Contemporaneous Income Research Articles

Identifying an earnings process with dependent contemporaneous income shocks

This paper proposes a novel approach for identifying coefficients in an earnings dynamics model with arbitrarily dependent contemporaneous income shocks. Traditional methods relying on second moments fail to identify these coefficients, emphasizing the need for nongaussianity assumptions that capture information from higher moments. Our results contribute to the literature on earnings dynamics by allowing models of earnings to have, for example, the permanent income shock of a job change to be linked to the contemporaneous transitory income shock of a relocation bonus.

Income dynamics and behavior problems in early childhood, middle childhood, and the transition to adolescence

Income inequality and volatility have reached historically high levels in the U.S. Despite prior research documenting income disparities in externalizing and internalizing problems, studies have not delineated how aspects of income dynamics (i.e., annual income level versus income volatility) are linked to externalizing and internalizing across childhood. This study used data from the National Longitudinal Survey of Youth and its child supplement (N = 8942) to examine associations between income dynamics and externalizing and internalizing in early childhood, middle childhood, and early adolescence. Annual income had negative associations with both externalizing and internalizing. Income losses related to higher externalizing and internalizing throughout development. Considering timing-specific income dynamics, both early childhood income and contemporaneous income negatively predicted behavioral functioning, while only contemporaneous income loss related to increased symptoms. Results illustrate that early childhood income is key to behavioral development, but income dynamics throughout childhood also relate to behavioral functioning.

Income inequality and racial disparities in pregnancy-related mortality in the US.

In this ecological study, we examined the associations between state-level income inequality and pregnancy-related mortality among non-Hispanic (NH) black and NH white populations across the US. We estimated total population and race-specific 5-year pregnancy-related mortality ratios in each state based on national death and live birth records from 2011 to 2015. We obtained data on Gini coefficients for income inequality and population-level characteristics from the US Census American Community Survey. Poisson regression with robust standard errors estimated pregnancy-related mortality rate ratios (RR) and 95% confidence intervals (CI) associated with a one unit increase in income inequality overall and separately within black and white populations. Adjusted linear regression models estimated the associations between income inequality and magnitude of the absolute and relative racial inequity in pregnancy-related mortality within states. Across all states, increasing contemporaneous income inequality was associated with a 15% and 5-year lagged inequality with 14% increase in pregnancy-related mortality among black women (aRR = 1.15, 95% CI = 1.05; 1.25 and aRR = 1.14, 95% CI = 1.04; 1.24, respectively) after controlling for states’ racial compositions and socio-economic conditions. In addition, both lagged and contemporaneous income inequality were associated with larger absolute and relative racial inequities in pregnancy-related mortality. These findings highlight the role of contextual factors in contributing to pregnancy-related mortality among black women and the persistent racial inequity in maternal death in the US.

Formative Experiences and the Price of Gasoline

An individual’s initial experiences with a common good, such as gasoline, can shape their behavior for decades. We first show that the 1979 oil crisis had a persistent negative effect on the likelihood that individuals that came of driving age during this time drove to work in the year 2000 (i.e., in their mid 30s). The effect is stronger for those with lower incomes and those in cities. Combining data on many cohorts, we then show that large increases in gasoline prices between the ages of 15 and 18 significantly reduce both (i) the likelihood of driving a private automobile to work and (ii) total annual vehicle miles traveled later in life, while also increasing public transit use. Differences in driver license age requirements generate additional variation in the formative window. These effects cannot be explained by contemporaneous income and do not appear to be only due to increased costs from delayed driving skill acquisition. Instead, they seem to reflect the formation of preferences for driving or persistent changes in the perceived costs of driving.

Do racial inequities in infant mortality correspond to variations in societal conditions? A study of state-level income inequality in the U.S., 1992–2007

BackgroundPrior studies have examined the association between income inequality and overall infant mortality rates (IMR). We examine effects of income inequality on racial inequities in IMR over the period 1992–2007 in the U.S. MethodsRace-specific state IMR data were obtained from 1992 to 2007, from which absolute and relative IMR inequities were calculated. Fixed and random effects models, adjusted for state-level median income, percent poverty, percent high school graduates, and unemployment rate, were used to determine contemporaneous and lagged state-level associations between income inequality and racial IMR inequities. ResultsRacial IMR inequities varied significantly across the U.S. Contemporaneous income inequality was negatively associated with white IMR only. Two-year lagged income inequality was negatively associated with black IMR and had the most pronounced effect on racial inequities in IMR. DiscussionFuture studies should consider lagged effects of income inequality on IMR and other health outcomes, and should examine other potential societal conditions that may account for state-level variations in racial IMR inequities.

