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Journal Article
Shifting Dynamics in Eighth District Cities
Kent, Ana Hernández (2019-12-19)
From 2017 to 2018, the cities of St. Louis, Little Rock, Louisville and Memphis had better commute times and cheaper housing but higher income inequality and lower median household incomes.
Bridges

Report
Income Inequality and Job Creation
Doerr, Sebastian; Lee, Donggyu; Drechsel, Thomas (2022-06-01)
We propose a novel channel through which rising income inequality affects job creation and macroeconomic outcomes. High-income households save relatively more in stocks and bonds but less in bank deposits. A rising top income share thereby increases the relative financing costs for bank-dependent firms, which in turn create fewer jobs. Exploiting variation across U.S. states and an IV strategy, we provide evidence for the channel. Calibrating a general equilibrium model to our cross-regional estimates, we show that rising inequality increases the employment share of large firms, reduces the ...
Staff Reports , Paper 1021

Working Paper
Cyclical Labor Income Risk
Nakajima, Makoto; Smirnyagin, Vladimir (2019-09-16)
We investigate cyclicality of variance and skewness of household labor income risk using PSID data. There are five main findings. First, we find that head?s labor income exhibits countercyclical variance and procyclical skewness. Second, the cyclicality of hourly wages is muted, suggesting that head?s labor income risk is mainly coming from the volatility of hours. Third, younger households face stronger cyclicality of income volatility than older ones, although the level of volatility is lower for the younger ones. Fourth, while a second earner helps lower the level of skewness, it does not ...
Working Papers , Paper 19-34

Journal Article
Capital Flow Surges and Rising Income Inequality
Diwan, Renuka; Liu, Zheng; Spiegel, Mark M. (2021-03-29)
Surges of foreign investment into developing countries can amplify economic stress and potentially undermine their financial stability. New evidence suggests that excessive foreign capital inflows can also increase income inequality in emerging economies. Research shows that, as low global interest rates trigger more investment, those inflow surges benefit entrepreneurs by raising their returns, while lowering household earnings on bank deposits within the countries. The potential impact on income inequality provides another reason beyond financial stability for resisting abrupt surges in ...
FRBSF Economic Letter , Volume 2021 , Issue 09 , Pages 01-05

Working Paper
Market Power, Inequality, and Financial Instability
Sim, Jae W.; Cairó, Isabel (2020-08-07)
Over the last four decades, the U.S. economy has experienced a few secular trends, each of which may be considered undesirable in some aspects: declining labor share; rising profit share; rising income and wealth inequalities; and rising household sector leverage and associated financial instability. We develop a real business cycle model and show that the rise of market power of the firms in both product and labor markets over the last four decades can generate all of these secular trends. We derive macroprudential policy implications for financial stability.
Finance and Economics Discussion Series , Paper 2020-057

Discussion Paper
Does Income Inequality Affect Small Firms?
Lee, Donggyu; Drechsel, Thomas; Doerr, Sebastian (2023-10-05)
The share of income going to high-income households has increased significantly in the United States in recent decades. In 1980, the average income share of earners in the top 10 percent was around 30 percent. However, by 2015, it had surpassed 45 percent. The employment share of small firms has also declined, with a decrease of approximately 5 percentage points over the same period. In this post, we use variation across states to show a correlation between these two developments, with states having the greatest increase in the upper income share also tending to be those with the biggest job ...
Liberty Street Economics , Paper 20231005

Taking a Closer Look at Marital Status and the Earnings Gap
Vandenbroucke, Guillaume; Peake, Makenzie (2020-09-21)
Research suggests that married men’s higher income account for a significant portion of the U.S. gender earnings gap. Does this also hold when race is considered?
On the Economy

Report
An Assignment Model of Knowledge Diffusion and Income Inequality
Luttmer, Erzo G. J. (2015-03-27)
Randomness in individual discovery disperses productivities, whereas learning from others keeps productivities together. Long-run growth and persistent earnings inequality emerge when these two mechanisms for knowledge accumulation are combined. This paper considers an economy in which those with more useful knowledge can teach others, with competitive markets assigning students to teachers. In equilibrium, students with an ability to learn quickly are assigned to teachers with the most productive knowledge. This sorting on ability implies large differences in earnings distributions ...
Staff Report , Paper 509

Working Paper
The Impact of Racial Segregation on College Attainment in Spatial Equilibrium
Gregory, Victoria; Kozlowski, Julian; Rubinton, Hannah (2022-10-12)
We incorporate race into an overlapping-generations spatial-equilibrium model with neighborhood spillovers. Race matters in two ways: (i) the Black-White wage gap and (ii) homophily—the preferences of individuals over the racial composition of their neighborhood. We find that these two forces generate a Black-White college gap of 22 percentage points, explaining about 80% of the college gap in the data for the St. Louis metro area. Counterfactual exercises show that the wage gap and homophily explain 7 and 18 percentage points of the college gap, respectively. A policy of equalizing school ...
Working Papers , Paper 2022-036

Journal Article
Top Income Inequality in the 21st Century: Some Cautionary Notes
Guvenen, Fatih; Kaplan, Greg (2017-10)
We revisit recent empirical evidence about the rise in top income inequality in the United States, drawing attention to key issues that we believe are critical for an informed discussion about changing inequality since 1980: the definition of income (labor versus total), the unit of analysis (individual versus tax unit), the importance of partnership and S-corporation income, income shifting between the corporate and personal sectors in response to tax incentives, the definition of the top of the distribution, and trends in the middle and bottom of the distribution. Our goal is to inform ...
Quarterly Review , Issue October , Pages 2-15

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