INCOME INEQUALITY

Trends in the Distribution of Household Income Between 1979 and 2007

Trends in the Distribution of Household Income Between 1979 and 2007

Introduction

Earnings inequality has been rising in the United States since the late 1970s. Figure 1.1 depicts this increase in inequality of hourly earnings, between 1979 and 2008, as measured by the Gini coefficient. Following a dramatic increase during the 1980s, earnings inequality appears to have risen in a steady, nearly linear, fashion from the late 1980s to the late 2000s. Constitutive of this national trend are the experiences of individual states, which have been converging on higher levels of earnings inequality (Orszag, 2007). While earnings inequality has increased everywhere, the magnitude of change varies substantially between states. Montana and Wyoming experienced a roughly 9% increase in the Gini coefficient, while states such as New York and California experienced a 29% and 28% increase, respectively, over the same period. An examination of trends in earnings inequality at the state level suggests that rising inequality nationally is a product of state-level experiences that are more complicated and differentiated than is displays trends in the three-year moving average of the Gini coefficient for four states with divergent trajectories of change in earnings inequality (California, South Carolina, Connecticut, & Nevada) (Nexon, 2007).

California has experienced a steady increase in earnings inequality, a pattern similar to that experienced within states such as New York, Florida, and Illinois. These patterns of change, within these highly populous states, drive the aggregate trends found in national-level statistics. In contrast, some states experienced concentrated increases during specific periods, as was the case in Connecticut in the early 1990s or Nevada in the late 1990s and early 2000s. South Carolina, on the other hand, experienced distinct jumps in inequality in the 1980s and 2000s, with inequality remaining stable and even falling during the 1990s.

Further, individual states vary substantially in the types of changes in their earnings distributions producing higher levels of inequality. The CBO report presents the percentage change in the 10th, 30th, 50th, 70th and 90th percentiles of earnings between 1980 and 2007 for the U.S. as a whole and a number of selected states (ordered from lowest to highest in overall increase in inequality). Nationally, earnings growth over this period is disproportionately skewed towards the top of the distribution (Hagan, 2008). This is true at the level of states as well, but the character and degree of this skew varies between states in substantively important ways. For example, a state such as Michigan experienced rising inequality as a consequence of upper-tail earnings pulling away from stagnant median and lower-tail wages. In contrast, Massachusetts experienced widely shared and substantial earnings growth across the distribution with disproportionate gains at the top. While both states experienced similar increases in overall inequality, the different changes in real wages driving these increases indicate profoundly different labor market experiences, particularly for low-wage earners.

Income Distribution Inequality

The steady and substantial increase in income inequality in the United States, observed since the mid-1970s, ...