IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_7726.html
   My bibliography  Save this paper

The College Wealth Divide: Education and Inequality in America, 1956-2016

Author

Listed:
  • Alina K. Bartscher
  • Moritz Kuhn
  • Moritz Schularick

Abstract

Using new long-run microdata, this paper studies wealth and income trends of college and non-college households in the United States since 1956. We document the emergence of a substantial college wealth premium since the 1980s, which is considerably larger than the college income premium. Over the past four decades, the wealth of American households with a college-educated head has tripled. By contrast, the wealth of non-college households has barely grown in real terms over the same period. Part of the rising wealth gap can be traced back to systematic portfolio differences between college and non-college households that give rise to different exposures to asset price changes. Non-college households have a lower exposure to the equity market and have profited much less from the recent surge in the stock market. We also discuss the importance of financial literacy and business ownership for the increase in wealth inequality between college and non-college households.

Suggested Citation

  • Alina K. Bartscher & Moritz Kuhn & Moritz Schularick, 2019. "The College Wealth Divide: Education and Inequality in America, 1956-2016," CESifo Working Paper Series 7726, CESifo.
    • Handle: RePEc:ces:ceswps:_7726
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7726.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jeremy Greenwood & Nezih Guner & Georgi Kocharkov & Cezar Santos, 2014. "Marry Your Like: Assortative Mating and Income Inequality," American Economic Review, American Economic Association, vol. 104(5), pages 348-353, May.
    2. Marco Cagetti & Mariacristina De Nardi, 2006. "Entrepreneurship, Frictions, and Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 835-870, October.
    3. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    4. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2017. "Macrofinancial History and the New Business Cycle Facts," NBER Macroeconomics Annual, University of Chicago Press, vol. 31(1), pages 213-263.
    5. David Card & Thomas Lemieux, 2001. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(2), pages 705-746.
    6. Emmanuel Saez & Gabriel Zucman, 2016. "Editor's Choice Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 519-578.
    7. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    8. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    9. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
    10. Eichenbaum, Martin & Parker, Jonathan A. (ed.), . "NBER Macroeconomics Annual 2017," National Bureau of Economic Research Books, University of Chicago Press, number 9780226577838, July.
    11. Fabian T. Pfeffer, 2018. "Growing Wealth Gaps in Education," Demography, Springer;Population Association of America (PAA), vol. 55(3), pages 1033-1068, June.
    12. Claudia Goldin & Lawrence F. Katz, 2007. "Long-Run Changes in the Wage Structure: Narrowing, Widening, Polarizing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(2), pages 135-168.
    13. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
    14. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555, Elsevier.
    15. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 659-684.
    16. O. Ashenfelter & D. Card (ed.), 1999. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 3, number 3.
    17. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy around the world: an overview," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(4), pages 497-508, October.
    18. Pfeffer, Fabian T. & Schoeni, Robert F. & Kennickell, Arthur & Andreski, Patricia, 2016. "Measuring wealth and wealth inequality: Comparing two U.S. surveys," Journal of Economic and Social Measurement, IOS Press, issue 2, pages 103-120.
    19. Hans-Martin Von Gaudecker, 2015. "How Does Household Portfolio Diversification Vary with Financial Literacy and Financial Advice?," Journal of Finance, American Finance Association, vol. 70(2), pages 489-507, April.
    20. Nicole M. Fortin, 2006. "Higher-Education Policies and the College Wage Premium: Cross-State Evidence from the 1990s," American Economic Review, American Economic Association, vol. 96(4), pages 959-987, September.
    21. Eichenbaum, Martin & Parker, Jonathan A. (ed.), . "NBER Macroeconomics Annual 2016," National Bureau of Economic Research Books, University of Chicago Press, number 9780226490229, December.
    22. Jess Benhabib & Alberto Bisin & Mi Luo, 2017. "Earnings Inequality and Other Determinants of Wealth Inequality," American Economic Review, American Economic Association, vol. 107(5), pages 593-597, May.