The Effects of Youth Employment: Evidence from New York City Lotteries *

Abstract Programs to encourage labor market activity among youth, including public employment programs and wage subsidies like the Work Opportunity Tax Credit, can be supported by three broad rationales. They may (i) provide contemporaneous income support to participants; (ii) encourage work experience that improves future employment and/or educational outcomes of participants; and/or (iii) keep participants “out of trouble.” We study randomized lotteries for access to the New York City (NYC) Summer Youth Employment Program (SYEP), the largest summer youth employment program in the United States, by merging SYEP administrative data on 294,100 lottery participants to IRS data on the universe of U.S. tax records; to New York State administrative incarceration data; and to NYC administrative cause of death data. In assessing the three rationales, we find that (i) SYEP participation causes average earnings and the probability of employment to increase in the year of program participation, with modest contemporaneous crowdout of other earnings and employment; (ii) SYEP participation causes a modest decrease in average earnings for three years following the program and has no impact on college enrollment; and (iii) SYEP participation decreases the probability of incarceration and decreases the probability of mortality, which has important and potentially pivotal implications for analyzing the net benefits of the program.

The Effects of Youth Employment: Evidence from New York City Summer Youth Employment Program Lotteries

Programs to encourage labor market activity among youth, including public employment programs and wage subsidies like the Work Opportunity Tax Credit, can be supported by three broad rationales. They may: (1) provide contemporaneous income support to participants; (2) encourage work experience that improves future employment and/ or educational outcomes of participants; and/or (3) keep participants “out of trouble.” We study randomized lotteries for access to New York City’s Summer Youth Employment Program (SYEP), the largest summer youth employment program in the U.S., by merging SYEP administrative data on 294,580 lottery participants to IRS data on the universe of U.S. tax records. In assessing the three rationales, we find that: (1) SYEP participation causes average earnings and the probability of employment to increase in the year of program participation, with modest crowd out of other earnings and employment ; (2) SYEP participation causes a moderate decrease in average earnings for three years following the program and has no impact on college enrollment; and (3) SYEP participation decreases the probability of incarceration and decreases the probability of mortality , which has important and potentially pivotal implications for analyzing the net benefits of the program.

Income Inequality and Health: Panel Data Evidence from Canada

Abstract Using longitudinal data from the Canadian National Population Survey (1994–2006), this study examines the impact of income inequality on current health outcomes. The result suggests that once unobserved individual specific heterogeneity is controlled for, income inequality as measured by Gini Coefficient has no significant impact on current health status. This result holds true for contemporaneous income inequality as well as for lagged income inequalities. There are mixed results from the robustness check using various measures of income inequality. Decile Ratio (90P/10P) and Coefficient of Variation have no impacts on current health status. On the other hand, contemporaneous income inequality measured by Log Mean Deviation and Theil Index have significant negative effects on current health. All of the models suggest that absolute income has a significant positive effect on health status

Predictable Uncertainty: The Relation between Unrecognized Tax Benefits and Future Income Tax Cash Outflows

This study examines competing arguments about whether Financial Interpretation No. 48 (FIN 48, now ASC 740-10-25) provides information to financial statements users regarding the realizability of future income tax cash outflows related to reserves for unrecognized tax benefits (UTBs). Critics believe FIN 48 provides substantial discretion in accruing UTBs, while proponents argue the Interpretation improves the reliability and comparability of UTBs. Our results show that, on average, UTBs are predictive of income tax cash outflows up to three years in the future. This link is economically significant as UTBs explain 8.2 percent as much of the variation in future income tax cash outflows as do contemporaneous income tax cash outflows. Using data provided by the IRS, these results hold in validation tests linking UTBs to future IRS audit settlements. In cross-sectional analyses, we find that UTBs are more informative for future income tax cash outflows in firms that (1) purchase tax services from their auditor; (2) engage in relatively less tax avoidance; and (3) are subject to greater IRS audit scrutiny. Our results should interest financial statement users, standard setters, and tax authorities as these parties estimate the future economic consequences of uncertain tax positions.

