Inequality and mobility using income, consumption, and wealth for the same individuals

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Authors:

Jonathan Fisher, Research Scholar, Stanford Center on Poverty and Inequality
David Johnson, Research Professor, Survey Research Center, Institute
for Social Research, University of Michigan, Law School
Jonathan Latner, PhD, Bremen International Graduate School of Social Sciences
Timothy Smeeding, Lee Rainwater Distinguished Professor of Public Affairs
and Economics, University of Wisconsin-Madison
Jeffrey Thompson, Principal Economist, Board of Governor of the Federal Reserve System

Abstract:

Recent studies of economic inequality almost always separately examine income inequality, consumption inequality, and wealth inequality, and hence, these studies miss the important synergy between the three measures explicit in the lifecycle budget constraint. Using the Panel Study of Income Dynamics (PSID), we study inequality in three dimensions, focusing on the conjoint distributions of income, consumption, and wealth for the same individuals. We find that the trends in inequality in income, consumption, and wealth similarly increase between 1999 and 2013. We examine the pairwise distributions of our measures using the average propensity to consume and the wealthincome ratios. Using the longitudinal nature of the PSID, we follow people over this period and find mobility is similar using income, consumption and wealth. We conclude that while all three types of inequality are rising, wealth increasingly acts as a buffer to cushion income changes, which could reduce mobility – both intra- and inter generational mobility.