1. Increasing Inequality in Joint Income and Wealth Distributions in the United States, 1995 to 2016
Louis Chauvel, University of Luxembourg, IRSEI
Eyal Bar-Haim, University of Luxembourg, IRSEI
Anne Hartung, University of Luxembourg, IRSEI
Philippe Van Kerm, University of Luxembourg, IRSEI and LISER

2. Outline Background Method Results
Focus on income AND wealth (I and W diagnoses can differ)  Piketty, 2014; Wolff, 2016
Wealth to Income (W/I) ratio  skyrocketed in many countries (Piketty as usual)
Expect changing roles of merit and inheritance  Killewald, Pfeffer, & Schachner, 2017
Expect massive changes between the 1990’s and the 2010’s  All & al. 20xx
Method
ISOgraph  a new way to detect level-specific inequalities and observe change
New method for joint distributions
Results
Wealth inequality increased substantially and significantly
Income inequality … the same
The upper-middle class benefitted more (in I and W) relatively to the top elite or the median
Increasing importance of wealth over income in inequality (higher W/I ratio)

3. Income and Wealth Distributions
Historically, Most studies of inequality focused on income
However, recent studies put more emphasis on wealth distribution
Piketty, 2014; Saez & Zucman, 2016 Pfeffer, Schoeni, Kennickell, Andreski, 2016, Wolff, 2016 etc
Little is known about the joint distribution of income and wealth
Jantti, Sierminska, Smeeding 2008, Jenkins, 2009, etcetc
The problem: data limitations + methodological voids in wealth inequality analysis
Extremely skewed distributions of wealth and income
Small fraction of the pop. can control a considerable share of the resource

4. Applications => in finance (stock market dynamics)
"Why Has CEO Pay Increased So Much?", Xavier Gabaix & Augustin Landier, Quarterly Journal of Economics, vol. 123(1), 2008, p
α=1/ζ≈1

5. Frank Cowell, Brian Nolan, Javier Olivera and Philippe Van Kerm 2017 “Wealth, Top Incomes and Inequality”, K. Hamilton and C.Hepburn (Eds.). Wealth: Economics and Policy, Oxford University Press.

6. Frank Cowell, Brian Nolan, Javier Olivera and Philippe Van Kerm 2017 “Wealth, Top Incomes and Inequality”, K. Hamilton and C.Hepburn (Eds.). Wealth: Economics and Policy, Oxford University Press.
Saturation of inequality

7. Trends in overall inequality in wealth: Gini and Atkinson indices for the upper half of the distribution
Source: LWS (US-SCF). Note: See Figure A.1 in the annex for the trends for the entire wealth distribution.

8. ISOGRAPH
X = logit of the fractional rank r (=logitrank) of resource (income, wealth, etc.) [r between 0 and 1]
Y = log medianized resource (resource divided by its median)
ISO=Y/X is a measure of Level-specific inequalities
If ISO=a (constant)  Champernowne-Fisk (double Pareto) distribution with a = Gini (Dagum, 1977)
X=𝑙𝑜𝑔𝑖𝑡( 𝑟 𝑖
Y=ln⁡( 𝑖𝑛𝑐𝑜𝑚𝑒 𝑖 𝑚𝑒𝑑𝑖𝑎𝑛 𝑖𝑛𝑐𝑜𝑚𝑒 )
𝐼𝑆 𝑂 i = ln⁡( 𝑖𝑛𝑐𝑜𝑚𝑒 𝑖 𝑚𝑒𝑑𝑖𝑎𝑛 𝑖𝑛𝑐𝑜𝑚𝑒 ) 𝑙𝑜𝑔𝑖𝑡( 𝑟 𝑖

9. ISOGRAPH
Reading the ISOGRAPH (Chauvel, 2016; Chauvel & Bar-Haim, 2017)
Each point represent ISO at the X (specific-level inequality)
Differences in ISO at X level indicate variation in inequality levels
The higher ISO, the higher contribution of this specific level to the overall inequality (=stronger stretch of the distribution)

