Redistribution of wealth could boost consumption rate

ANN ARBOR—Want to boost the consumption rate in the United States? Transfer wealth from the top 20 percent of earners to the bottom 80 percent, according to a University of Michigan study.

The study is the first to consider the interplay between consumption, income inequality and wealth inequality, and found that such a transfer could boost the total consumption rate by about 3 or 4 percent.

Previously, studies had considered the effect of income on consumption, which is the measure of the goods and services you buy daily, including what you pay for your car or bus pass, groceries, clothing and health care. But it’s important to also take into account wealth, which are the savings and other assets a person might own and resources that person might draw on if he or she falls upon hard times.

“In economics, there’s this theory that people tend to smooth their consumption,” said U-M researcher and study author David Johnson. “Even if your income goes up or down, you’re going to spend at a certain rate, saving for a rainy day, and if that rainy day comes, use those funds. … The goal of our paper is to simulate how you respond to your income going up or going down.”

What Johnson and colleagues found is that less wealthy people had a higher marginal propensity to consume, while wealthier people had a lower consumption rate.

Wealthier people spent more money as a whole, but had a lower rate of consumption: everyday requirements such as groceries take up a smaller percentage of their budgets. Also, they have deeper pockets to dip into if they have an unexpected bill to pay, which made them less reactive to changes in their income.

Less wealthy people had higher consumption rates, and they were less able to keep a stable consumption rate if their incomes changed, according to the researchers. Hurdles such as a broken-down car or health emergency aren’t as easy to pay because they don’t have the funds in savings, or have more difficulty applying for credits or loans to pay for the emergency.

Examining only the effect of income on consumption doesn’t take into account, for example, a retiree whose income might be low, but who might be drawing on retirement savings.

The study uses data from the Panel Study of Income Dynamics, which has traced the financial lives of the same families for 50 years. The PSID is housed within the Survey Research Center at the U-M Institute for Social Research.

“In order to really evaluate the rate of consumption, you have to look at income, consumption and wealth together,” said Johnson, who is the director of the PSID. “The Panel Study of Income Dynamics is the only dataset that has all three.”

The researchers also calculated what would happen if some wealth was shifted from the top 20 percent of wealthy people to the bottom 80 percent. They found that total consumption would increase by 3 to 4 percent.

“A redistribution of wealth might lead to higher growth, and growth is good,” Johnson said. “You’re still taking away from somebody, but overall, it’s better.”

The study is published as a working paper online at The Washington Center for Equitable Growth.


David Johnson

Contact: Morgan Sherburne, 734-647-1844,

U-M Economist, Research Scientist and ISR Founding Member James N. Morgan Dies at 99

Professional Headshot of James Morgan early in his career at U-M.

James N. Morgan, an economist who created the longest-running intergenerational household survey in the world, died on January 8, 2018 at University of Michigan Hospital in Ann Arbor, Mich. He was 99 and lived in Ann Arbor.

Morgan was a great believer in new ideas and worked with other economists, such as Nobel Prize winner James Tobin, on issues of income and income support systems. As an early scholar, he was interested in the factors shaping various outcomes such as how much a family spent on housing, factors leading to early retirement or non-market activity and other forms of time allocation. His work challenged the prevailing belief that those in poverty were destined to stay in poverty, arguing instead that the majority of poor families emerge from bad times and achieve middle income status.

“Jim’s intellectual energy was enormous. It fueled a wealth of path-breaking contributions to our understanding of the world, and introduced new methods for generating more knowledge and deepening that understanding,” says Morgan’s former student turned long-time colleague, Greg Duncan, Professor of Education at University of California, Irvine. “But Jim also displayed a lifelong commitment to an analytical form of social justice, which triggered many acts of kindness as well as windmill tilting.”

Duncan sitting in a chair next to Morgan in his wheelchair.

Greg Duncan (left) with James Morgan at the 50th Anniversary Celebration of the Panel Study of Income Dynamics on September 14, 2017. Photo by Michael McIntyre/ISR.

“He also believed in the power of inductive discovery and felt observing what occurred can serve as the basis for understanding,” says Frank Stafford, Research Professor at the Institute for Social Research and Professor of Economics at the University of Michigan. “Even within the financial domain he observed strong synergies between the traditional economic variables of income, assets and life insurance.”

