Macro Roundup

Great FRBSL chart on the college wealth gap, basically showing the “wealth” gap has outpaced the “income gap.” This is a largely a function of capital gains as college households have greater exposure to financial assets.

They also rule out assertive mating as a driver of the trend (Figure 8).

".... Our analysis corroborates the strong increase in the difference between college and noncollege income since the early 1980s. The average income of college households has increased by about 50 percent in real terms (Panel A of Figure 1). However, the increase of the college income premium is dwarfed by that of the college wealth premium (Panel B of Figure 1). The wealth of college households tripled between 1971 and 2016, while the wealth of noncollege households barely grew at all.We document that a substantial part of this widening wealth gap is driven by strong wealth gains within the top 10 percent of the wealth distribution. Looking at who makes it to the top 10 percent of the wealth distribution, we find that the share of noncollege households in the group has declined over time (Figure 2). By contrast, the share of college households making it to this group has remained remarkably stable over time. Our results therefore suggest that obtaining a college degree does not increase the probability of making it to the top 10 percent. A college degree seems to help households to keep pace, but not to reach the top. We additionally document that households with two college-educated spouses have enjoyed particularly large gains in wealth. Yet this trend is not driven by assortative matching but by the overall growth in college education..... assortative mating has even decreased among college graduates over time. An important question raised by our findings is why the ratio of college to noncollege wealth has grown so much more than the income gap. The workhorse economic models of wealth accumulation imply a tight comovement of income and wealth differences, as savings out of income is the sole determinant of wealth. We demonstrate that college and noncollege households exhibit systematic differences not only in the sizes of their asset holdings but also in the compositions of their portfolios. College households own a higher share of stocks and mutual funds (Figure 3). Consequently, college and noncollege households are differentially exposed to asset price changes. College households reap disproportionately high capital gains during stock market booms. Importantly, such capital gains are unrelated to income, as total household income in the SCF+ excludes capital gains. This finding is consistent with the decoupling of the evolution of the college income and wealth premiums since the 1980s...Using explorative regression analysis, we also find some indication that business ownership matters for the increase of the college wealth premium, especially since the late 1990s. The fact that the college wealth advantage is associated with equity holdings and business ownership may be related to higher levels of financial literacy and entrepreneurial skills among college households. These features can affect wealth via portfolio composition and differential returns..."

Employers are increasing demanding college degrees. Perhaps an alternative read is in an era of diminished college degrees (expanded accesses) failure to get across the finish line is an increasingly powerful signal to employers

"...Our main finding is that skill demand has increased substantially in the decade following the Great Recession. The share of online job vacancies requiring a bachelor’s degree increased from 23 percent in 2007 to 37 percent in 2019, an increase of more than 60 percent. Most of this increase occurred between 2007 and 2010, consistent with the finding that the Great Recession provided an opportunity for firms to upgrade skill requirements in response to new technologies...We present several pieces of evidence suggesting that the increase in skill demand is structural, rather than cyclical...when we extend the sample forward and adjust for differences in the composition of online vacancies, we find that this cyclical “upskilling” fades within a few years. In its place, we find long run structural increases in skill demand across all labor markets. In fact, we show that the increase in skill demand post-2010 is larger in higher-wage cities. We also find much larger increases in the demand for education in professional, high-wage occupations such as management, business, science and engineering...Our results suggest that increasing demand for educated workers is likely a persistent feature of the U.S. economy post-recession...We find rapid expansion in the demand for skills, suggesting that education and technology are “racing” together to hold the college wage premium steady....The share of job vacancies requiring a bachelor’s degree increased by more than 60 percent between 2007 and 2019, with faster growth in professional occupations and high-wage cities. Since the labor market was becoming tighter over this period, cyclical “upskilling” is unlikely to explain our findings…”

Peter Blair and David Deming, "Structural Increases in Skill Demand after the Great Recession," National Bureau of Economic Research, January 2020, https://www.nber.org/papers/w26680

New Rognlie looks at income distribution's impact on aggregate demand as of today. As of now they find that the marginal propensity to consume btw rich and poor is quite small: “…average MPC of the top 10% of income earners and that of the bottom 90% of earners is less than 0.1….”

Adrien Auclert and Matthew Rognlie, "Inequality and Aggregate Demand," Stanford University and Northwestern University, January 2020, http://mattrognlie.com/inequad.pdf

“…For temporary increases in inequality, in line with common intuition, we find that the key is the relationship between MPCs and income. But although the rich have lower MPCs than the poor, the gap is not large enough for realistic changes in the income distribution to have much effect on aggregate consumption. For instance, in both the data and our calibrated model,the gap between the average MPC of the top 10% of income earners and that of the bottom 90% of earners is less than 0.1. Hence, every additional 1% of overall income shifting from the bottom 90% to the top 10% (a larger-than-usual year on year change; see Piketty and Saez 2003) lowers aggregate consumption by no more than 0.1% of total income….We explore the transmission mechanism of income inequality to output. In the short run, higher inequality reduces output because marginal propensities to consume are negatively correlated with incomes, but this effect is quantitatively small in both the data and our model. In the long run, the output effects of income inequality are small if inequality is caused by rising dispersion in individual fixed effects, but can be large if it is the manifestation of higher individual income risk….We found that transitory income redistribution can lead to declines in both consumption and output, but that this effect is likely small. By contrast, we found that the long-run effect of income inequality, if it involves an increase in idiosyncratic income risk, can potentially be quite large….”

However they find that this could change going forward, “…we generally findoutput effects that are negative but small, with one notable exception: if inequality is caused by an increase in individual income risk, and monetary policy does not or cannot lower interest rates enough to offset it, then a large, long-lasting slump can ensue…”.

Chart fromTheEconomistreport on who is buying Treasuries and the state of play of the global savings glut/safe asset shortage,

“…Domestic investors have soaked up two-thirds of the extra government borrowing since 2016. Foreigners have bought the rest, equivalent to $800bn-worth of Treasuries. As a consequence, America is now an even bigger net borrower from the rest of the world. Its current-account deficit has widened to around 2.5% of gdp. It is no surprise that investors have an appetite for American debt. Policy uncertainty abounds, not least thanks to Mr Trump’s enthusiasm for threatening trade war. There are few other havens. Germany’s insistence on running super-tight fiscal policy means there is an undersupply of bunds, argues Brad Setser of the Council on Foreign Relations, a think-tank. Traders moan that the market for Japan’s government bonds is illiquid. Investors based in Europe appear to have been the most enthusiastic buyers (see chart). In part that reflects some countries’ large trade surpluses. In the past year Norway, a big oil exporter, has doubled its holdings. But that does not explain why Belgium, a country of 11m people, is one of the world’s biggest foreign buyers of Treasuries. Although official purchases by China look stable, some suspect that it is making some of its purchases through Belgian intermediaries….”

Economist Staff, “Investors at home and abroad are piling into American government debt,” The Economist, January 25, 2020, https://www.economist.com/finance-and-economics/2020/01/25/investors-at-home-and-abroad-are-piling-into-american-government-debt