U.S. income inequality soared after 1979. Most economists recognize that growing wage inequality was at least partially responsible for this trend. The present paper estimates the contribution of increased earnings inequality to the surge in overall income inequality between 1979 and 1996. The direct contribution of increased earnings inequality is surprisingly modest. Even if male and female earnings inequality had remained unchanged at their 1979 levels, about two thirds of the observed increase in overall U.S. inequality would have occurred. Other factors contributing to higher overall inequality include the growing correlation of husband and wife earned incomes and the increasing percentage of Americans who live in single-adult families, families that typically have much more unequal incomes than husband-wife families.
JEL classification: D31; J12; J31
Keywords: Income distribution; Earnings inequality; Family structure
The working papers represent drafts that have been internally reviewed but are not official publications of the Institution.