The Distribution of Household Income in the United States, 1946-2015

38 Pages Posted: 16 Dec 2019

See all articles by John Schwendel

John Schwendel

University of Wisconsin-Milwaukee

Hamid Mohtadi

University of Wisconsin - Milwaukee

Date Written: November 25, 2019

Abstract

Collecting long run and geographically precise income data from the Internal Revenue Service, this paper estimates annual, state-level distributions of household income of the United States population from 1946 to 2015. Additionally and critically, by studying the central range of the U.S. distribution of income over this time period, it focuses on an area of investigation that has received little or no attention in the literature which either focuses on a shorter time period or on top earners. Simulations also demonstrate the appropriateness of our estimation technique. Specifically, if earnings follow a known distributional form, the proposed method is found to be superior for estimating inequality indices when compared to alternatives for dealing with binned data. Various measures of inequality derived from the estimated distributional parameters are presented. National inequality represented by the Theil index shows the rise of inequality is concentrated in periods beginning in the late 1940s and the early 1960s. The movement of relative earnings among the 10th, 50th, and 90th percentile of earners supports the well-known “hollowing out” effect. Owing to the rich historical aspect of the data collected, we extend the understanding of the presence of this effect to the mid-20th century, i.e., the late 1940s and 1950s. State-level inequality follows a similar pattern to the national trend, but with some variation. While within-state inequality is the most substantial part of national inequality, an inverted W shaped pattern of between-state inequality is also found, with peaks in the early 1950s and early 2010s.

JEL Classification: C81, D31

Suggested Citation

Schwendel, John and Mohtadi, Hamid, The Distribution of Household Income in the United States, 1946-2015 (November 25, 2019). Available at SSRN: https://ssrn.com/abstract=3496365 or http://dx.doi.org/10.2139/ssrn.3496365

John Schwendel (Contact Author)

University of Wisconsin-Milwaukee

3210 N. Maryland Avenue
Bolton Hall 802
Milwaukee, WI
United States

Hamid Mohtadi

University of Wisconsin - Milwaukee ( email )

Department of Economics
Milwaukee, WI 53211
United States

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