Who Are the Winners and the Losers? Transitions in the U.S. Household Income Distribution

Abstract

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