Unequal we stand: An empirical analysis of economic inequality in the United States, 1967–2006

We conduct a systematic empirical study of cross-sectional inequality in the United States, integrating data from the Current Population Survey, the Panel Study of Income Dynamics, the Consumer Expenditure Survey, and the Survey of Consumer Finances. In order to understand how different dimensions of inequality are related via choices, markets, and institutions, we follow the mapping suggested by the household budget constraint from individual wages to individual earnings, to household earnings, to disposable income, and, ultimately, to consumption and wealth. We document a continuous and sizable increase in wage inequality over the sample period. Changes in the distribution of hours worked sharpen the rise in earnings inequality before 1982, but mitigate its increase thereafter. Taxes and transfers compress the level of income inequality, especially at the bottom of the distribution, but have little effect on the overall trend. Finally, access to financial markets has limited both the level and growth of consumption inequality.     

Spain is different: Falling trends of inequality

In this article we characterize the evolution of inequality in hourly wages, hours of work, labor earnings, household disposable income and household consumption for Spain between 1985 and 2000. We look at both the Encuesta Continua de Presupuestos Familiares and the European Household Community Panel. Our analysis shows that inequality in individual net labor earnings and household net disposable income has decreased substantially. The decreases in the tertiary education premium and in the unemployment rate have been key ingredients to understand this falling trend. Public transfers have played a crucial role in smoothing out the inequality arising in the labor market, but instead the Spanish family does not seem to have been an important insurance mechanism. Regarding household consumption, inequality has fallen much less than inequality in household net disposable income, with the decrease mostly concentrated in the second half of the eighties. This suggests that the reduction in income inequality has affected the sources of permanent differences between households only during the second half of the eighties. Our estimates of the earnings process for the period are consistent with this view.     

Wage,income and consumption inequality in Japan, 1981–2008: From boom to lost decades

In this paper we document the main features of the distributions of wages, earnings, consumption and wealth in Japan since the early 1980s using four main data sources: the Basic Survey on Wage Structure (BSWS), the Family Income and Expenditure Survey (FIES), the National Survey of Family Income and Expenditure (NSFIE) and the Japanese Panel Survey of Consumers (JPSC). We present an empirical analysis of inequality that specifically considers the path from individual wages and earnings, to household earnings, after-tax income, and finally consumption. We find that household earnings inequality rose substantially over this period. This rise is made up of two distinct episodes: from 1981 to 1996 all incomes rose, but they rose faster at higher percentiles; from 1996 to 2008 incomes above the 50th percentile remained flat but they fell at and below the 50th percentile. Inequality in disposable income and in consumption also rose over this period but to a lesser extent, suggesting taxes and transfers as well as insurance channels available to households helped to insulate household consumption from shocks to wages. We find the same pattern in inequality trends when we look over the life cycle of households as we do over time in the economy. Additionally we find that there are notable differences in the inequality trends for wages and hours between men and women over this period.     

Factor Components of Inequality: A Cross‐Country Study

This paper uses data from the Luxembourg Income Study to examine some of the forces that have driven changes in household income inequality over the last three decades of the twentieth century. We decompose inequality for six countries (Canada, Germany, Norway, Sweden, the U.K., and the U.S.) into the three sources of market income (earnings, property income, and income from self‐employment) and taxes and transfers. Our findings indicate that although changes in the distribution of earnings are an important force behind recent trends, they are not the only one. Greater earnings dispersion has in some cases been accompanied by a reduction in the share of earnings which dampened its impact on overall household income inequality. In some countries the contribution of self‐employment income to inequality has been on the rise, while in others, increases in inequality in capital income account for a substantial fraction of the observed distributional changes.     

INCOME MOBILITY IN SPAIN: HOW MUCH IS THERE?

Traditional cross-sectional research is unable to measure the degree of income mobility in an income distribution. Using longitudinal data and various income stability indices, this paper measures the level of permanent inequality (immobility) in Spain for the period 1985–92. Results indicate that the transitory component of inequality is large and the level of income mobility increases over time while income inequality decreases slightly. More stability is found at the top than at the bottom of the income distribution and the range of the registered movements is rather short.     

Inequality trends for Germany in the last two decades: A tale of two countries

In this paper we first document inequality trends in wages, hours worked, earnings, consumption, and wealth for Germany from the last twenty years. We generally find that inequality was relatively stable in West Germany until the German reunification, and then trended upwards for wages and market incomes, especially after about 1998. Disposable income and consumption, on the other hand, display only a modest increase in inequality over the same period. These trends occurred against the backdrop of lower trend growth of earnings, incomes and consumption in the 1990s relative to the 1980s. In the second part of the paper we further analyze the differences between East and West Germans in terms of the evolution of levels and inequality of wages, income, and consumption.     

