During t his w eek you w ill about many import ant aspect s - PowerPoint PPT Presentation

G ENDER AND W EALTH E QU A LI TY E VA S IERMINSKA LISER-Luxembourg Institute of Socio- Economic Research IZA Bonn 2nd Summer School on Gender Economics and Society, Torino, Italy DIW Berlin July 6th –July 10th, 2015

P R E - I N E Q U A L I T Y . . . . G E N D E R 2 A N D I NTRODUCTI ON • During t his w eek you w ill about many import ant aspect s relat ed t o gender affect ing t he everyday lives of w omen and men : family policies, migrat ion, et hnicit y, income, invest ment st rat egies, polit ical part icipat ion, pensions, w ell-being over t he life-course and act ual t est imonials. Very import ant ! • All t hese aspect s feed int o t he t opic of t his lect ure, w hich is w ealt h and w ealt h building. How ?

Family reconciliation Balance work and policies family Labor market participation Well ‐ being over the life ‐ course Bargaining power within the household Retirement Individual Accumulated income savings savings = wealth

P R E - I N E Q U A L I T Y . . . . G E N D E R 4 A N D I NTRODUCTI ON • Here I w ould like t o show you not only t he ext ent t o w hich gender differences exist in w ealt h, but also how to measure gender differences in wealth • how to measure gender differences in wealth participation. •

5 F AMOUS EQUATI ON ON A SSET B UI LDI NG W t =(1+r)W t-1 +S t = (1+r)W t-1 +Y t -C t r-gross rate of return on investments Y t -income in period t C t – consumption in period t In this model differences in wealth accumulation occur for 3 reasons: W/M differ in the amount they save (Y-C) • Labor market participation (Warren et al 2001); • Earnings gap (e.g. Blau & Kahn 1997, 2000) • Occupation (e.g. Goldin 2014) • Work/ family balance affects your Y • W/M enter the period with different stocks of assets (W) • Inheritance laws • Probability of owning a home; • discrimination in mortgage lending (Ladd 1998); • lower income  lower credit scores (Sedo & Kossoudji 2004) •

6 F AMOUS EQUATI ON ON A SSET B UI LDI NG W/M receive different rates of return (r) • Differences in portfolio structure (reflecting variation in risk preferences) saving vs. investing • Women invest more conservatively (Jiankokopolos & Bernasek 1998) More risk averse (Barsky • et al 1997) Concept of : wealth escalator and debt anchor (M.Chang 2010) • Additionally: Marriage patterns (Zagorsky, 1999) • Legal environment: • J oint ownership of assets (and debts) acquired during marriage • Divorce laws • Wealth accumulated prior to marriage remains in the hands of the original • owner Marriage contracts can deviate from these standard regulations •

7 V ARI ABLES OF I NTEREST • Tot al net w ealt h ~ net w ort h ( NW) • Componet s of net w ealt h Financial assets= stocks+ bonds+ mutual funds+ deposit accounts+ • saving accounts+ other financial assets Non-financial assets= main residence+investment real estate+ • business equity Liabilities= mortgages + other debt • • Decision t o ow n asset s

8 Wealt h Escalat or • allow s for w ealt h creat ion t hrough access t o w ealt h building product s • Saving and invest ing Debt Anchor • causes w ealt h dest ruct ion

9 W EALTH E SCALATOR ( L ABOR MARKET PARTI CI PATI ON ) Fringe benefit s • Direct fringe benefit s Employer-sponsored retirement plans (access restricted, i.e. Full-time) • Defined benefit plans (based on length of employment, age and • earnings history) Private pension savings plans (defined contribution) (women fewer • years to contribute and lower income) Women more often change jobs and thus have more opporutnities to cash out of these plans

10 W EALTH E SCALATOR ( L ABOR MARKET PARTI CI PATI ON ) ( CONT ’ D ) Fringe benefit s • Direct fringe benefit s • I ndirect fringe benefit s Stock options and profit sharing plans • Employer sponsored health insurance • Life insurance • Paid sick leave • Flexible spending plans • Less fringe benefits in occupations where women cluster e.g. services

11 W EALTH E SCALATOR ( CONT ’ D ) Direct fringe benefits • Indirect fringe benefits • Tax-incentives on private pension savings plans (IRAs) • Long-term capital gains (lower tax) • Home mortgage deduction • Government benefits are considered as being a trap for women (many means-tested and require liquidation of assets)

12 S AVI NGS VS . I NVESTI NG Saving ( put t ing away cash for a rainy day) I nvest ing ( commit ment of money in t he hope of event ual ret urn)