10. ISOGRAPH Reading the ISOGRAPH
Each point represent ISO at the X (specific-level inequality)
Differences in inequality between levels indicate variation in inequality levels
The higher ISO, the higher the inequality at this specific level (=stronger stretch of the distribution)

11. LIS examples of ISO on equivalized disposable income = “level of living”
Source: LIS data, various years and countries

12. Data Variables LWS 1995 – 2016 (3 years intervals)
respondents each wave
Stratified sample  large sub-sample of wealthy households (=> complicated weights => confidence intervals = bootstrapping)
Variables
Income – “disposable income” (after some taxes) per Consumption Unit
Wealth – current value of total marketable wealth and assets, net of debt

13. Initial Result– U. K. /U. S. comparison – Net W (or the E. U
Initial Result– U.K./U.S. comparison – Net W (or the E.U. a bunch of outliers…)
U.K U.S.
This is almost a Zipf!!!
W isograph
W isograph
I isograph
I isograph x x
Source: LWS 2013 and U.K. LWS 2011

14. Initial Results– U. K. /U. S. comparison – Net W (or the E. U
Initial Results– U.K./U.S. comparison – Net W (or the E.U. a bunch of outliers…)
U.S.
W isograph
Top 5%!!!
U.K.
I isograph x
Source: LWS 2013 and U.K. LWS 2011

15. Result 1 – Income inequality increases U.S.
Significant increase in income inequality for incomes with logit rank of 2 (top 11%) and above. No significant change for the highest 2% and around the median income.
2016
1995
ISO
Significant increase in income inequality
Logitrank(Income)
X=2  Top 11%
X=5.5  Top 2%

16. Result 2 – Wealth inequality increases
Significant increase in wealth inequality for wealth above the median (logit rank 0). No significant change above the top 0.5% and around the median income.
2016
1995
ISO
Significant increase in W inequality
Logitrank(Wealth)
X=0.5  Top 38%
X=5.5  Top 0.5%

17. Joint Distribution of Income and Wealth by Logitranks
Using logitranks instead of percentiles, The association is much clearer. Especially in the upper part of the distribution.

18. Result 3: stronger Income-Wealth Association (1992-2013)
The income/wealth association became stronger over the years. Most of the increase is during the first decade of the 21st century.
Significant increase in the I x W association
R2 of Log(Income) x Log(wealth)
R2 of LR(Income) x LR(wealth)

19. Result 4: increasing Wealth to Income ratios
(W/I) (in Years …)
Near to the top 2%, in 2016, Wealth=10 years of income
2016
1995
Above to the Median,
On both years, Wealth= 2 years of income
Significant increase in the W/I ratio
Near to the top 2%, in 1995, Wealth=6 years of income

20. The 15 Proposals from Tony Atkinson’s ‘Inequality – What can be done?’
Conclusions
Only bad news for equality:
Income and wealth inequality increased over the period (R1 & R2)
Wealth inequality increased almost everywhere above the median (R2)
The very top fractiles (above top 1%) are less significantly affected (data or reality?)
The wealth-income association increased: even more consistent relation income rich and wealth rich are more and more the same ones (R3)
The W/I ratio increased (R4) mostly near to the top decile from 7 to 11 years
… Plus initial result (R0): Wealth inequality in the U.S. is really exceptional (compared to Europe)
 R0, R1, R2, R3, R4: 5 synergetic aspects of increasing inequalities in the U.S.
The 15 Proposals from Tony Atkinson’s ‘Inequality – What can be done?’
Proposal 7: A public Investment Authority should be created, operating a sovereign wealth fund with the aim of building up the net worth of the state by holding investments in companies and in property.
Idea to pursue: a re-examination of the case for an annual wealth tax and the prerequisites for its successful introduction.
Idea to pursue: a global tax regime for personal taxpayers, based on total wealth.