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

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.