INEQUALITY OF WAGE RATES,EARNINGS AND FAMILY INCOME IN THE UNITED STATES, 1975–2002

This paper analyzes distributional changes over the last quarter of the twentieth century. We focus on four distinct distributions: the distribution of hourly wage rates, the distribution of annual earnings of individuals, the distribution of annual earnings of families, and the distribution of total family income adjusted for family size. Both male wage rate inequality and family income inequality accelerated during the early 1980s, increased at a slower rate through the early 1990s and then stabilized at a high level through the early 2000s. The similarity in the timing of changes in these two distributions has been used as evidence that increased family income inequality primarily reflects increased inequality of wage rates. We show that other important factors were also at work.     

Income distribution under Soviet-type socialism: An interpretative framework

This paper studies the economic logic of the processes that govern distribution of real personal incomes in a socialist economy by examining the allocative function of gross wages and the incentive function of workers' real disposable incomes. Also considered are the differential effects on income distribution of paying workers straight time wages and incentive payments, and the distributive consequences of the organizational principles adopted in shaping the actual structure of the socialist economy. Finally, the factors affecting inequality in the distribution of earnings under socialism and capitalism are compared.     

Sources of Inequality: Measuring the Contributions of Income Sources to Rising Family Income Inequality

We develop a simulation method for measuring the impact of changes in the distributions of the main income sources on growth in family income inequality. We simulate the entire distribution of family income under the counterfactual, “What if the distribution of each source had not changed?” The simulation method allows us to evaluate the impact of changes at any point in the distribution as well as with multiple measures of inequality. We incorporate married‐couple and single‐person families, appropriately accounting for changes in the proportion married. We apply the simulation method to investigate the impact of changes in male earnings, female earnings, and capital income on the distribution of family income in the United States between 1969 and 1999. We find that changes in the distribution of male earnings account for more of the growth in family income inequality than do changes in any other source of income. Changes in the distribution of female earnings have reduced family income inequality.     

Has Globalization Increased Inequality?*

There is no shortage of theories that purport to explain why globalization may have adverse, insignificant, or even beneficial effects on income and earnings inequality. Surprisingly, the empirical realities remain an almost complete mystery. In this paper, we use data on industrial wage inequality, household income inequality as well as measures of the economic, social and political dimensions of globalization to examine this controversial issue. Overall, while we find that globalization has exacerbated inequality; this is particularly true in the case of income inequality in OECD countries.     

Firms and wage inequality in Central and Eastern Europe

We use large linked employer-employee data to analyze wage inequality patterns in Central and Eastern European (CEE) countries between 2002 and 2014. We show that, unlike in many other advanced economies, wage inequality levels have decreased in almost all CEE countries. These reductions in wage inequality resulted from disproportionately large increases in wages at the bottom of the wage distribution, and from decreases in between-firm wage inequality. We further find that the declines in wage inequality were driven by large wage structure effects that compensated for changes in the composition of workers.     

Unemployment Shocks and Income Distribution: How did the Nordic Countries Fare during their Crises?

We study the inequality of disposable income in Denmark, Finland, Norway and Sweden during the late 1980s and early 1990s when unemployment rose dramatically in all four countries. A standard measure of inequality — the Gini coefficient – was surprisingly stable in all countries during this period. By decomposing the Gini into income components, we test hypotheses about the reasons for this stable income distribution. Our most straightforward hypothesis, that rising unemployment benefits counteracted the impact of more unequally distributed earnings, receives only limited support. More complex mechanisms seem to have been at work.
JEL classification: D 30; D 31; J 60     

MEASURING THE IMPACT OF VALUING HEALTH INSURANCE ON LEVELS AND TRENDS IN INEQUALITY AND HOW THE AFFORDABLE CARE ACT OF 2010 COULD AFFECT THEM

A substantial part of the U.S. inequality literature focuses on yearly levels and trends in pre‐tax, post‐transfer cash income and its distribution over time and finds that median income appears to be stagnating, with income growth primarily coming at higher income levels. When we use data from the Current Population Survey for 1995–2008 and add the value of employer‐ and government‐provided health insurance coverage, not only does it increase the upward trend in the level of resources controlled by Americans, but also reduces the level of inequality in these resources and its upward trend. We then provide a highly stylized example of this broader income measure's value in capturing the impact of two key provisions of the Affordable Care Act of 2010—an expansion in Medicaid and the provision of subsidies to lower‐income families for purchasing private coverage on state‐run exchanges. Even though these incremental expansions build on existing systems of government‐provided health insurance, we find that the vast majority of the benefits would still accrue to the bottom three deciles of the income distribution when we include the value of employer‐ and government‐provided health insurance in our expanded yearly income measure. (JEL D31, H51, I14)     

Analyzing occupational licensing among the states

The study provides new evidence of the influence of occupational regulations on the U.S. economy. Our analysis, unlike previous studies, was able to obtain a representative sample of the population at the state level, which allowed us to estimate the cross-sectional effects of occupational licensing for each state. The state-level analysis demonstrates considerable variation in percentage of the workforce that has attained a license, and unlike minimum wages or unionization, licensing shows no regional patterns in the distribution of occupational licensing. The analysis also shows considerable variation in the influence of licensing on earnings across the states. The national estimates suggest that occupational licensing raises wages by about 11% after controlling for human capital and other observable characteristics. Finally, our analysis shows the influence of occupational regulation on wage inequality across the income distribution.     

