Life cycle perspectives: Adjusting for age effects in cross sections, demographic change, and savings in China
"Saving and Bequest in China: An Analysis of Intergenerational Exchange" (with Eleonora Freddi and Øystein Thøgersen), manuscript.
Households’ savings rates in China are tremendously high. In particular young and old households save significantly and substantially more than the same generations in European countries and the United States. This project first establishes, using micro data, that both the urban and the rural households have u-shaped savings-age profiles - previous literature has established this only for urban households. Second, we have conducted a survey questioning elderly about their levels of savings, inter-generational transfers and saving motives. We find that elderly in China hold substantial amounts of wealth intended for future downward intergenerational transfers. We calculate that the respondents on average transfer more than 6 times their yearly net income, even when excluding the value of any real estate that parents intend to leave to their children. Furthermore, we reject the hypothesis of a pure altruistic motive for intergenerational transfers as we find some support for strategic concerns.
"Older or Wealthier? The Impact of Age Adjustments on Wealth Inequality Ranking of Countries" (with M. Mogstad), The Scandinavian Journal of Economics, 114(1), 24-54, 2012.
Differences in individual wealth holdings are widely viewed as a driving force of economic inequality. However, as this finding relies on cross-section data, we may confuse older with wealthier. We propose a new method to adjust for age effects in cross-sections, which eliminates transitory wealth inequality due to age, yet preserves inequality arising from other factors. We discuss the reasons why our new method is superior to existing methods, like the much used Paglin-Gini. A new cross-country comparable database reveals that the choice of method is empirically important: Existing methods produce erroneous wealth inequality rankings of countries.
"Adjusting for Age Effects in Cross-sectional Distributions" (with T. Havnes and M. Mogstad), Stata Journal, 12(1), 393-405, 2012.
We describe the adjusted Gini index (Alm ̊as and Mogstad, 2012), which is a generalization of the classical Gini index with attractive properties, and we describe the adgini command, which provides the adjusted Gini index and the classical Gini index. The adgini command also provides options to produce other well-known age-adjusted inequality measures, such as the Paglin-Gini (Paglin, 1975) and the Wertz-Gini (Wertz, 1979), and provides efficient estimation of the classical Gini coefficient.
"Baby Booming Inequality? Demographic Change and Inequality in Norway, 1967-2004" (with T. Havnes and M. Mogstad), Journal of Economic Inequality, 9, 629-650, 2011.
We demonstrate how age-adjusted inequality measures can be used to evaluate whether changes in inequality over time are because of changes in the age structure. In particular, we explore the hypothesis that the substantial rise in earnings inequality since the early 1980s is driven by the large baby boom cohorts approaching the peak of the age-earnings profile. Using administrative data on earnings for every Norwegian male over the period 1967-2004, we find that the impact of age adjustments on the trend in inequality is highly sensitive to the method used: while the most widely used age-adjusted inequality measure indicates that the rise in inequality in the 1980s and 1990s is indeed driven partly by the baby boom, a new and improved age-adjusted measure indicates the opposite, namely that the rise in inequality was even larger than what the inequality measures unadjusted for age reveal.