Essays on Income Inequality

Abstract

This dissertation consists of three independent essays on income inequality. Chapter 1 (with Sydnee Caldwell) develops a method to estimate the outside employment opportunities available to each worker and to assess the impact of these outside options on wage inequality. We estimate a sufficient statistic, the “outside options index” (OOI), that captures the effect of outside options on wages, holding productivity constant. Using administrative data from Germany we find that differences in options explain 30% of the gender wage gap, 88% of the citizen-non-citizen wage gap, and 25% of the premium for higher education. Chapter 2 (with Tanya Devi and Roland Fryer) collects new data from in-person surveys of people who grew up in poverty and develops a new approach to exploit this “wide” data in order to design the optimal experiment to study intergenerational mobility. We find that the optimal experiment should focus on educational attainment, resilience, self-esteem, locus of control, growth mindset, and trouble with the police when young. Chapter 3 finds that the decline of middle wages in the U.S. during the 1990s (“wage polarization”) is the result of asymmetric changes in inequality at different occupations. I show this using a new decomposition method based on the third moment (skewness), which quantifies the contributions of different factors to the total increase in wage polarization.