Abstract
With 20 years of PSID data, we document persistent racial differentials in consumption dynamics. Starting from similar positions in the consumption distribution Blacks end up in lower percentiles than Whites. Education, income, and wealth are three key drivers of these different dynamics. Blacks tend to save less, and hence have less buffer than the Whites to prevent them from falling in the lower part of the consumption distribution.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Aguiar, M., Bils, M.: Has consumption inequality mirrored income inequality? Am. Econ. Rev. 105(9), 2725–56 (2015)
Atkinson, A.B., Piketty, T., Saez, E.: Top incomes in the long run of history. J. Econ. Lit. 49(1), 3–71 (2011)
Attanasio, O., Hurst, E., Pistaferri, L.: The evolution of income, consumption and leisure inequality in the United States 1980-2010. Improving the Measurement Of Consumer Expenditures, pp. 100–140. University of Chicago Press (2014)
Attanasio, O., Pistaferri, L.: Consumption inequality over the last half century: some evidence using the new PSID consumption measure. Am. Econ. Rev. 104(5), 122–26 (2014)
Attanasio, O.P., Pistaferri, L.: Consumption inequality. J. Econ. Perspect. 30(2), 3–28 (2016)
Auten, G., Gee, G., Turner, N.: Income inequality, mobility and turnover at the top in the us 1987–2010. Am. Econ. Rev. 103(3), 168–72 (2013)
Autor, D.H., Katz, L.F., Kearney, M.S.: Trends in us wage inequality: Revising the revisionists. Rev. Econ. Stat. 90(2), 300–323 (2008)
Bayer, P., Charles, K.K.: Divergent paths: A new perspective on earnings differences between black and white men since 1940. Q. J. Econ. 133(3), 1459–1501 (2018)
Blau, F.D., Beller, A.H.: Black-white earnings over the 1970s and 1980s: Gender differences in trends. Rev. Econ. Stat. 276–286 (1992)
Blundell, R.: Income dynamics and life-cycle inequality: Mechanisms and controversies. Econ. J. 124(576), 289–318 (2014)
Blundell, R., Preston, I.: Consumption inequality and income uncertainty. Q. J. Econ. 113(2), 603–640 (1998)
Blundell, R., Pistaferri, L., Preston, I.: Consumption inequality and partial insurance. Am. Econ. Rev. 98(5), 1887–1921 (2008)
Blundell, R., Pistaferri, L., Saporta-Eksten, I.: Consumption inequality and family labor supply. Am. Econ. Rev. 106(2), 387–435 (2016)
Bonhomme, S., Robin, J.M.: Assessing the equalizing force of mobility using short panels: France, 1990–2000. Rev. Econ. Stud. 76(1), 63–92 (2009)
Bonhomme, S., Robin, J.-M.: Assessing the equalizing force of mobility using short panels: France, 1990–2000. Rev. Econ. Stud. 76(1), 63–92 (2009)
Card, D., Krueger, A.B.: School quality and blacks-whites relative earnings: A direct assessment. Q. J. Econ. 107(1), 151–200 (1992)
Card, D., Krueger, A.B.: Trends in relative blacks-whites earnings revisited. Am. Econ. Rev. 83(2), 85–91 (1993)
Carroll, C.D., Crossley, T.F., Sabelhaus, J.: Improving the Measurement of Consumer Expenditures. University of Chicago Press, 06 (2015). ISBN 9780226126654. https://doi.org/10.7208/chicago/9780226194714.001.0001
Charles, K.K., Hurst, E., Roussanov, N.: Conspicuous consumption and race. Q. J. Econ. 124(2), 425–467 (2009)
Chay, K.Y., Lee, D.S.: Changes in relative wages in the 1980s returns to observed and unobserved skills and blacks-whites wage differentials. J. Econ. 99(1), 1–38 (2000)
Chetty, R., Hendren, N., Kline, P., Saez, E.: Where is the land of opportunity? The geography of intergenerational mobility in the United States. Q. J. Econ. 129(4), 1553–1623 (2014)
Chetty, R., Hendren, N., Kline, P., Saez, E., Turner, N.: Is the United States still a land of opportunity? Recent trends in intergenerational mobility. Am. Econ. Rev. 104(5), 141–47 (2014)
Chetty, R., Hendren, N., Jones, M.R., Porter, S.R.: Race and economic opportunity in the United States: An intergenerational perspective. Q. J. Econ. 135(2), 711–783 (2020)
Darity, W.A.Jr., Mullen, K., Slaughter, M.: The cumulative costs of racism and the bill for black reparations. J. Econ. Perspect. 36(2), 99–122, May (2022). https://doi.org/10.1257/jep.36.2.99. https://www.aeaweb.org/articles?id=10.1257/jep.36.2.99
De Giorgi, G., Gambetti, L., Naguib, C.: Life-cycle inequality: Blacks and whites differentials in life expectancy, savings, income, and consumption. CEPR DP (15182) (2020)
