Panel Study On Income Dynamics Research Articles

New rail transit stations and the out-migration of low-income residents

This article tests the hypothesis that low-income residents disproportionately move out of neighbourhoods in close proximity to new rail transit stations. This transit-induced gentrification scenario posits that the development of rail transit will place an upward pressure on land and housing values and that higher-income residents will outbid low-income residents for this new amenity. The most transit-dependent population may therefore be displaced from the most accessible locations, forming a paradox in the investment in new transit systems. We test this hypothesis using the Panel Study on Income Dynamics (PSID) dataset to trace the out-migration of residents across the United States from census tracts within five years of the opening of a new station, between 1970 and 2014. We find that low-income individuals are more likely to move, regardless of their neighbourhood. However, we do not find significant evidence that low-income individuals are more likely to move out of transit neighbourhoods, after controlling for both individual and other neighbourhood characteristics. The odds of moving out of a transit neighbourhood for low-income residents is statistically insignificant. In other words, they do not have a heightened probability of leaving new transit neighbourhoods compared with other residents. Our results are robust across decades, when examining renters alone, for different time spans and for varying definitions of transit neighbourhoods. We further find that those living in transit neighbourhoods are not more likely to live in a crowded dwelling. Our results therefore suggest that, on average, across the nation, low-income residents do not disproportionately exit new transit neighbourhoods.

Can “Some College” Help Reduce Future Earnings Inequality?

This article addresses the policy debate over “college for all” versus “college for some” in the United States and analyzes the relationship between “some college” (as a formal education attainment category) and earnings. Our evidence confirms—using data from the American Community Survey (ACS), the Panel Study on Income Dynamics (PSID), and the Survey on Income and Program Participation (SIPP)—that more (postsecondary) education, on average, is associated with higher median earnings. However, there is emerging evidence that a proportion of workers who have attained lower levels of education (i.e., “some college”) earn more than those who have attained higher levels of education (bachelor's degree).We focus particular attention on the subset of Americans who fall into the U.S. Census official category entitled “some college.” This is a heterogeneous group who have alternate educational credentials but who have not acquired a formal associate or bachelor's degree. Instead of an unequivocal focus on “college for all” or even “community college for all,” we argue that educators and policymakers should consider “some college” as a viable pathway to future labor market success. In sum, we conclude that some types of “some college” could lead to a reduction in earnings inequality.

Transactions Costs and the Employment Contract in the US Economy

In this paper we adapt the model of MacLeod (2007) to provide one way to formally implement some of Williamson's ideas regarding the effect of transactions costs upon employment relationship. We then explore the empirical implications of this model with a data set that measures job characteristics using the Dictionary of Occupational Titles (DOT), and merge this data set with the Panel Study on Income Dynamics (PSID). We find that viewing the data through the lens of transactions costs economics provide a useful way to organize the data on compensation in the US labor market.

Lifetime income patterns and alcohol consumption: Investigating the association between long- and short-term income trajectories and drinking

Lifetime patterns of income may be an important driver of alcohol use. In this study, we evaluated the relationship between long-term and short-term measures of income and the relative odds of abstaining, drinking lightly-moderately and drinking heavily. We used data from the US Panel Study on Income Dynamics (PSID), a national population-based cohort that has been followed annually or biannually since 1968. We examined 3111 adult respondents aged 30–44 in 1997. Latent class growth mixture models with a censored normal distribution were used to estimate income trajectories followed by the respondent families from 1968 to 1997, while repeated measures multinomial generalized logit models estimated the odds of abstinence (no drinks per day) or heavy drinking (at least 3 drinks a day), relative to light/moderate drinking (<1–2 drinks a day), in 1999–2003. Lower income was associated with higher odds of abstinence and of heavy drinking, relative to light/moderate drinking. For example, belonging to a household with stable low income ($11–20,000) over 30 years was associated with 1.57 odds of abstinence, and 2.14 odds of heavy drinking in adulthood. The association between lifetime income patterns and alcohol use decreased in magnitude and became non-significant once we controlled for past-year income, education and occupation. Lifetime income patterns may have an indirect association with alcohol use, mediated through current socioeconomic conditions.

A Presentation: Negative Net Worth: A Comparison of Survey of Consumer Finances (SCF) and Panel Study on Income Dynamics (PSID) Estimates

This paper examines differences in estimates of the incidence of household negative net worth from two surveys – the Survey of Consumer Finances (SCF) and the Panel Study of Income Dynamics (PSID). The paper provides separate estimates for renters and homeowners. The paper also provides separate estimates of the incidence of negative housing equity and negative non-housing equity for homeowners. Three conclusions are reached. First, SCF estimates of the incidence of negative net worth tend to be substantially lower than PSID estimates for most age groups; although, differences are much less pronounced when liquid retirement assets are removed from the SCF net worth definition. Second, both surveys report unrealistic estimates of the incidence of negative housing equity given the record number of housing defaults. The underestimation of negative housing equity situations substantially limits the usefulness of these surveys for assessing economic conditions. Third, the high incidence of negative financial equity for younger homeowners is a major source of household financial exposure for this segment of the population.

