Forms of economic inequality
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- Wages (Hourly earnings from employment)
- Personal Income (Wages & salary + investment income + self-employment income + transfers)
- Household Income (Income of all household members)
- Wealth (assets minus debts; includes savings, investments, home equity)
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Why is economic inequality rising, especially in the US?
(Immigration Explanation)
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Raises supply of labor
(-->Effect on wages depends on whether immigrant and native-born labor are substitutable --> --> Yes: immigrants and non-immigrants compete for same jobs --> --> No: immigrant and non-immigrant labor are complementary)
Raises aggregate demand for goods and services
(--> GDP effect of all immigrants (documented & undocumented): 11% greater, $1.6 trillion --> 98% of this goes to immigrants as wages/salaries)
Raises safety net costs
(e.g., school lunches. since 1996, immigrants excluded from most other benefits)
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Why has income inequality increased in US?
Explanation 2: Skill-Biased Technological Change (SBTC)
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dominant economic account (until very recently) changing demand for skills inequality as byproduct of free markets
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Why has income inequality increased in the US?
Explanation 3: Class-biased institutional changes
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...
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Rent
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Payments to an asset above and beyond payment that is necessary to keep that asset in production under perfect competition
colloquially: profits
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Labor rents
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wages in excess of what worker would accept ("reservation wage") in a fully competitive labor market
(observed wage=reservation wage + rent)
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Source of labor rents
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- Barriers that restrict the supply of labor for a particular position
- Drive wages of those within the position above what you would observe in the absence of barriers
- Rents are the monetary returns to social closure
- Inequality through market failure, not market competition
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Types of labor rents
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- Bottom-end" rents
- "Top-end" rents
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Bottom-end" rents
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- Raise wages of lower-skill workers, those without access to capital
- Inequality reducing
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"Top-end" rents
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- Raise wages of higher-skill workers
- Inequality increasing
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Why has income inequality increased in the US?
Class-biased institutional change explanation
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Decline of institutions that generate bottom-end rents + Persistence/ growth of institutions that generate top-end rents -> Rising inequality
Decline of institutions that generate "bottom-end" rents
1. Unions (regulates wages and declined over time)
2. Minimum wage (real value has declined over time)
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What do (did) unions do? (directly/indirectly)
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Direct effect: redistribute some of firm profits to labor
- Raise wages of unionized workers
- Reduce wages of CEOs
Indirect effects:
- Raise wages of non-unionized workers ("wage spillover")
- Political pressure toward inequality-reducing political policies
- Spread collectivist norms: rising tide lifts all boats vs. "greed is good"
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What does minimum wage do? (directly/indirectly)
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Direct effect:
- generates rents for unskilled workers
Indirect effects:
- "Ripple effect": raises wages of workers scaled to minimum wage
- Increases purchasing power of low-wage workers, demand for goods
- Reduces safety net costs
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Question of the day (lec 9)
How does income inequality in the US compare to inequality other advanced industrialized nations?
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- High income inequality before & after taxes
- Comparatively higher top-end incomes
- Comparatively low bottom-end incomes
- Steeper growth in inequality
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Sources of US exceptionalism
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- Productivity (as measured by GDP growth)?
- Unemployment / inequality tradeoff?
- Minimum wage as "job killer"
- Unionization rates
- Taxation and redistribution policies
- Norms and institutions surrounding executive pay
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Unemployment / inequality tradeoff?
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Positive correlation between minimum wage and low- skill (teen) unemployment
(BUT, trends in unemployment rate show more complex story)
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Unionization & inequality correlation
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The less unionized support a country recieves the, the more inequlity their civilians endure
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Taxation and redistribution policies
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- US has relatively progressive tax system, but low volume of transfers
- Little reduction in relative poverty rate through taxes and transfers (late 2000s)
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American exceptionalism: Overall lesson
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Importance of institutional arrangements & norms
• Unions
• Minimum wage
• CEO compensation practices, norms
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The three welfare regimes
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- Liberal welfare regimes (e.g., US, UK)
- Corporatist welfare regimes (e.g., France, Germany)
- Social democratic welfare regimes (e.g., Sweden, Norway)
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Liberal welfare regimes (e.g., US, UK)
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Esping-Anderson (1990s)
- Valorize free markets
- Low benefits, means-tested
- No paid leave for parents, state provision of child care
- "Freedom" interpreted as freedom from government regulation (on economic issues)
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Corporatist welfare regimes (e.g., France, Germany)
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- Valorize family, tradition
- Social insurance vs. assistance
--> tied to occupation of head of household
--> discourage women from working
- "Freedom" = freedom from insecurit
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Social democratic welfare regimes (e.g., Sweden, Norway)
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- Valorize collective, "a rising tide lifts all boats"
- High benefits, universally available
--> Promotes women's independence
- "Freedom" = freedom from poverty, dependence on family
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Why is there no single "best" welfare regime? And why do countries pick their respected way?