    23. Schenker, Nathaniel & Taylor, Jeremy M. G., 1996. "Partially parametric techniques for multiple imputation," Computational Statistics & Data Analysis, Elsevier, vol. 22(4), pages 425-446, August.
    24. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Finer, David Andrew, 2022. "No Shock Waves through Wall Street? Market Responses to the Risk of Nuclear War," Working Papers 318, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    2. Alina K. Bartscher & Moritz Kuhn & Moritz Schularick, 2020. "The College Wealth Divide Continues to Grow," Economic Synopses, Federal Reserve Bank of St. Louis, issue 1, January.
    3. Mariam Camarero & Gilles Dufrénot & Cecilio Tamarit, 2021. "How do inequalities affect the natural interest rate, and how do they impact monetary policy? Comparing Germany, Japan and the US," Working Papers halshs-03191667, HAL.
    4. Xia Zhou & Shaoyong Lai, 2023. "The mutual influence of knowledge and individual wealth growth," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 96(6), pages 1-22, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aditya Aladangady & Etienne Gagnon & Benjamin K. Johannsen & William B. Peterman, 2021. "Macroeconomic Implications of Inequality and Income Risk," Finance and Economics Discussion Series 2021-073, Board of Governors of the Federal Reserve System (U.S.).
    2. Kacperczyk, Marcin & Nosal, Jaromir & Stevens, Luminita, 2019. "Investor sophistication and capital income inequality," Journal of Monetary Economics, Elsevier, vol. 107(C), pages 18-31.
    3. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    4. Moritz Kuhn & Moritz Schularick & Ulrike I. Steins, 2020. "Income and Wealth Inequality in America, 1949–2016," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3469-3519.
    5. Clemens, Christiane & Heinemann, Maik, 2010. "On entrepreneurial risk-taking and the macroeconomic effects of financial constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1610-1626, September.
    6. Thomas Blanchet, 2022. "Uncovering the Dynamics of the Wealth Distribution," Working Papers hal-03865295, HAL.
    7. Joachim Hubmer & Per Krusell & Anthony A. Smith Jr., 2020. "Sources of US Wealth Inequality: Past, Present, and Future," NBER Chapters, in: NBER Macroeconomics Annual 2020, volume 35, pages 391-455, National Bureau of Economic Research, Inc.
    8. Dan Cao & Wenlan Luo, 2017. "Persistent Heterogeneous Returns and Top End Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 301-326, October.
    9. Alina K. Bartscher & Moritz Kuhn & Moritz Schularick, 2020. "The College Wealth Divide Continues to Grow," Economic Synopses, Federal Reserve Bank of St. Louis, issue 1, January.
    10. Kaymak, Barıș & Leung, David & Poschke, Markus, 2020. "Accounting for Wealth Concentration in the US," IZA Discussion Papers 13082, Institute of Labor Economics (IZA).
    11. Òscar Jordà & Katharina Knoll & Dmitry Kuvshinov & Moritz Schularick & Alan M Taylor, 2019. "The Rate of Return on Everything, 1870–2015," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1225-1298.
    12. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    13. Ma, Qingyin & Stachurski, John & Toda, Alexis Akira, 2020. "The income fluctuation problem and the evolution of wealth," Journal of Economic Theory, Elsevier, vol. 187(C).
    14. Konstantinos Angelopoulos & Spyridon Lazarakis & Rebecca Mancy & Dorice Agol & Elissaios Papyrakis, 2023. "Resource Risk and the Origins of Inequality: Evidence from a Pastoralist Economy," CESifo Working Paper Series 10611, CESifo.
    15. Matteo Iacoviello, 2008. "Household Debt and Income Inequality, 1963–2003," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 929-965, August.
    16. Per Krusell & Anthony Smith & Joachim Hubmer, 2015. "The historical evolution of the wealth distribution: A quantitative-theoretic investigation," 2015 Meeting Papers 1406, Society for Economic Dynamics.
    17. Juan Carlos Parra-Alvarez & Olaf Posch & Mu-Chun Wang, 2017. "Estimation of Heterogeneous Agent Models: A Likelihood Approach," CESifo Working Paper Series 6717, CESifo.
    18. Hasan, Iftekhar & Horvath, Roman & Mares, Jan, 2020. "Finance and wealth inequality," Journal of International Money and Finance, Elsevier, vol. 108(C).
    19. Benhabib, Jess & Bisin, Alberto & Zhu, Shenghao, 2015. "The wealth distribution in Bewley economies with capital income risk," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 489-515.
    20. Toda, Alexis Akira, 2019. "Wealth distribution with random discount factors," Journal of Monetary Economics, Elsevier, vol. 104(C), pages 101-113.

    More about this item

    Keywords

    wealth; inequality; education; college wealth premium;
    All these keywords.

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_7726. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.