Poverty in Europe and the USA: Exchanging Official Measurement Methods

Official poverty methodologies differ from other poverty measurement methods in the sense that the ones are more often used as a benchmark to develop new policies as well as to evaluate the performance of existing programs. Europe has the tradition and the practice to use relative poverty as official poverty estimates (Common Laeken indicators); the USA use an objective method to estimate poverty (Orshansky indicator). Although related, each approach portrays different dimensions of poverty. In this study we compare the poverty methodologies of the USA and EU by applying them on datasets of both countries. Using the harmonized European Community Household Panel (ECHP) for the EU and the Panel Study on Income Dynamics (PSID) for the USA, we compare poverty trends in the USA and EU in relative and absolute terms on a national level as well as for various subgroups of the populations. Additionally, we use the panel dimension of the data to analyze individual poverty dynamics. We find considerable differences between the estimates based on Laeken indicators and the estimates based on an Orshansky type of technology. It was expected that in general Orshansky generates lower poverty estimates than the Laeken indicators. However, it is puzzling to find that a.) these differences are less systematic than expected and b.) these differences are not constant over time and in some cases even have the reverse sign. These findings point to the desirability of involving both poverty concepts into (official) poverty assessments.

Habit Formation in Consumer Preferences: Evidence from Panel Data

This paper tests for the presence of habit formation using household data. A simple model of habit formation implies a condition relating the strength of habits to the evolution of consumption over time. When the condition is estimated with food consumption data from the Panel Study on Income Dynamics (PSID), the results yield no evidence of habit formation at the annual frequency. This finding is robust to a number of changes in the specification. It also holds for several proxies for nondurables and services consumption created by combining PSID variables with weights estimated from Consumer Expenditure Survey data. (JEL D12, D91, E21)

Risk sharing by households within and across regions and industries

Cochrane (1991, Journal of Political Economy 99, 957–976) and Mace (1991, Journal of Political Economy 99, 928–956) test if risk sharing across households is complete in the sense that household consumption moves one-for-one with aggregate consumption. In their studies the source of income risk is idiosyncratic, and agents can share risk across the entire economy. Using a sample of households from the Panel Study on Income Dynamics (PSID), we explore whether households share the risk associated with their industries and regions across households in other regions and industries. We find that a large fraction of risk faced by households is not shared across regions and industries.

Tax Policy and Entrepreneurial Entry

Many models of tax-policy evaluation abstract from decisions about entrepreneurship, such as entry, saving, and investment. Given recent emphasis on the significance of business ownership in explaining aggregate wealth accumulation and its distribution (see e.g., Gentry and Hubbard, 1999; Vincenzo Quadrini, 1999), such omissions are likely to be significant. In addition, entrepreneurs’ decisions may account for much of the responsiveness of taxable income to changes in marginal tax rates. We focus on impacts of tax rates and, in particular, tax progressivity on the decision to become an “entrepreneur.” While recent research has examined effects of marginal tax rates on investment decisions of entrepreneurial households (Robert Carroll et al., 1997), analysis of effects of taxation on entry is less often pursued. While a proportional tax with a full loss offset will not affect the entry decision for a risk-neutral individual, a progressive schedule with imperfect loss offsets can discourage entry. We find substantial evidence for this effect on entrepreneurship using variation in tax schedules faced by households in the Panel Study on Income Dynamics (PSID) over the period from 1979 to 1992. While progressive taxation could in principle encourage entry via insurance for risk-averse entrepreneurs through the tax system or through offering greater incentive to avoid taxes on self-employment income, we find no evidence to support such channels. Our empirical results imply a significant increase in entrepreneurial entry when tax rates are less progressive; whether such encouragement is efficient (that is, stimulating the most talented entrepreneurs) is a topic for future research. I. Tax Policy and Entrepreneurial Selection

An Analysis of Sample Attrition in Panel Data: The Michigan Panel Study of Income Dynamics

By 1989 the Michigan Panel Study on Income Dynamics (PSID) had experienced approximately 50 percent sample loss from cumulative attrition from its initial 1968 membership. We study the effect of this attrition on the unconditional distributions of several socioeconomic variables and on the estimates of several sets of regression coefficients. We provide a statistical framework for conducting tests for attrition bias that draws a sharp distinction between selection on unobservables and on observables and that shows that weighted least squares can generate consistent parameter estimates when selection is based on observables, even when they are endogenous. Our empirical analysis shows that attrition is highly selective and is concentrated among lower socioeconomic status individuals. We also show that attrition is concentrated among those with more unstable earnings, marriage, and migration histories. Nevertheless, we find that these variables explain very little of the attrition in the sample, and that the selection that occurs is moderated by regression-to-the-mean effects from selection on transitory components that fade over time. Consequently, despite the large amount of attrition, we find no strong evidence that attrition has seriously distorted the representativeness of the PSID through 1989, and considerable evidence that its cross-sectional representativeness has remained roughly intact.

