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Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016
Bartscher, Alina K.; Steins, Ulrike I.; Schularick, Moritz; Kuhn, Moritz (2020-05-01)
This paper studies the secular increase in U.S. household debt and its relation to growing income inequality and financial fragility. We exploit a new household-level data set that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, ...
Staff Reports , Paper 924

Working Paper
Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data
Kudlyak, Marianna; Mondragon, John; Coibion, Olivier; Gorodnichenko, Yuriy (2014-01-10)
One suggested hypothesis for the dramatic rise in household borrowing that preceded the financial crisis is that low-income households increased their demand for credit to finance higher consumption expenditures in order to "keep up" with higher-income households. Using household level data on debt accumulation during 2001-2012, we show that low-income households in high-inequality regions accumulated less debt relative to income than their counterparts in lower-inequality regions, which negates the hypothesis. We argue instead that these patterns are consistent with supply-side ...
Working Paper , Paper 14-1

Newsletter
Inequality and Recessions
De Nardi, Mariacristina; Amromin, Gene; Schulze, Karl (2018)
The increase in inequality over the past several decades has received widespread attention from both academics and the public at large. While much of this discourse centers on either the causes or normative implications of increasing inequality, it is important to ask whether the widening gap between the rich and poor has any direct effects on macroeconomic aggregates and, in particular, on the severity of the Great Recession, when output and consumption dropped precipitously and were slow to recover (see figure 1).
Chicago Fed Letter

Working Paper
On the Heterogeneous Welfare Gains and Losses from Trade
Hur, Sewon; Carroll, Daniel R. (2019-07-19)
How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods and services constitute a larger fraction of expenditures for low-wealth and low-income households. Second, we build a trade model with nonhomothetic preferences?to generate the documented relationship between tradable expenditure shares, income, and wealth?and uninsurable earnings risk?to generate heterogeneity in income and wealth. Third, we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth ...
Working Papers , Paper 201906R

Working Paper
Regressive Welfare Effects of Housing Bubbles
Phan, Toan; Graczyk, Andrew (2018-04-18)
We analyze the welfare effects of asset bubbles in a model with income inequality and financial friction. We show that a bubble that emerges in the value of housing, a durable asset that is fundamentally useful for everyone, has regressive welfare effects. By raising the housing price, the bubble benefits high-income savers but negatively affects low-income borrowers. The key intuition is that, by creating a bubble in the market price, savers' demand for the housing asset for investment purposes imposes a negative externality on borrowers, who only demand the housing asset for utility ...
Working Paper , Paper 18-10

Discussion Paper
Is the Tide Lifting All Boats? A Closer Look at the Earnings Growth Experiences of U.S. Workers
Karahan, Fatih; Topa, Giorgio; Chalom, Rene; Moore, Brendan (2020-03-04)
The growth rate of hourly earnings is a widely used indicator to assess the economic progress of U.S. workers, as well as the health of the labor market. It is also a measure of wage pressures that could potentially spill over into inflationary pressures in a tightening labor market. Hourly earnings growth, on average, has gradually risen over the course of the current expansion, under way since the end of the Great Recession. But how have different groups of workers fared in this regard? Have hourly earnings risen uniformly at all points of the wage distribution, or have some segments of the ...
Liberty Street Economics , Paper 20200304b

Working Paper
Firms as Learning Environments: Implications for Earnings Dynamics and Job Search
Gregory, Victoria (2020-08-14)
This paper demonstrates that heterogeneity in firms’ promotion of human capital accumulation is an important determinant of life-cycle earnings inequality. I use administrative micro data from Germany to show that different establishments offer systematically different earnings growth rates for their workers. This observation suggests that that the increase in inequality over the life cycle reflects not only inherent worker variation, but also differences in the firms that workers happen to match with over their lifetimes. To quantify this channel, I develop a life-cycle search model with ...
Working Papers , Paper 2020-036

Working Paper
Trends in poverty and inequality among Hispanics
Zavodny, Madeline; Orrenius, Pia M. (2011)
Since the 1970s, the poverty rate has remained largely unchanged among Hispanics but has declined among non-Hispanic whites and blacks, particularly before the onset of the recent recession. The influx of large numbers of immigrants partially explains why poverty rates have not fallen over time among Hispanics> ; In 2009, Hispanics were more than twice as likely to be poor than non-Hispanic whites. Lower average English ability, low levels of educational attainment, part-time employment, the youthfulness of Hispanic household heads, and the 2007?09 recession are important factors that have ...
Working Papers , Paper 1109

Discussion Paper
Keeping Borrowers Current in a Pandemic
Lee, Donghoon; Haughwout, Andrew F.; Scally, Joelle; Van der Klaauw, Wilbert (2021-05-21)
Federal government actions in response to the pandemic have taken many forms. One set of policies is intended to reduce the risk that the pandemic will result in a housing market crash and a wave of foreclosures like the one that accompanied the Great Financial Crisis. An important and novel tool employed as part of these policies is mortgage forbearance, which provides borrowers the option to pause or reduce debt service payments during periods of hardship, without marking the loan delinquent on the borrower’s credit report. Widespread take-up of forbearance over the past year has ...
Liberty Street Economics , Paper 20210521a

Working Paper
Intergenerational Health Mobility in the US
Mazumder, Bhashkar; Halliday, Toby; Wong, Ashley (2018-01-31)
Studies of intergenerational mobility have largely ignored health despite the central importance of health to welfare. We present the first estimates of intergenerational health mobility in the US by using repeated measures of self-reported health status (SRH) during adulthood from the PSID. Our main finding is that there is substantially greater health mobility than income mobility in the US. A possible explanation is that social institutions and policies are more effective at disrupting intergenerational health transmission than income transmission. We further show that health and income ...
Working Paper Series , Paper WP-2018-2

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