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- "Liberal" welfare regimes do not have consistently higher economic growth or happier citizens
- "Corporatist" welfare regimes encourage patriarchy
- "Social democratic" regimes have high taxes
Where a particular country falls is a matter of ..
- Cultural ideology
- Path dependence
- Politics
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Questions of the day (lecture 9 Part 2)
Why are income and wage inequality rising, especially in the US?
How does income inequality in the US compare to other advanced industrialized nations?
Why do we see cross-national variations in inequality levels and trends?
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...
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4 institutional sources of top-end rent? (Grusky & Weeden)
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- Educational credentialing
- Occupation rents (e.g., licensure)
- Managerial rent / CEO pay
- (Capital rent)
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Why haven't workers responded to price signals by getting more education?
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Because they can't
- Barriers to access to adequate primary, high school education
- Insufficient growth in supply of slots
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How does income inequality in the US compare to inequality other advanced industrialized nations?
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- Comparatively high household income inequality BEFORE & AFTER taxes and transfers
- Other countries also experienced growth in inequality (but not "catching up")
- Comparatively high top-end incomes and low bottom end incomes
- Steeper growth in share of top 1%
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Mobility between what? (Sociology)
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1950s-present:
- classes
- occupations
- poverty status
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Mobility between what? (Economics)
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2000s-present
- income or wealth deciles
- poverty status
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Intergenerational mobility
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The ability the move between generations
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Two ways of measuring mobility
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- Absolute mobility
- Relative mobility, aka "social fluidity"
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Absolute mobility
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% of people moving into or out of class of origin
- Total
- Upward
- Downward
(Opposite: immobility, "inheritance", persistence)
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Calculating Immobility (inheritance, persistence)
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Sum of cells on main diagonal/sum of all cells * 100
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Total mobility=
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________________ + ______________
Total mobility
=
"Upward" mobility: % in lower left triangle
+
"Downward" mobility: % in upper right triangle
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Structural mobility
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observed mobility due to change in the mix of jobs between parent's and kid's generations
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Q: How much equality of opportunity is there?
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Measured by odds ratios:
- Numerator: Odds that a child from origin A enters destination A rather than destination B
- Denominator: Odds that a child from origin B enters destination A rather than destination B
(example)
• Odds that the son of a manager ends up a manager instead of a service worker: 27/12= 2.25
• Odds that the son of a service worker ends up a manager instead of a service worker: 6/14= 0.43
• Odds ratio: 2.25/0.43=5.25
5.25 times more likely manager instead of service worker
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Relative mobility or "social fluidity"
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- Measures relative advantage of being born in one class over another
- Does not assume order of classes • Unaffected by...
--> Class differences (in dads' generation) in fertility or sons' mortality
--> Changes in the occupational structure
--> --> e.g., Demand for managers doubles
--> --> Hypothetical OR: (54/12)/(12/14)=5.25
--> Differences across countries in occupational structure
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Are relative mobility patterns different for women?
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Yes
- less inheritance
-- still large advantages of being born into prof, mgr classes
-- a bit: much more persistence in lower NM jobs (clerical)
- depends on whether you include "homemaker" as occupation (esp. for moms)
- Less inheritance of class position when look at father- SIL persistence & mobility
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Income mobility (2 types)
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Association between income of parent(s) and income of child (as adult)
1. Absolute
- correlation between logged incomes of parents & children
- higher numbers = less mobility
2. Relative
- Income deciles
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Income deciles
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- Measures chances of staying in or moving across relative positions in distribution of income
- Decile cut points fluid over time
- Distance between deciles can change over time
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Relative Income Mobility
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Income deciles
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Is the US really the "land of opportunity"
(3 hypothesises)
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Hypothesis 1:
"American exceptionalism"
Hypothesis 2:
Cross-national convergence
Hypothesis 3:
Inverse relationship between income inequality and social fluidity
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How does the US compare? ("American exceptionalism")
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Similar to higher absolute class mobility
(sort-of consistent with "American exceptionalism")
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How does the US compare? (Cross-national convergence)
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Same relative class mobility
(consistent with convergence hypothesis)
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How does the US compare? (Inverse relationship between income inequality and social fluidity)
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Less absolute or relative income mobility
(consistent with income hypothesis)
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Is mobility increasing or decreasing?
