Dissertations, Theses, and Capstone Projects

Date of Degree

9-2017

Document Type

Dissertation

Degree Name

Ph.D.

Program

Economics

Advisor

Wim Vijverberg

Committee Members

Leslie McCall

Alexandru Voicu

Chu-Ping Vijverberg

Subject Categories

Income Distribution | Inequality and Stratification | Labor Economics

Keywords

Inequality Decomposition, Within-Group Inequality, Income Distribution, Perception, Reference Groups, Merit-Based Aid, Need-Based Aid, Lorenz Curve, Higher Education

Abstract

This dissertation consists of three chapters all around the subject of inequality. The first chapter provides a novel analysis of the trend in income inequality in the United States between 1979--2013. There are two ways in which this chapter contributes to the literature. First, I analyze how much of the existing inequality in the U.S. is due to the demographic changes that happened over this period. Using microdata from Luxembourg Income Study and after decomposing inequality into within- and between-age group components, I find that the within-group share of overall inequality in the U.S. is high and steady compared to other developed countries. I also find that about 17 percent of the rise in inequality in this period is due to the between-group component (life-cycle effects). Second, I provide a regression analysis to explain cross-group variations in inequality during the period. I estimate that most of the rise in inequality has happened among middle-aged men while inequality among women, especially among married women has, in fact, decreased. This more granular analysis of inequality can help us investigate the causes of inequality, which would be impossible if we only look at a single inequality statistic.

The second chapter focuses on an important aspect of economic inequality -- the question of how people perceive inequality and whether these perceptions deviate in any meaningful way from statistical measures of inequality. Perceptions of inequality have been shown to affect happiness, job satisfaction, and political support for redistribution, and studies have also shown that individuals tend to `misperceive' inequality. Using a novel approach I find that individuals across different countries are able to correctly estimate the shape of the income distribution of the country where they reside. I also find that perceptions of inequality are frequently shaped by reference groups such as those formed according to educational attainment, age, and gender. Across countries, I find that education is a more important reference group where access to education (more specifically to higher education) is better. In addition, I find that age-related reference groups are more important in societies with higher intergenerational mobility. Lastly, gender reference groups are more relevant in countries where gender disparities are more accepted and more pronounced.

In the third chapter, using model in which the assignment of skills to tasks is determined by relative productivities and are endougenously determined by ability, access to higher education, and technology, I find the effect of different educational aid schemes (including need-based aid, merit-based aid, or a combination of the two) on the distribution of wages. I calibrate the model using NLSY97 data and find that in general, determining what policy minimizes inequality depends on the elasticities of demand for higher education of each ability/human capital group, the labor shares of each group, and the share of resources devoted to each group. Given the model parameters, both merit-based and need-based policies are preferred to a policy based on both merit and need. Moreover, under the model parameters, a need-based policy reduces wage inequality more than a merit-based policy.

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