Working Paper: CEPR ID: DP18294
Authors: Jonathan Heathcote; Fabrizio Perri; Giovanni Violante; Lichen Zhang
Abstract: Heathcote et at. (2010) conducted an empirical analysis of several dimensions of inequality in the United States over the years 1967-2006 using publicly-available survey data. This paper expands the analysis, and extends it until 2021. We find that since the early 2000s, the college wage premium has stopped growing and the race gap has stalled, but the gender wage gap has kept shrinking. Both individual- and household-level income inequality have continued to rise at the top, while the cyclical component of inequality dominates dynamics below the median. Inequality in consumption expenditures has remained remarkably stable over time. Income pooling within the family and redistribution by the government have enormous impacts on the dynamics of household-level inequality, with the role of the family declining relative to that of the government over time. In particular, largely thanks to generous government transfers, the COVID recession has been the first downturn in fifty years in which inequality in disposable income and consumption actually declined.
Keywords: Inequality; Consumption; Recessions; Redistribution; Wages; Wealth; Surveys; Income; Earnings
JEL Codes: D12; D31; E21; H53; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government transfers (H29) | Household-level inequality (D31) |
| Cyclical component of inequality (D31) | Labor earnings fluctuations (J31) |
| Labor earnings fluctuations (J31) | Inequality dynamics below the median (D31) |
| College wage premium stagnation (J39) | Wage differentials by education (J31) |
| Income pooling within families (G59) | Household-level inequality (D31) |
| Government intervention (O25) | Household-level inequality (D31) |
| Economic downturns (e.g., COVID-19) (F44) | Disposable income and consumption inequality (D31) |