Morgan came to the University of Michigan (U-M) in 1949 as a postdoctoral fellow in economics, where he became a founding member of the University’s Institute for Social Research (ISR). He retired in 1997 as a research scientist emeritus and professor emeritus of economics.

David Lam, Director of the Institute, remembers Morgan as being one of the most creative and generative thinkers in the ISR Founders generation. “This was not just for his substantive innovation, but for his methodological innovation as well,” says Lam.

After retirement, Morgan continued to be a regular presence at ISR and the University, and he regularly wrote on economic issues of particular concern, such as income disparity. In 2013, he set up a fund at ISR in his name to support graduate students in making innovative use of SEARCH, a survey data analysis program he created in the 1960s.

Though supported by the National Science Foundation and published in the Journal of the American Statistical Association, Morgan’s SEARCH approach to complex data was too different for many researchers to embrace; the research community continued to favor the classic method of hypothesis testing from a given conceptual framework. But the method found favor in the business and policy worlds, and in recent years was given new life by the analysis demands of Big Data. In 2014, Jim’s pioneering work was recognized in a paper by Hal Varian in the Journal of Economic Perspectives entitled “New Tricks in Econometrics.”

Morgan was born near Corydon, Indiana, in 1918. He received his bachelor’s degree from Northwestern University in 1939, and his master’s degree and Ph.D. in economics from Harvard University in 1941 and 1947. The outbreak of World War II delayed the completion of Morgan’s graduate education: as a conscientious objector, he spent three-and-a-half years at the North Appalachian Experimental Watershed of the Soil Conservation Service in Coshocton, Ohio, where he used his research skills to analyze factors affecting crop yields. The methods used by the agricultural scientists were the inspiration for his SEARCH program.

Morgan became an assistant professor at Brown University in 1947. After his arrival at U-M in 1949, he was appointed an assistant program director of ISR’s Survey Research Center in 1951, and he became a program director in 1956. Morgan was appointed associate professor of economics in 1953, and professor of economics in 1958.

Barfield and Morgan looking a papers on a desk.

Richard Barfield (left) and Morgan in the late 1960s at the Institute for Social Research.

In 1968, Morgan conceived of and launched the Panel Study of Income Dynamics (PSID), an ISR study created to track household data for the same 18,000 individuals over time. The study proved vital and increasingly far reaching. In the years since, PSID has continuously collected data covering employment, income, wealth, expenditures, health, marriage, and other topics; it’s now following more than 77,000 members across four generations of some 11,000 families. In addition, it has served as the model for intergenerational studies in countries including the United Kingdom, Germany, Israel, Australia, Singapore, and China.

This year, PSID celebrates its 50th anniversary. The National Science Foundation voted it one of its “Nifty Fifty” and “Sensational Sixty” NSF-supported projects because of its impact on research about families and their finances. “Methodologically, PSID was one of the early studies that demonstrated the impact of the social sciences,” says Lam.

Directors of the PSID, (from left) Charlie Brown, Frank Stafford, Greg Duncan, David Johnson and Founding Director James Morgan, seated. Bob Schoeni inset. Photo by Michael McIntyre/ISR.

Directors of the PSID, (from left) Charlie Brown, Frank Stafford, Greg Duncan, David Johnson and Founding Director James Morgan, seated. Bob Schoeni inset. Photo by Michael McIntyre/ISR.

Recently, Jim established the James Morgan Innovation in the Analysis of Economic Behavior Fund to encourage U-M graduate students to use Panel Study on Income Dynamics data in new and original ways.

“An academic’s best hope for immortality rests with the wisdom imparted to graduate students, which is, in turn, passed on to the students of those students, and so on. I find myself channeling Jim’s wisdom and kindness often as I continue to mentor new generations of students,” says Duncan.

Morgan was a fellow at Stanford University’s Center for Advanced Study in the Behavioral Sciences. In 1975, he was elected to the National Academy of Sciences. He was also a Fellow of the American Statistical Association, the Gerontological Society of America, and the American Academy of Arts and Sciences. The University of Michigan gave him the Distinguished Faculty Achievement Award in 1977.

Morgan is survived by four children, Salim, Ken, Tim, and Janet; 10 grandchildren; and 20 great-grandchildren.

At the request of his family, gifts in memory of Jim can be made to the James Morgan Innovation in the Analysis of Economic Behavior Fund.

