Working Paper: NBER ID: w31486
Authors: Jonathan Heathcote; Fabrizio Perri; Giovanni L. Violante; Lichen Zhang
Abstract: Heathcote et al. (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 to 2021. We find that since the early 2000s, the college wage premium has stopped growing, and the race wage gap has stalled. However, 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 diminishing and that of the government growing over time. In particular, largely due 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; income dynamics; government transfers; wage gaps; consumption
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 |
|---|---|
| college wage premium stabilization (J39) | gender wage gap narrowing (J31) |
| individual and household-level income inequality rise (D31) | divergence in income dynamics (D31) |
| government role in redistributing income increases (H19) | reduction in inequality during economic downturns (F62) |
| COVID-19 recession (F44) | decline in inequality in disposable income (D31) |
| increased correlation of earnings within households (G59) | reduced effectiveness of household income pooling (H31) |
| government transfers (H59) | mitigation of inequality during recessions (F62) |