TY  - JOUR
AU  - Krueger, Dirk
AU  - Perri, Fabrizio
TI  - On the Welfare Consequences of the Increase in Inequality in the United States
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9993
PY  - 2003
Y2  - September 2003
DO  - 10.3386/w9993
UR  - http://www.nber.org/papers/w9993
L1  - http://www.nber.org/papers/w9993.pdf
N1  - Author contact info:
Dirk Krueger
Economics Department
University of Pennsylvania
The Ronald O. Perelman Center
 for Political Science and Economics
133 South 36th Street
Philadelphia, PA 19104
Tel: 215/898-6691
Fax: 215/573-2057
E-Mail: dkrueger@econ.upenn.edu

Fabrizio Perri
Research Department
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis MN 55401
E-Mail: fperri@umn.edu
M1  - published as Dirk Krueger, Fabrizio Perri. "On the Welfare Consequences of the Increase in Inequality in the United States," in Mark Gertler and Kenneth Rogoff, editors, "NBER Macroeconomics Annual 2003, Volume 18" The MIT Press (2004)

AB  - We investigate the welfare consequences of the stark increase in wage and earnings inequality in the US over the last 30 years. Our data stems from the Consumer Expenditure Survey, which is the only US data set that contains information on wages, hours worked, earnings and consumption for the same cross section of US households. We first document that, while the cross-sectional variation in wages and disposable earnings has significantly increased, the overall dispersion in consumption has not significantly changed. We also show that households at the bottom of the consumption distribution have increased their working hours to a larger extent than the rest of the population. In order to assess the magnitude and the incidence of the welfare consquences of these trends we stimate stochastic processes for earnings, consumption and leisure that are consistent with observed cross-sectional variability (both within and between education groups) and with household mobility patterns. In a standard lifetime utility framework, using consumption and leisure processes, as opposed to earnings processes, results in fairly robust estimates of these consequences. We find that about 60 percent of US households face welfare losses and that the size of these losses ranges from one to six percent of lifetime consumption for different groups.
ER  -