Sarah Jarvis and Stephen P. Jenkins, Do the Poor Stay Poor? New Evidence about Income Dynamics from the British Household Panel Survey, ESRC Research Centre on Micro-social Change, University of Essex, 1995, 40 pp. £10.00 paper.

The fourth dimension – time – has only recently come on to the agenda in Britain in the study of low income and poverty. Yet as Robert Walker states, ‘without taking time into account ... it is impossible to develop policies that successfully tackle the multiple causes of [poverty]’ (Walker, 1994). In the US studies specifically looking at ‘welfare dynamics’ – following ‘welfare’ recipients in and out of benefit – have a much longer history dating back to the early 1980s (Bane and Ellwood, 1983). Tracking those on low income over time requires access to longitudinal studies which contain appropriate income data. In the US, the Panel Study on Income Dynamics (PSID), in particular, goes back to the 1960s. In Britain there was no comparable survey generating longitudinal data until the advent of the British Household Panel Survey with a first wave in 1991.

State income tax policy and family size: fertility and the dependency exemption.

Tax exemptions for dependents are a subsidy to having children and therefore create incentives for fertility. This article explores the relationship between the changing tax value of the state exemption for dependents—combined with the federal exemption—and the observed fertility choices of married couples. Using data from the Panel Study on Income Dynamics (PSID), the article finds that the federal exemption does have a positive impact on differential period fertility for the sample of 229 married couples in this study. This effect is dampened by an offsetting labor force participation and marginal tax rate effect, but it does provide evidence that fiscal policy can influence fertility. State income tax exemptions do not appear to significantly influence the fertility decisions of the sample.

An Empirical Evaluation of Two Methods for Estimating Economic Damages: Comment

Lambrinos and Harmon (1989) empirically evaluate two methods that have been used to estimate economic damages. The two approaches they evaluate are the offset approach and the augmented offset approach. The augmented offset approach is adjusted by an age-earnings factor. The estimated present values using each approach are calculated and then evaluated by comparing them with the present values of actual worker earnings drawn from the Panel Study on Income Dynamics (PSID). Discussing their comparison of estimated present values using the offset and augmented offset methods with the calculated present values using the PSID longitudinal survey earnings data, the authors state that both methods underestimate the loss ... (p. 737). The use of an inappropriately low interest rate to discount PSID earnings could cause both methods of estimation to underestimate the loss. If an inappropriately low interest rate is used to discount actual PSID earnings, the resulting lump-sum awards will be higher than if higher interest rates were used. The resulting higher calculated lump-sum awards for actual PSID earnings would cause the estimated awards using both the offset and augmented offset methods to be low in comparison. The authors state that the rate chose for discounting the workers' actual earnings from 1971 through 1983 is the nontaxable municipal bond yield average from 1961 through 1970, 4.10 (p. 735).(1) It can be argued that the use of the average municipal bond yield from 1961 through 1970 to discount actual 1971 through 1983 earnings is inappropriate. To the extent that interest rates rise with inflation, it is likely that the discount rate would be higher if one rolled-over short-term instruments rather than invested in long-term bonds in an environment of rising inflation. Returns from a portfolio of long-term bonds do not change as interest rates rise. Thus, while Lambrinos and Harmon state that Because this period spans three full business cycles, the results are not likely to reflect the influence of a particular stage of the business cycle, (p. 738) they overlook an important postwar event-the rise of inflation in the 1970's. The authors, constrained by data availability, used the period 1971 through 1983 to compare the estimated present values using the offset and augmented offset approaches with present values using actual PSID earnings. Table 1 shows that this 13 year period (1971 through 1983) exhibited higher inflation, wage growth, and interest rates than the 1961 through 1970 decade that preceded it. Recall that Lambrinos and Harmon used the 1961 through 1970 period to calculate the average municipal bond yield which they used to discount actual PSID earnings. Table 1 A Comparison of the 1961 through 1970 and 1971 through 1983 periods* 1961-1970 1971-1983 (percent) percent annual average inflation rate 2.7 7.5 annual average rate of wage change 4.0 6.8 annual average Treasury bill rate 4.6 7.9 annual average municipal bond rate 4.1 7.3 * The inflation rate is for the consumer price index. The rate of wage change is for total private average weekly earnings. The Treasury bill rate is for 9 through 12 month issues for 1961 through 1970 and one year issues for 1971 through 1983. The municipal bond rate is the S&P high grade series. See: Economic Report of the President and the Federal Reserve Bulletin. The use of short-term Treasury instruments to reduce exposure to inflation risk would have resulted in a higher discount rate. That is, the discount rate employed by the authors based on the 1961 through 1970 period was lower than would have been the case if interest rates that prevailed on short-term instruments during the 1971 through 1983 period had been used. …