Longitudinal relation of community-level income inequality and mortality in Costa Rica

The controversy regarding the direct relationship between income distribution and health remains unresolved. Empirical evidence has often failed to advance our understanding because in the countries studied there was limited ability to distinguish hypotheses. This study examines the relation between inequality and mortality in the context of Costa Rica. Costa Rica's unique social and political structure makes confounding through resource and political channels less likely, thus any effects would work predominantly through direct psychosocial channels. Using mortality data extracted from the Vital Statistics Registry, we evaluate the longitudinal relations between lagged and contemporaneous income inequality and cause-specific mortality in Costa Rica from 1995 to 2005. For those aged 15–60, results indicate that there is a significant adverse relation between increases in lagged inequality and mortality from liver disease, and marginal adverse relations with mortality from diabetes and suicide. For those aged 60 and over, there is a limited evidence of a relation between inequality and health. These results suggest increases in inequality may impact health behavior of the working aged population in Costa Rica.

An evaluation of the age-profile in the relationship between household income and the health of children in the United States

Previous work has shown that the income gradient in child health for the United States becomes steeper with age. This paper shows a similar pattern using the 1996–2005 Medical Expenditure Panel Surveys (MEPS). A framework is also presented to evaluate cumulative and contemporaneous income effects through the use of baseline health controls. The analysis shows that poor health is more persistent in older children, and that the income gradient is substantially flattened over age groups when controlling for baseline health. However, even when controlling for baseline health, there remains a stronger effect from income on the health of adolescents. These results may reflect a cumulative effect from income that explains much of the strengthening association between income and health before adolescence, with a remaining stronger contemporaneous association in that age group. The analysis is unable to identify a major role of chronic conditions or injuries in these relationships.

Session Discussion: Dynamic Risk Preferences, Poverty Traps, and Thresholds

These papers constitute a renewed search for an alternative to what Just and Michelson describe as the classic utility function-a concave function of current wealth plus contemporaneous income. The motivation for this search can be viewed as a response to Matthew Rabin's demonstration that uniform concavity has incredible implications for behavior (e.g., Rabin and Thaler). The remedy Just and Michelson seek is (explicitly or implicitly) an indirect utility function in first-period income, albeit with both concave and convex segments, such that the decision-maker can be risk-averse or risk-loving, depending on the range of outcomes for the decision in question. A unifying theme of the session is that nonconvexities in transaction costs and asset returns, especially capital-stock thresholds, induce the appearance of risk preferences without the contrivance of exogenous risk preferences in first-period income. Buschena and Zilberman assume that the prototypical decision maker has different concave utility functions for different status levels. Assuming that the probability distribution of being in various status groups is a function of income in the current period, one can readily derive indirect utility functions of current-period income. For the two-status case, this results in a Friedman-Savage (FS) shaped indirect utility function. This helps underscore the presumption of both concave and convex segments, albeit by assuming the existence of classic utility functions in the first place. The intuition of the convex section in the middle of the FS function is clear enough; it stems from the prospect of a discontinuous jump to the high-status utility function. But one wonders why the function should be concave at very low incomes. Indeed, Lybbert and Barrett discuss the illustrative case of two thresholds-one at subsistence income and a Micawber threshold

Financial Flexibility, Performance, and the Corporate Payout Choice*

This study examines the effect of financial flexibility and the level and certainty of operating performance on the choice to change dividends, pay special dividends, and repurchase shares. Firms that increase payouts have excess financial flexibility and exhibit positive concurrent income shocks and decreases in income volatility, but there is limited evidence of subsequent performance improvements. The results are opposite for firms that cut dividends. Thus, the decision to alter payout levels appears to convey information about contemporaneous income and changes in operating risk.

Fertility, Labor Force Participation and the Relative Income Hypothesis:

Abstract. AN empirical test with Canadian data was made of the relative income hypothesis which states that fertility and labor force participation depend upon relative income, where relative income refers to the current family income level relative to the family's desired income level. The interpretation of the desired income level is modified slightly to mean that it is determined not by the past parental income, as originally formulated, but by contemporaneous income levels of other age groups. An empirical model of labor force participation is estimated for the post‐war period. The results on the whole tend to provide empirical support for the relative income hypothesis. The post‐war baby boom, which led to a decline in the income of young adults relative to that of older age groups, had the effect of increasing participation rates of young adults, especially of young (married) women.