Project on Inequality

How Health, Education, Wealth, and Family Resources Are Shaping Economic Inequality

John Karl Scholz and Barbara Wolfe, Co-Investigators
with Robert M. Hauser, Robert Haveman, John Mullahy, Stephanie Robert, Gary Sandefur
University of Wisconsin-Madison

Increases in income and earnings inequality over the past 25 years are well documented. Yet the deeper significance of these trends remains obscure. Have there been associated increases in inequality in other dimensions of well-being that affect both today's children and adults and those of the next generation? Are school resources, community resources, access to health services, children's access to parental time, none of which are reflected in measures of earnings and income inequality, also more unequally distributed today than a quarter century ago? Are investments in today's children more unequal than those in children growing up in the 1970s?

In partnership with the Carnegie Corporation, the Russell Sage Foundation launched a research initiative to examine social inequality on a number of dimensions, including family well-being, educational opportunity, health care and coverage, legal services and criminal justice, political participation and representation, banking and credit, housing, pension provision, environmental quality, and even access to computers and the Internet. The project consists of a cluster of working groups, each based at an individual university or research center. The Project on Inequality at IRP is one of these groups. Literature reviews and working papers from the Project are posted on the Russell Sage Foundation's Web site.

This project focuses on four major aspects of economic inequality that are poorly reflected in measures of earnings and income inequality: health, education, wealth, and the resources available to children. All four projects study trends in inequality in the aspects within their domain, and all seek to understand both the causes (particularly the education and wealth projects) and the consequences (primarily the health and children's investment projects) of these changes. Together, they promise to contribute significantly to the state of knowledge about what we within the project team have begun to call family capital. (Below is the description of the Wisconsin project as originally proposed.)

Aspects of Family Capital

Health

Clearly, a person's health status forms a critical component of his or her human capital. Both analysts and policymakers are devoting increasing attention to various "disparities" in health and health care. Efforts to reduce the problem of uninsured populations, to provide transportation services to those in poorly served communities, to increase the racial diversity among health care providers, and to target information at those most vulnerable to health problems are all designed to equalize access to health care. The role of economic inequality in causing these disparities is not well understood, and there is a need for additional social science research to understand the sources of health and health care disparities.

The proposal by John Mullahy, Stephanie Robert, and Barbara Wolfe seeks to address this concern. This research group will attempt to provide empirical underpinnings, describing and tracking over time four specific aspects of the inequality-health nexus. This project will also develop a specific analytic plan for comparing and correlating time trends in multiple domains relating to inequality--resources, health, health care access, and (un)healthy behaviors--and for examining causal links between and among these domains.

Education

Inequality in schooling is another social concern that is attracting policy attention. It is increasingly realized that dollars of resources devoted to schools are a poor indicator of the real value of educational services being generated. Family and community background clearly interact with schools in producing children's attainments. Yet the ties between school-based services and family and community background and investments in children are not well understood.

Robert Hauser proposes to study the relationship between changing inequalities of economic and social origins and the distribution of schooling in the United States. His work will focus on key educational outcomes: the overall distribution of completed schooling, major transitions in the schooling process, and the differential pace at which students pass through the educational system. The pace of schooling interacts with major educational transitions, and these in turn shape the overall distribution of completed schooling. These schooling processes are not only shaped by the changing contours of economic and social inequality--between and within families--but also by an increasingly complex educational policy environment. For example, the current policy environment includes claims by traditionally disadvantaged groups for increased educational opportunity, but also strong demands at primary, secondary, and post-secondary levels for higher educational standards and enforceable methods of accountability.

