Inequality and Panel Income Changes: Conditions for Possibilities and Impossibilities

49 Pages Posted: 4 May 2020

See all articles by Robert Duval-Hernandez

Robert Duval-Hernandez

World Bank

Gary Fields

Cornell University - School of Industrial and Labor Relations; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

George H. Jakubson

ILR-Cornell University

Abstract

The question of who benefits from economic growth is usually assessed by using cross section data to calculate changes in income inequality. An alternative is to assess patterns of panel income changes. We derive theoretical conditions reconciling changes in inequality together with various measures of convergent/divergent panel income changes. For a large number of inequality indices, as well as for Lorenz curves: we show that rising inequality can coexist with convergent panel changes provided the latter are "large" (and in the right direction), where the meaning of "large" varies depending on the particular regression under analysis; we show that it is impossible to have both falling inequality together with divergent panel income changes in shares or in proportions; and we establish a condition linking convergence/divergence in dollars to changes in the coefficient of variation.

Keywords: income inequality, economic mobility, panel income changes

JEL Classification: J31, D63

Suggested Citation

Duval-Hernandez, Robert and Fields, Gary S. and Jakubson, George H., Inequality and Panel Income Changes: Conditions for Possibilities and Impossibilities. IZA Discussion Paper No. 13179, Available at SSRN: https://ssrn.com/abstract=3590877 or http://dx.doi.org/10.2139/ssrn.3590877

Robert Duval-Hernandez (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
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Gary S. Fields

Cornell University - School of Industrial and Labor Relations ( email )

250 Ives Hall
Ithaca, NY 14853-3901
United States
607-255-4561 (Phone)
607-255-4496 (Fax)

National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

George H. Jakubson

ILR-Cornell University ( email )

Higher Education Research Institute
Ithaca, NY 14853-3901
United States

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