Please read more about Jim Morgan’s distinguished career and his personal and professional impact on those who worked with him: Jim Morgan: In Memoriam (PDF).


Patrick Shields,, 734-764-8369

A ‘STEM’ parent boosts girls’ participation in science degrees

ANN ARBOR—Even when girls perform just as well as boys on standardized math tests, they are half as likely to major in science at college.

However, having one parent or guardian work in the STEM (science, technology, engineering or math) field makes it more likely for girls to perform better in math and to enroll in a “hard sciences” college degree in programs such as engineering, architecture, math and computer science.

This effect is larger for girls than for boys, according to a study by researchers at the University of Michigan and University of Arkansas.

“An important result is that most of the observed direct positive effects, of having a parent in STEM on the probability of enrolling ‘hard science’ college degrees, seem to be concentrated among females. This is in line with other work of mine and points to the potential benefit that role modeling could have on women,” said Gema Zamarro, lead author and an associate professor at Arkansas. “Our results suggest that there are additional barriers—not only math performance or perceived math ability—that could be stopping women from entering STEM.”

Some of these barriers could be gender stereotypes that break down if a girl has a parent in the STEM field, Zamarro said.

The effect of girls’ perception of their math ability and their actual math ability on their choice of college majors could be problematic because STEM-related occupations are one of the few occupational fields experiencing economic growth. Women hold less than 25 percent of STEM jobs, despite holding about 48 percent of all jobs, according to the researchers.

“This finding is not just important to academic research: it’s part of the economy that people are starting to adjust to,” said Frank Stafford, co-author and an economist at the U-M Institute for Social Research.

In 2004, researchers asked children to assess their own perception of their ability to do math and tested their math skills with an exam. Boys scored higher on the exam than girls did, but the difference between the scores was small, according to Stafford.

However, boys tended to rate themselves more highly than girls rated themselves. Sixty-four percent of boys as compared to 50 percent of girls who performed in the higher end of math test scores reported the highest levels of math ability.

Even the boys who tested poorly in math rated themselves as good at math. In the lower end of the math test scores, boys continued to be more optimistic, with 29 percent of them reporting highest levels of ability as compared to 17 percent of girls.

The researchers then followed up with these students in 2014 to track what subjects they majored in at college. When boys reported the highest levels of math abilities, their probability of majoring in a hard sciences field increased by 7 percentage points. When girls reported the same, their probability of a hard sciences major increased by only 2 percentage points.

The researchers saw similar numbers based on the children’s actual performance. Girls who performed in the top fifth percentile were about half as likely to pursue degrees in the hard sciences. When boys performed in the top fifth percentile, it increased their likelihood to major in these subjects by 13 percentage points. For girls, this was about 6 percentage points.

“The largest gap between boys and girls going on to major in science at college is among girls who could easily major in science because they have such a high score on the quantitative test,” Stafford said.

But having a parent who works in the STEM field increases the probability of girls majoring in hard science by 11 percentage points. When the researchers expanded the definition of STEM to include life, physical and social sciences, the probability increases by 25 percentage points. This effect was only relevant for girls, Zamarro said.

“STEM-related jobs are predicted to continue growing in the future years,” Zamarro said. “Not only it is important for women to have access to these increasing opportunities, but having more women accessing hard science majors could help reduce gender wage gaps in the future.”

The researchers used data from the Child Development Supplement and the Transition to Adulthood projects in the Panel Study of Income Dynamics. The PSID is a 50-year-long survey that has followed the same set of families, now 18,000 individuals, throughout their lives and the lives of their children, collecting data on health, wealth, income and employment, among other measures.

The results are published as a working paper through the University of Arkansas Department of Education Reform.

Contact: Morgan Sherburne, 734-647-1844,

Fractions are the key to math success, new study shows

Girl writing math problem on chalkboard (Photo by Thinkstock)ANN ARBOR, Mich.—What part of math success comes from knowing fractions? More than you might think, according to a new study that analyzed long-term data on more than 4,000 children from both the United States and the United Kingdom.

Published in the current issue of the peer-reviewed journal Psychological Science, the study found that understanding fractions and division at age 10 predicted algebra and overall math achievement in high school, even after statistically controlling for a wide range of factors including parents’ education and income, and children’s age, gender, I.Q., reading comprehension, working memory, and knowledge of whole number addition, subtraction and multiplication. Continue reading