Your must-read blog post of the day is Russ Roberts on panel studies of income changes:https://medium.com/@russroberts/do-the-rich-capture-all-the-gains-from-economic-growth-c96d93101f9c …
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Here's another paper on the topic: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3256993 …
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Here's a picture of mobility by income percentile (from Chetty). You can see that when you're born poor, there's nowhere to go but up, and when you're born rich, it's hard to do better than your parents.pic.twitter.com/kQ1ERQckzy
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Of course, if you really want to see dynastic wealth in action, you should probably look at wealth, rather than income...
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I'm surprised you are falling into this trap, too. Mean reversion overstates income inequality, yes. But there's no reason to think it's more overstated now than before. Unless you're taking inequality levels seriously (and how could you?) we're just benchmarking against the past
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Sure, this is obvious, but why is it a "trap"?
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Because it's irrelevant to any discussion of inequality that isn't rooted in looking at wage ratios (and I haven't seen anyone serious doing that).
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I disagree strongly. To use an idealized example, suppose you and I switch out as CEO each year, with the other one being a regular employee. Then the wage ratio doesn't matter much. Of course that's not realistic, but it shows that tracking individuals matters a lot.
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I agree wage ratios don't matter. I don't think anyone serious thinks they do matter.
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The only reason tracking matters is to get an accurate level unless you think this income switching is more prevalent than before.
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Isn't this demographically built in? Young earners earn less than older earners - so any longitudinal approach should pick up this effect. But Russ sometime talks as if he thought this truth invalidates cross-sectional findings. I don't think so.
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Correct, it does not. And yes, age does play a role here! But most of the story is just going to be mean reversion.
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The last week has been a large regression for me
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Yeah. The slice of time measure of wealth is a complete misrepresentation which plays on peoples assumptions of wealth immobility.
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Not a complete misrepresentation, but certainly far short of the entire story.
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I just don't get how the Piketty, et al stagnation story can be reconciled with the panel data stories. Prob have to read again.
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I recall hearing somewhere about a study showing that people's incomes tended to resemble their grandparents' incomes more than their parents' incomes, that this regression to the mean didn't last more than a generation. Having trouble finding the source (Radiolab maybe?)
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Hypothesized that many "poorer" kids of rich adults were actually not poor—didn't work at all or worked jobs in arts or non-profits. Used parents' wealth to worry less about income and focus on fulfillment. But the grandkids used their connections to go back to high incomes.
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Then many "wealthier" kids of poor parents may be working two jobs, moving away to work in expensive areas without a social network, making sacrifices for income. But the grandkids see them as unhappy and revert to working whatever jobs they can get with more worklife balance.
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Panel income studies basically capture the "nowhere to go but down/up" dynamic. High earners strike it rich in their 20s/30s, then relatively stagnate or retire. Would be interesting to see actual income/wealth inequality, not just % change in income
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