ResearchBPEA | Fall 2007
Selected Issues in the Rise of Income Inequality
INCREASED AMERICAN INCOME INEQUALITY, in particular the increased
skewness at the very top of the income distribution, has received enormous
attention. This paper surveys three aspects of rising inequality that are usually
discussed separately: inequality within the bottom 90 percent, inequality
within the top 10 percent, and international differences in inequality, particularly
among top earners.
We begin by examining data from the Current Population Survey
(CPS) on income ratios between the 90th, 50th, and 10th percentiles, both
for men and women separately and for the two sexes combined. We then
examine several proposed explanations of changes in relative incomes
within the bottom 90 percent, including the impacts of unions, free trade,
immigration, the real minimum wage, and top-bracket tax rates. We also
assess the hypothesis that the primary driver of increased inequality is
skill-biased technological change.