Hauser will first review changes in the overall distribution of completed schooling across cohorts, concentrating on race-ethnicity and gender patterns in relation to changing distributions of economic and social background. These analyses will be based in part on aggregate educational distributions from the Current Population Survey and in part on analyses of repeated cross-section surveys that include measures of social background: the NORC General Social Survey and the Survey of Income and Program Participation. Second, he will describe the changing economic and social origins of successive cohorts. These trends are related to, but different from, trends in economic and social status and inequality among adults or among households, because of variance in rates and timing of childbearing among potential parents. Third, he will analyze effects of economic and social background on key educational transitions-grade progression, high school dropout, high school completion, and college entry. If economic and social origin variables have stable effects on educational transitions, then changes in the levels and inequalities of educational outcomes can be explained in part by the changing distributions of social origins. However, such effects need not be constant. We know, for example, that there have been secular declines in the effects of race-ethnicity on educational attainment and that the traditional differentials by farm origin and by gender have gradually reversed. There is less evidence about long-term changes in the effect of parental income, schooling, family structure, or number of siblings on educational attainment. For this reason, Hauser will also investigate changes in the effects of economic and social origins on educational transitions.

Wealth

Health and education are the building blocks for human capital. Hence, changes in these factors over time undoubtedly play an important role in the evolution of economic inequality. Wealth accumulation also plays many roles in enhancing the economic well-being of families. It can be converted directly into cash, and thus can be used to meet immediate consumption needs. It provides liquidity to families when an adult becomes unemployed, a family member becomes sick, or when families divorce or separate. Housing wealth provides direct services in the form of the rental value of the house. Wealth also allows families to support investments in the human capital of their members: to move out of crime-ridden neighborhoods, to support supplements to public education, or to enable continuation of schooling. Finally, wealth may enhance access to policymakers and public opinion, and hence shape the evolution of policy.

Wealth differentials in society dwarf income differentials. Yet the links between these two sources of economic inequality are not well understood. This is true in spite of recent efforts to understand the determinants of various sources of wealth, and differentials in them.

The project proposed by John Karl Scholz will document the evolution of wealth inequality over the last two decades, and will introduce a related set of measures that highlight the relationship between wealth and dimensions of economic vulnerability. These include inequality of wealth per child, credit market access, debt-to-income burdens, access to financial institutions, the prevalence of home ownership, and the adequacy of wealth accumulation for retirement. The proposal then briefly describes a new methodological approach (for this area) that relies on cohort panels, which has promise for increasing our understanding of the causes of wealth inequality, particularly black-white wealth differentials. The project will then focus on the consequences of wealth and financial market inequality and link these issues, to the extent possible, to the broader conception of economic inequality as developed across projects in this proposal.

Investments in Children

The proposal by Robert Haveman, Gary Sandefur, and Barbara Wolfe focuses on the possible "bifurcation" in resources invested in children. They propose to quantitatively assess the extent to which children are increasingly growing up with unequal resources. If the attainments of youths in the year 2015 reflect the inequality in the resources available to them as children during the 1990s, American society faces an enormous challenge.

There is substantial evidence that the level of a number of family- and community-based resources available to children has both stagnated over time and become increasingly unequally distributed across children. Because the attainments of people depend on the level of resources that are invested in them when they are children, these trends have important intergenerational implications.

In attempting to further our understanding of the implications of these trends, Haveman, Sandefur, and Wolfe will first review the literature on the trends in the mean and variation of resources available to children. They will then undertake a series of measurement studies that will quantitatively assess the changes in the mean and variation of a wide variety of resources available to children over the last three decades. Finally, they will rely on estimates in the literature to trace the likely implications of these changes in the mean and variation of available resources on the attainments of the next generation of youths. In the process, they will attempt to incorporate findings from the other IRP research projects on health care, schooling, and parental wealth into an overall assessment of prospects for the next generation of youths and young adults.

Cross-Cutting Themes

Since the proposals each deal with fundamental issues related to economic inequality, it is not surprising that several interrelated themes emerge. First, the proposals focus on three central aspects of inequality (beyond income inequality) that profoundly influence economic and social well-being: health, education, and wealth. In this context, the project that focuses on children will grapple with the net effects of all factors affecting intergenerational resource inequality.

