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Friendships and upward mobility, racial gaps in receipt of unemployment insurance, etc.

This week in Lecture Notes:

Friendship ties across socio-economic lines strongly predict upward income mobility

Social capital consists of relationships and networks, which can often lend us the resources needed to achieve important goals such as employment, housing, or education. Social capital is generally difficult to measure due to data limitations, but Raj Chetty and his colleagues were able to analyze 21 billion Facebook friendships to understand the role of social capital in social mobility. They find that economic connectedness (EC), defined as the extent of friendship ties across socioeconomic status (SES), is a very strong predictor of upward income mobility. If children from low SES families had the same level of economic ties as the average child from a high SES family growing up, their incomes as adults would increase by 20% on average. This increase in income would close about 37% of the current adult income gap between children who grew up in the 25th and 75th percentile of the income distribution. For more information, see our blog summary and event about this work.

Maternity wage penalty narrows as children get older, but paternity bonus keeps gender gap high

It is a stylized fact that women earn less than men, largely because mothers generally work less. But what happens to women’s incomes and the gap as children get older? Claudia Goldin, Sari Pekkala Kerr, and Claudia Olivetti study earnings trends for less-educated and more-educated groups using longitudinal data from the NLSY79. Hours of paid work initially fall among mothers, especially college-educated women, and rebound when the youngest child starts school and eventually leaves high school. But mothers still lag far behind fathers, in part because fathers typically benefit from increased earnings. For example, women aged 35 to 39 with higher education and children earn 12 log points less than women of the same age without children (maternity gap), but earn 54 log points less than fathers (parental gap). The paternity bonus accounts for 40% of the parental income gap between the genders of college graduates, and it increases with age. For non-graduates, the paternity bonus represents 25% of a smaller parental gender gap.

Half of the gap between blacks and whites in unemployment insurance perception results from state-level rules

The United States Unemployment Insurance (UI) system is a national social insurance program administered at the state level. As a federal-state partnership, state rules and program administration may differ, leading to various outcomes, including racial inequality. Using Benefit Accuracy Management (BAM) audit data, Daphne Skandalis, Ioana Marinescu, and Maxim N. Massenkoff found that about 10% of the gap between insurance benefits Black and white unemployment is due to work history: Black claimants typically have lower incomes, which may make them ineligible for benefits. However, about half of the gap between blacks and whites in receiving unemployment insurance is explained by differences in state rules, such as minimum income eligibility thresholds. It’s an example, the authors conclude, of how “ostensibly racially neutral policies can generate large racial disparities.”

Top chart: Higher exposure to pollution has a negative impact on upward mobility

This figure shows prenatal exposure to PM2.5 (particulate matter) and upward mobility rates (in terms of the relationship between the income levels of parents and their children at age 30). There is a strong correlation at the county level, and the authors note that pollution exposure is one of the top five predictors of upward mobility.

Source: Colmer, Voorheis and Williams (2022)

Choice Opinion: Do you think recession fears are overdone? You must read this

“The economy of 2022 is quite different from that in place at the twilight of the Nixon administration. But reliving the confusion of that earlier era is instructive. Any recession or recovery is often accompanied by confusing, even contradictory data. Add inflation surprise, sour sentiment and surprisingly strong job growth mix, and things get messy,” writes Stephen Mihm.

Self-promotion: job cuts have large and persistent negative effects on earnings due to lower wages

Job displacement occurs when a worker involuntarily loses a full-time job that they have held for at least two years. A new report by our colleagues Ariel Gelrud Shiro and Kristin Butcher shows that the impacts of these displacements are significant and persistent. Workers experience a 57% drop in their annual earnings the year after displacement and continue to earn 25% less than non-displaced people 10 years after the shock. This negative persistence is largely due to a fall in wages and not to a fall in the probability of being employed or in hours worked. Unemployment insurance and expanded earned income tax credits can potentially cushion the negative income losses of displaced workers.

For your calendar: virtual events on new model estimates for poverty in schools, BPEA and evaluation of the long-term effects of universal preschool education

Use of modeled estimates of poverty in schools

Urban Institute

Thursday, August 25, 2022 3:00 p.m. – 4:00 p.m. EDT

Brookings Papers on Economic Activity (BPEA) Conference Fall 2022

Brookings Institution

September 8-9, 2022

The Long-Term Effects of Universal Early Childhood Education in Boston

Federal Reserve Bank of Boston

Thursday, September 15, 2022 1:45 p.m. – 3:00 p.m. EDT

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