Absolute class mobility
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Economic restructuring -> more absolute class mobility Upward AND downward
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Is mobility increasing or decreasing?
Relative class mobility
(Europe Vs. USA)
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Europe: more social fluidity (across classes) for newer cohorts (Breen reading)
US: declining social fluidity after 1990
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Why do class origins / parental income matter?
(11 benefits)
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• Better maternal health care, pre- and peri-natal nutrition
• Healthier physical environments (e.g., less lead)
• Lower stress, more stability in families
• Access to learning-centered pre-K care
• Access to extracurricular activities that develop cognitive skills
• Books / computers in home
• Better schools / teachers
• Better neighborhoods
• Cultural capital
• Social capital & networks
• Financial capital, risk-buffering
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Question of the day (lecture 12)
How much of the association between origin and destination can be "explained" by education?
How do expectations that others hold for you, and your own aspirations, affect your attainment?
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...
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simple status attainment model.
Path A
vs
Path V
vs
Path c
Other stuff
|(V)|
| |
\/
Class origins/Family background -(A)-> Education
| | | |
|(C)| |(B)|
\/ \/
Class Destination/Outcomes
/^\
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|(W)|
Other Stuff
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Path A: effect of family background on educational attainment
Path V: effect of everything else that isn't family background on educational attainment
Path C: Direct effect of class origins on outcomes (NOT mediated by education)
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Is (occupational) status inherited directly?
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Answer: Not really
--> C=.082, .039
--> Small direct effect of father's occupational prestige on
respondent's prestige
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Lessons from the basic attainment model: how can we increase social mobility?
(Conventional prescription)
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Carrot
- Provide more educational opportunities for kids from disadvantaged family backgrounds
Stick
- Mandatory enrollment, mandatory testing, grade retention
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Variables and outcomes of Social psychological model of attainment
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Variables
- "mental ability"
- Academic performance (e.g. GPA)
- Significant others' expectations ("Social influence")
- Aspirations (educational, occupational)
- Attainment
Outcomes
- educational and occupational attainment
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Questions of the day (Lecture 13)
How do expectations that others hold for you, and your own aspirations, affect your attainment?
Is attainment a matter of who you know, not just what you know?
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...
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Do aspirations affect attainment?
Hypothesis #1: Principle of self-determination
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Only obstacle to attainment is assuming that
opportunities are limited
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Do aspirations affect attainment?
Hypothesis #2: Myth of self-determination
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- Horatio Alger was a fiction writer
- Product of cognitive biases
--> "Just-world phenomenon:" belief that people get what they deserve, attribute failure (of others) to their dispositions, not their situations
--> Self-serving bias: attribute own success to internal factors, own failure to others
- Western individualism
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Questions of the rest of the day (lecture 12)
How do expectations that others hold for you, and your own aspirations, affect your attainment?
Is attainment a matter of who you know, not just what you know?
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...
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The original "6 degrees of separation"
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Stanley Milgram
- Study design
- "Starters" in city 1
- Target in city 2
- Packets
#VALUE!
- How many intermediaries?
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Why are networks homophilous?
(4 ways)
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1. Preferences:
- We tend to like people who are like ourselves
- We tend not to like people who are different
2. Selection effects
- Exogenous variables (outside factors) that create networks
- E.g., friendships affected by going to same school
3. Mimicry
- Our networks change our preferences, behaviors
4. Network dynamics
- Triadic closure
- Two people with a friend in common tend to be friends with each other
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Relevance of networks for attainment
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- Homophily in social networks may reproduce inequality
- Social capital
--> Resource for attainment & success
--> "Resides in" network - who we know
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Assumptions of social network approaches to attainment (3)
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- Networks create social capital
- Social capital has causal effect on
attainment
- Social capital mediates between class origins and attainment
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Network approaches to attainment (and the associated reading)
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...
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Social Psych Model as network model (outcome and network properties)
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Outcome
- educational, occupational attainment
Network properties
- Small
- Focus on strong ties: parents, teachers, close peers
- Dense network
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The Strength of Weak Ties
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Boston jobs, you know whats up
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Structural Holes
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...
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Lecture 12 summary
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Social networks tend to be homophilous
• Social networks are source of social capital
• Some properties of networks are associated with attainment
• Possible mechanisms
• Aspirations (Sewell et al's social psych model)
• Job information (Granovetter)
• "Friends in high places" (Lin)
• Brokering (Burt)
• Beneficial for employers (Fernandez & Castilla)
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