Knowledge that Transforms

The proposition that there is a large and growing black middle class is a major tenet of much recent work on black economic progress. This paper examines one aspect of middle-class status for black families, namely, the stability of high earnings among young male household heads. It finds that while such men are much less likely to have high earnings than are their white counterparts, there are only small racial differences in the stability of high earnings over time.

In the absence of perfect annuity markets, individual consumers generally undertake precautionary saving to provide resources for their future consumption in the event that they live longer than expected. Kotlikoff, Shoven, and Spivak (in this issue) (hereafter KSS) have provided us with a well-conceived and well-executed study of the effects of various annuity arrangements on individual and aggregate saving in the presence of lifetime uncertainty. Each of these authors has had a long-standing interest in this area, and their current paper reflects their accumulated expertise. Their results indicate that a potentially sizable fraction of U.S. household wealth represents precautionary saving resulting from the absence of perfect annuity market.

The proposition that there is a large and growing black middle class is a major tenet of much recent work on black economic progress. This paper examines one aspect of middle-class status for black families, namely, the stability of high earnings among young male household heads. It finds that, while such men are much less likely to have high earnings than are their white counterparts, there are only small racial differences in the stability of high earnings over time.

The classic case of nonconvexity in consumer opportunities is that of labor supply. While most studies of labor supply concentrate on the individual agent in partial equilibrium, this study considers general equilibrium. I show that even with nonconvex consumer opportunites, such as those involved in the labor supply decision, the standard theorems of general equilibrium models still hold.