Dougherty, A., Van Order, R.: Inflation, housing costs, and the consumer price index. Am. Econ. Rev. 72(1), 154–164 (1982)
Fields, G.S., Ok, E.A.: The measurement of income mobility: an introduction to the literature. Handbook of income inequality measurement, 557–598 (1999)
Ganong, P., Jones, D., Noel, P., Farrell, D., Greig, F., Wheat, C.: Wealth, race, and consumption smoothing of typical income shocks. Technical report, University of Chicago, Becker Friedman Institute for Economics Working Paper, (2020-49) (2020)
Gelbach, J.B.: When do covariates matter? And which ones, and how much? J. Labor Econ. 34(2), 509–543 (2016). https://doi.org/10.1086/683668
Heathcote, J., Storesletten, K., Violante, G.L.: Two views of inequality over the life cycle. J. Eur. Econ. Assoc. 3(2–3), 765–775 (2005)
Heathcote, J., Perri, F., Violante, G.L.: Unequal we stand: An empirical analysis of economic inequality in the United States, 1967–2006. Rev. Econ. Dyn. 13(1), 15–51 (2010)
Heckman, J.J., Lyons, T.M., Todd, P.E.: Understanding blacks-whites wage differentials, 1960–1990. Am. Econ. Rev. 90(2), 344–349 (2000)
Heywood, J.S., Parent, D.: Performance pay and the whites-blacks wage gap. J. Labor Econ. 30(2), 249–290 (2012)
Krueger, D., Perri, F.: Does income inequality lead to consumption inequality? Evidence and theory. Rev. Econ. Stud. 73(1), 163–193 (2006)
Lusardi, A.: Overcoming the saving slump: How to increase the effectiveness of financial education and saving programs. University of Chicago Press (2009)
Meyer, B.D., Sullivan, J.X.: Measuring the well-being of the poor using income and consumption. J. Hum. Resour. 38, 4 (2003)
Oaxaca, R.L., Ransom, M.R.: On discrimination and the decomposition of wage differentials. J. Econ. 61(1), 5–21 (1994)
Peoples, J., Talley, W.K.: Black-whites earnings differentials: privatization versus deregulation. Am. Econ. Rev. 91(2), 164–168 (2001)
Piketty, T., Saez, E.: Income inequality in the United States, 1913–1998. Q. J. Econ. 118(1), 1–41 (2003)
Primiceri, G.E., Van Rens, T.: Heterogeneous life-cycle profiles, income risk and consumption inequality. J. Monet. Econ. 56(1), 20–39 (2009)
Rodgers III, W.M., Spriggs, W.E.:Accounting for the racial gap in AFQT scores: Comment on nan l. Maxwell, “the effect on black-white wage differences of differences in the quantity and quality of education”. ILR Rev. 55(3), 533–541 (2002). https://doi.org/10.1177/001979390205500308
Rothstein, J., Wozny, N.: Permanent income and the black-white test score gap. J. Hum. Resour. 48(3), 510–544 (2013)
Shorrocks, A.F.: The measurement of mobility. Econometrica: Journal of the Econometric Society, pp. 1013–1024 (1978)
Spriggs, W.E., Williams, R.M.: A logit decomposition analysis of occupational segregation: Results for the 1970s and 1980s. Rev. Econ. Stat. 348–355 (1996)
Acknowledgements
We would like to thank Costas Meghir, Robert Moffitt, and Luigi Pistaferri for the insightful discussions. Thanks to workshop participants at the First Dondena Workshop, and the BGSE Summer Forum on Inequality, and seminar participants at the University of Warwick, and the University of Zurich. De Giorgi gratefully acknowledges the financial support of the EU, through the Marie Curie CIG grant FP7-631510, and the SNF no. 100018-182243. Luca Gambetti acknowledges the financial support from the Spanish Ministry of Science and Innovation, through the Severo Ochoa Programme for Centres of Excellence in R &D (CEX2019-000915-S), the financial support of the Spanish Ministry of Science, Innovation and Universities through grant PGC2018-094364-B-I00, and the Barcelona Graduate School Research Network.
Funding
Open access funding provided by University of Bern.
Author information
Authors and Affiliations
Contributions
All authors have contributed equally.
Corresponding author
Ethics declarations
Competing interests
The authors declare no competing interests.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Supplementary Information
Below is the link to the electronic supplementary material.
Rights and permissions
Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
About this article
Cite this article
De Giorgi, G., Gambetti, L. & Naguib, C. The Black and white differential in income and consumption dynamics. J Econ Inequal (2024). https://doi.org/10.1007/s10888-023-09618-1
Received:
Accepted:
Published:
DOI: https://doi.org/10.1007/s10888-023-09618-1