1. Income Mobility, Luck vs Effort Beliefs, and the Demand for Redistribution: Reality, Perceptions, and Dynamics
Manja Gärtner (U Linköping)
Johanna Mollerstrom (Humboldt U and DIW Berlin)
David Seim (Stockholm U)
January 2018

2. Gärtner, Mollerstrom, Seim
Introduction
Inequality and redistribution are at the top of the agenda – both academically and in the public debate
Large differences in the extent to which individual people and counties want to redistribute resources in society
Despite extensive research, we are still far from complete understanding of how demand for redistribution shape and change at the individual level
Seminal theory work (Romer, 1975; Meltzer & Richard, 1981) suggest that relative affluence is key
Empirical work confirms this, but also shows that this is not the whole story (e.g. Fong, 2001; Alesina and Giuiliano, 2010)
January 2018
Gärtner, Mollerstrom, Seim

3. Gärtner, Mollerstrom, Seim
Our paper
Similar to Piketty (1995), Alesina & Angeletos (2005), and Benabou & Tirole (2006), we are concerned with the links between:
Income mobility,
Beliefs about the relative role of luck and effort in generating economic success, and
Demand for redistribution
We ask:
Does the implicit assumption from these papers, that people can correctly assess their own mobility, hold?
And if not, is actual or perceived mobility the better predictor of demand for redistribution, and of beliefs about the role of luck and effort?
Is there evidence that the beliefs about luck and effort are strategic/dynamic in the way that the theories predict?
Do people strategically teach their children that luck/effort matters in a way that deviates from what they themselves actually believe? (C.f. Benabou and Tirole, 2006)
Is income mobility an input in the process of forming beliefs on the role of luck/effort? (C.f. Piketty, 1995)
January 2018
Gärtner, Mollerstrom, Seim

4. Gärtner, Mollerstrom, Seim
Our Data
Survey 1
Conducted in Sweden, sent to representative sample of 4500 people (36% response rate)
Beliefs about relative income, political party preferences, is it luck or effort that matters most for economic success? , etc
Administrative data
Main data source is LISA, the longitudinal integration database for health insurance and labor market studies
Age, gender, marital status, income, wealth, transfers, education, cognitive ability, etc
Survey 2
Sent to responders of survey 1 3 months later (80% response rate)
Treatment group got information about true relative income position
Demand for redistribution, beliefs about luck/effort, etc reassessed
Sample exclusions (non-complete surveys, too old/too young to analyze mobility, etc)
N=940 for the mobility analysis in this paper
We use 10 y mobility throughout
January 2018
Gärtner, Mollerstrom, Seim

5. Our previous work with these data
Karadja, Mollerstrom and Seim (2017): “Richer (and Holier) than Thou? The Effect of Relative Income Improvements on Demand for Redistribution”
The vast majority of Swedes under-estimate their relative income, i.e. believe that they are poorer than others than they actually are
When treatment group is informed about their true relative income (i.e. that they are richer than they thought) they want less redistribution
(Gärtner, Mollerstrom and Seim (2017): ”Individual Risk Preferences and the Demand for Redistribution”)
(Mollerstrom and Seim (2014): “Cognitive Ability and the Demand for Redistribution”)
We use 10 y mobility throughout
January 2018
Gärtner, Mollerstrom, Seim

6. Roadmap for our findings
Actual income mobility
Perceptions of income mobility
Luck vs effort dynamics
Intergenerational dynamics
Intrapersonal dynamics
January 2018
Gärtner, Mollerstrom, Seim

7. Actual Income Mobility
Administrative data on all sources of income
We define actual income mobility as change in percentile between “now” and 10 years ago
(Also have measure of 5y mobility – results are consistent)
January 2018
Gärtner, Mollerstrom, Seim

8. Actual Income Mobility
January 2018
Gärtner, Mollerstrom, Seim

9. Actual Income Mobility
January 2018
Gärtner, Mollerstrom, Seim

10. Perceptions of Income Mobility
In Survey 1 we assess:
Perception of current relative income percentile (and decile)
Perception of relative income decile 10 (and 5) years ago
We define perceived income mobility as change in decile between “now” and 10 years ago
5y perceived mobility as robustness check
January 2018
Gärtner, Mollerstrom, Seim

11. Perceptions of Income Mobility
January 2018
Gärtner, Mollerstrom, Seim

12. Perceptions of Income Mobility
January 2018
Gärtner, Mollerstrom, Seim

13. Perceptions of Income Mobility
Perceived Percentile and Mobility
Actual Percentile and Mobility
January 2018
Gärtner, Mollerstrom, Seim

14. Luck vs Effort and Demand for Redistribution
January 2018
Gärtner, Mollerstrom, Seim

15. Mobility and Luck vs Effort Beliefs
Perceived Percentile and Mobility
Actual Percentile and Mobility
January 2018
Gärtner, Mollerstrom, Seim

16. Intergenerational Dynamics in Luck/Effort Beliefs
In addition to assessing beliefs about whether luck and effort is what determines individual economic success in life we also ask what people teach their children
Those without children are asked to answer what they think those with children do
Results are robust to only considering those with own children
We also ask how they think the average Swede would answer the luck vs effort question
January 2018
Gärtner, Mollerstrom, Seim

17. Gärtner, Mollerstrom, Seim
Intergenerational Dynamics in Luck/Effort Beliefs
January 2018
Gärtner, Mollerstrom, Seim

18. Intergenerational Dynamics in Luck/Effort Beliefs
January 2018
Gärtner, Mollerstrom, Seim

19. Intrapersonal Dynamics in Luck/Effort Beliefs
Vast majority of our sample believe that they are poorer, relative to others, than what they actually are (Karadja, Mollerstrom, Seim, 2017)
Experiment ended up mostly being about informing people about them being richer, relative to others, than they previously thought
How does this information affect beliefs about the role of luck/effort?
January 2018
Gärtner, Mollerstrom, Seim

20. Intrapersonal Dynamics in Luck/Effort Beliefs
Full sample, (treatment effect p=0.067)
January 2018
Gärtner, Mollerstrom, Seim

21. Intrapersonal Dynamics in Luck/Effort Beliefs
Luck-Believers Only
(treatment effect p=0.998)
Effort-Believers Only
(treatment effect p=0.015)
January 2018
Gärtner, Mollerstrom, Seim

22. Gärtner, Mollerstrom, Seim
Summing up
Actual mobility experience is related to demand for redistribution but individuals are not very good at estimating it
Perceptions of mobility has a stronger correlation with redistributive preferences, and with beliefs about the role of luck and effort
The beliefs about the role of luck and effort seem dynamic/strategic – both between generations and within an individual
People say that they teach their children that effort is more information than what they themselves actually believe
Exogenous positive mobility in the form of receiving truthful information that one is richer than one thought leads people to believe more in effort
January 2018
Gärtner, Mollerstrom, Seim