Accounting for Income Inequality and its Change: A New Method, with Application to the Distribution of Earnings in the United States

Abstract

Abstract[Excerpt] This paper devises a new method for using the information contained in income-generating equations to "account for" or "decompose" the level of income inequality in a country and its change over time. In the levels decomposition, the shares attributed to each explanatory factor are independent of the particular inequality measure used. In the change decomposition, methods are presented to break down the contribution of each explanatory factor into a coefficients effect, a correlation effect, and a standard deviation effect. In an application to rising earnings inequality in the United States, it is found that schooling is the single most explanatory variable, only one other variable (occupation) has any appreciable role to play, and all of schooling's effect was a coefficients effect. Forthcoming: Research in Labor EconomicsABSTRACT This paper devises a new method for using the information contained in incomegenerating equations to "account for" or "decompose" the level of income inequality in a country and its change over time. In the levels decomposition, the shares attributed to each explanatory factor are independent of the particular inequality measure used.In the change decomposition, methods are presented to break down the contribution of each explanatory factor into a coefficients effect, a correlation effect, and a standard deviation effect. In an application to rising earnings inequality in the United States, it is found that schooling is the single most explanatory variable, only one other variable (occupation) has any appreciable role to play, and all of schooling's effect was a coefficients effect.

Modeling Impact of Hurricane Damages on Income Distribution in the Coastal U.S.

“…The prevailing paradigm in the economics literature is that with economic growth, as measured with an increase in GDP, there is an increase in economic inequality. That is, the poor become poorer in relative, and sometimes even in absolute, terms (Ravallion and Chen 1997;Fields 2003). Our result is consistent with that hypothesis, and the size of the estimated coefficient is within the boundaries of what one could expect.…”

The Sources of Inequality in Bolivia

“…The present paper will assess the dynamics of change in Bolivia through the utilization of household level surveys and inequality decomposition techniques developed by Fields in 2003 [1]. This research follows the previous research of other authors such as Gray Molina and Yañez [2]- [3].…”

“…As explained by Fields [1] this approach allows to answer two questions. First, how much inequality in per capita expenditures can be accounted for by various household characteristics.…”

“…In the following work, I will investigate on the causes of the reduction in inequality in Bolivia through the application of a regression based decomposition, as developed by [1].…”

“…To assess the contribution to the reduction in poverty and inequality of several factors, I will use a regression-based decomposition technique, similar to the one developed by Fields [1]. This technique consists on regressing the expenditure of households against a vector of explanatory variables.…”