Twenty Years of Rising Inequality in U.S. Lifetime Labour Income Values

In this paper we study the evolution of lifetime labour income inequality by constructing present value life cycle measures that incorporate both earnings and employment risk. We find that, even though lifetime income inequality is 40% less than earnings inequality, the total increase in lifetime income inequality over the past 20 years is the same as earnings inequality. While the total increase is the same, the pathways there differ with earnings inequality experiencing a steady increase and lifetime income inequality increasing in spurts particularly in the latter half of the 1990s. Finally, we find the changes in lifetime income inequality are primarily driven by changes in earnings mobility and changes in the earnings distribution itself, changes in employment risk and the composition of the sample, such as the shift toward attaining more education and the ageing population, do not play a large role.     

Deunionization and pay inequality in OECD Countries: A panel Granger causality approach

The impact of unionization on wage inequality has been examined by a vast literature. Focusing mostly on the US and the UK in time series analyses or on OECD countries in panel data analyses, a bulk of these studies have found a negative impact of deunionization (i.e. decline in the union density rate) on distribution of wages. By utilizing two inequality data sets both provided by the University of Texas Inequality Project and the union density data set provided by OECD this paper contributes to the literature, analyzing the causality relationship between deunionization and pay inequality for 24 OECD countries for the 1963–2000 period within a panel Granger structure. Our findings show not only that there is causality from union density to income inequality but also, perhaps more importantly, point out that there is causality running from income inequality to union density for various set of countries and time periods.     

Growth versus equity: A CGE analysis for effects of factor-biased technical progress on economic growth and employment

With factor-biased technical progress described as labor-saving and skill-biased technical changes, there are concerns that technological innovation can lead to unemployment and widen inequality in the economy. This study explores impacts of factor-biased technical changes on the economic system in terms of economic growth, employment, and distribution, using a computable general equilibrium (CGE) model. The results show that technological innovation contributes to higher level of economic growth with productivity improvements. However, our analysis suggests that economic growth accompanied by skill- and capital-biased technical progress disproportionately increases demand for capital and high-skilled labor over skilled and unskilled labor. This shift in the value-added composition is found to deepen income inequality, as more people in higher income groups benefit from skill premium and capital earnings. Our results suggest that policymakers should prepare a wide range of policy measures, such as reforms in educational programs and taxation systems, in order to ensure sustainable growth.     

SOME COMPARISONS OF THE CANADIAN-U.S. INCOME DISTRIBUTIONS

This paper compares the income distribution of Canada and the United States as well as other characteristics of the population such as the labour force and income trends in the two countries in the post-war years. In both countries family income distributions show similar degrees of inequality and similar movements in real incomes through time. However, an examination of Canadian data suggests that differences do exist in underlying patterns. For example, there are greater earnings differentials between skilled and unskilled workers in Canada than in the United States while on the other hand in the United States greater differences exist between family incomes with heads in different age groups than is the case in Canada.     

INTERGENERATIONAL INCOME MOBILITY IN SWEDEN: WHAT DO TAX‐DATA SHOW?

The aim of this paper is to investigate intergenerational income mobility in Sweden by means of a representative sample drawn from tax-data files. Longitudinal data on actual parent-child pairs spanning 1978–92 are employed. Regression and correlation coefficients are analyzed and transition matrices calculated in order to investigate income mobility over generations. The results achieved show high intergenerational income mobility in Sweden between fathers and sons in comparison to estimations performed in most other countries and more especially compared to the U.S. This indicates that Sweden does not only have lower cross-sectional income inequality, but also higher intergenerational income mobility than those countries. The mother's earnings influence children's earnings less than the father's. However, the mother's earnings correlate more strongly with a daughter's earnings than they do with that of a son. The major indication of immobility across generations is found in the upper income deciles.     

EARNINGS INEQUALITY IN USA, 1969–99: COMPARING INEQUALITY USING EARNINGS EQUATIONS

A simple decomposition method using an earnings equation is proposed by synthesizing two decomposition methodologies, those of Juhn, Murphy, and Pierce (1993) and Fields (2003), in order to study changes in earnings inequality in America during the last three decades in the 20th century. The proposed method enables us to compute both aggregate and detailed decompositions of changes in earnings inequality. The decomposition of earnings inequality change during the last three decades in 20th century shows that the increase in earnings inequality in America was caused by changes in the wage structure and the distribution of unobservables. The premium to education contributes substantially to the widening of earnings inequality during the 1980s and 1990s. A decreasing male wage premium contributes to leveling earnings inequality.