Second, the projects to varying degrees focus on children. Children are a central focus of the project on the evolution of educational performance and on the evolution of resources invested in children. The project on health inequality will examine, as part of the proposed work, changes in health status, utilization, access and the health-related behaviors of children and the families they live in. The project on wealth and financial market inequality will examine changes over time in wealth per child in families with children as part of the proposed effort to develop indicators of the economic consequences of wealth inequality.

Third, there are subtle interconnections between the proposals. There are direct links between the health and wealth proposals. Differences in wealth accumulation between groups in society are likely to be influenced by differences in health status and mortality expectations. At the same time, wealth may play an important role in health through its influence on a variety of channels through which people improve or maintain their health status. While issues of causality are extremely difficult to sort out, we are able to draw on comprehensive knowledge of the available data and background research that we hope will enable us to improve understanding.

Documentation of the trends in inequality in health, education, wealth and other resources among families with children is one aspect of all four of the projects. In pulling these together, the team will be working toward a fuller understanding of the changing well-being and resources of these families.

The proposals also fit together in their differing focus on "causes" and "consequences." At the risk of oversimplifying, the projects on education and wealth seek, at least in part, to understand the factors driving inequality in the dimensions under consideration. This is perhaps most explicit in the wealth project, where Scholz proposes to comprehensively examine the degree to which differences in intergenerational transfers, saving behavior, changes in the value of existing assets and liabilities, and background characteristics contribute to wealth inequality. Once this is done, it is important to draw the implications of these findings in terms of their potential ability to provide causal explanations for the economic well-being of families.

Synergies: Making the Whole Greater Than the Sum of the Parts

We will develop the projects individually and collectively. While ultimate responsibility for each project will rest with the specific investigators, several features of the collective undertaking will generate input, review, and collaboration among team members. Specific details of each project differ, but each will include the following.

Literature Review

The literature reviews will provide an entry into the relevant literature that will serve dual purposes. First, they will ensure that the projects develop with a comprehensive understanding of what has previously been done. Second, they will provide a low-cost way for scholars on the other projects to gain necessary background to contribute to the intellectual development of work that might be outside their central area of expertise. The goal of these reviews will be to highlight the research projects that are feasible and that seem likely to have the most significant intellectual payoff.

New Measures

A major part of each proposal focuses on developing new, underexplored measures of economic inequality. Of course, an extraordinary number of measures can be generated for each of the topics under consideration. An important role for the larger group will be to serve as a sounding board, providing advice on which among possible measures are most salient and how different measures may have implications for issues that might lie outside the investigator's area of expertise. The tracking of such measures over time in an attempt to gain some perspective on the degree and pattern of change is another component of every project. Bringing these together in an attempt to learn whether the patterns are consistent or differ in some systematic way can lead to additional insights into the nature of the changing picture of economic inequality.

Causes, Consequences, and Remedies

The work on inequality in health access, utilization, and outcomes addresses a major consequence of economic inequality. A particularly innovative feature of this work focuses on geography, examining specific relationships that most strongly bind health outcomes and income inequality geographically. Focusing on geography will likely result in information that will tell us for whom to better target policy and program interventions to improve health and well-being in our society.

The proposal on educational attainment and inequality also has direct implications for the consequences of policy and potential remedies. High stakes testing, for example, may result in higher rates of school dropout, which in turn may affect the transition from secondary to post-secondary schools. These changes could have significant effects on the educational distribution of new cohorts as they complete schooling and enter adulthood. This too may affect intergenerational inequality.

The project documenting the evolution of a broad range of resources available to children will directly stimulate discussions of the question, "What factors are critical in providing a rich environment for children's success?" The work will explore the future implications of changes in the level and distribution of investments in children, which, given current trends, will undoubtedly provide a provocative set of results. The work will also have direct implications for a variety of policies related to education, health, and wealth that directly affect the resources available to children.