Who are the winners and the losers? Transitions in the U.S. household income distribution
People all over the world have spent almost six months in front of universities, public parks, banks, and even Wall Street to publicly protest their dissatisfaction with economic inequality. But how much disparity really exists between the rich and poor in the United States? This study reveals it might be more than you would think. It analyzed surveys of US households from the late 1990’s and early 2000’s. Looking at differences among fifths of the U.S. population it found that when the U.S. economy prospers, there is an uphill flow of income to households in the upper section while the majority of households in middle and lower income groups do not see an increase in income at all. This of course affects US households when the economy slows down. The data suggests that those households at the bottom appear to be stuck or in some cases may even slide further into the depths of poverty. “It can be argued that households in the upper portion of the income distribution are better positioned, or even favored, to reap the benefits from growth, further widening the income gap between rich and poor,” wrote the author. “Richer households are getting richer, the poorer households are staying poor, and those middle-income households continue to move about chasing the elusive American dream.”
In the five decades since Kuznets (1955) published his hypothesis on income inequality, a large and significant portion of the work on income distribution and inequality has involved using cross-sectional data for developmental comparisons at the intra- and international levels. Using cross-sectional data, these studies have tracked inequality trends that were deemed the consequence of growth and technical progress due to fiscal manipulations, such as levying taxes and granting subsidies to satisfy some welfare target. While this prior work provided valuable insight at the macroeconomic level on the interrelationship of development, economic growth, and income inequality, only over the last few decades has the research emphasis shifted from an understanding of the implications of income inequality at the aggregate level to that at the individual level. Using cross-sectional data it is possible to track income groups over time, but not the composition nor the characteristics of these groups, which are likely to change over time and affect their position in the income distribution. On the other hand, with the availability of longitudinal, micro-level data it has become possible to investigate in more detail underlying facets of income distribution, such as income mobility, and the lack of it, among households. Using three panels of the Survey of Income and Program Participation (SIPP) (1993, 1996, and 2001) and building upon the methodological suggestions of Jarvis and Jenkins (1998) and Jenkins (2000), this paper looks at a household’s economic and demographic characteristics relative to their position in the income distribution. For example, results indicate that between 1996-1999, 13 million households experienced changes in their annual income that resulted in their moving up or down two or more quintiles in the income distribution. On the other hand, 39 percent of households (38.5 million) remained in the same quintile between 1996-1999 with the majority of these households experiencing intra-quintile movements. Of notable interest is that of those households remaining in the fourth and top quintiles between 1996-1999; 70 percent and 65 percent, respectively, experienced positive intra-quintile gains in income ranging, on average, from $3,550 to $10,812 annually.
JEL classification: C81, D31, O15
Hisnanick, J. (2011). Who Are the Winners and the Losers? Transitions in the U.S. Household Income Distribution Review of Radical Political Economics, 43 (4), 467-487 DOI: 10.1177/0486613411402639