13 S AVI NGS VS . I NVESTI NG Saving ( put t ing away cash for a rainy day) • Cash ( in deposit account s, under mat t ress) Important foundation of economic security • • Homeow nership Access to the wealth escalator (equity, tax advantages, capital gains if • sold) Home equity source of reserve • Income creation (renting, reverse mortgages) •

14 S AVI NGS FOR SI NGLE WOMEN AND MEN ( R ATI O W/ M I N PARTI CI PATI ON AND LEVELS ( MEDI AN ) )

15 S AVI NGS VS . I NVESTI NG I nvest ing ( commit ment of money in t he hope of event ual ret urn) • St ocks • I nvest ment real est at e • Business asset s

16 I NVESTI NG FOR SI NGLE WOMEN AND MEN ( R ATI O W/ M)

17 W HY ARE THERE GENDER DI FFERENCES I N I NVESTI NG ? Wealt h building requires more risk t aking ( w omen are more risk-averse) Why? difference in access t o financial informat ion confidence in economic mat t ers gender socializat ion discouraging w omen from risk t aking differences in t est ost erone ( ! ! ! ) levels

18 • Labor market access • Financial know ledge regarding t he w ealt h escalt or and debt anchor • Financial educat ion regarding saving and invest ing

19 P OLI CY SOLUTI ONS • Minimal paid parent al leave for bot h parent s • I ncorporat e caregiving int o t he w ealt h escalat or ( include years spent caregiving) • I ncreasing men’s part icipat ion in caregiving • Same hourly pay for part-t ime and full-t ime w ork • Allow ing part-t ime w ork in many occupat ions ( same chances for promot ion?) • Great er financial educat ion for w omen t o be able t o access t he w ealt h escalat or ( and avoid debt anchor)

20 D EBT A NCHOR • “ Good” debt ( debt t hat allow s t o accumulat e more w ealt h and includes t ax advant ages) Mortgages • Education loans • • “ Bad” debt ( debt used for t he most part t o consume and not hing else) Women are more likely t o have “ bad” debt

21 F AMOUS EQUATI ON ON A SSET B UI LDI NG W t =(1+r)W t-1 +S t = (1+r)W t-1 +Y t -C t r-gross rate of return on investments Y t -income in period t C t – consumption in period t

22 L I FE -C YCLE P ERSPECTI VE ( M ODI GLI ANI )

23 L I FE -C YCLE P ERSPECTI VE ( M ODI GLI ANI )

P R E - I N E Q U A L I T Y . . . . G E N D E R 24 A N D A VERAGE W EALTH LEVELS F OR W OMEN AND M EN Women Men Single_Womwn Single_Men 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 AT BE CY DE ES FI FR GR IT LU NL PT SI SK Source: Household Finance and Consumption Survey (HFCS) wave 1

P R E - I N E Q U A L I T Y . . . . G E N D E R 25 A N D I NTRODUCTI ON I n a life-cycle set t ing 1 point w here t o observe t hese accumulat ed differences w ould be at ret irement and in fact t his is w hat w e see....

26 G OAL FOR TODAY • Examine w here are t he differences in w ealt h accumulat ion bet w een w omen and men coming from • Met hods t hat allow us t o calculat e t he magnit ude of t hese effect s

27 O UTLI NE 1. I nt roduct ion 2. Famous equat ion 1. Sources of differences between W/M 2. Examples 3. Concept of w ealt h 4. Research in w ealt h ( first st eps) 5. Met hods ( w it h applicat ions) A. Levels (status quo—little explanation) B. Distribution and Inequality (summary measure) C. Regressions D. Decomposition methods 6. Summary 7. Ext ensions 8. References

28 R ESEARCH STRATEGY • Differences in w ealt h levels • Differences in levels of t he component s ( int ensive levels) —housing , financial asset s • Decision t o ow n ( ext ensive level)

29 M ETHODS A. Levels ( st at us quo—lit t le explanat ion) B. Dist ribut ion and I nequalit y ( summary measure) A. Gini B. Other measures / graphical representation C. Regressions D. Decom posit ion m et hods A. At the mean B. Along the distribution

30 A. L EVELS ( M EAN VS . M EDI AN ) Mean—sum of all component s divided by t he number of  observat ions x i  i X n Median --t he numerical value separat ing t he higher half of t he dat a from t he low er half.

31 A. L EVELS ( M EAN VS . M EDI AN ) Mean— • Pros Easy to calcute and interpret • Means of different wealth components will sum up to mean of net worth • • Cons Sensitive to outliers and to the asymmetry of the distribution (both • common to the wealth distribution) Median— • Pros More stable and robust measure • Less affected by values at the lower and upper extremes of the • distribution • Cons It’s not additive •