What's Been Happening to United States Income Inequality?

Visiting Scholar
Richard Burkhauser
The public-use version of the March Current Population Survey (CPS), an annual cross-sectional survey of over 50,000 American households, is the primary data source used by public policy researchers and administrators to investigate trends in average U.S. income and its distribution. Despite the widely held view that United States income inequality has increased substantially since the 1980s, our research, which derives from unprecedented access to internal CPS data, tells a very different story. Most of the evidence of a large increase in income inequality since 1993 has come either from those who do not adjust for topcoding in the public-use CPS or from Internal Revenue Service (IRS) administrative record files that have their own consistency problems. In a practice called topcoding, for incomes above some value in the public-use CPS--the topcode threshold--the Census Bureau reports income as equal to this topcode threshold rather than providing the exact recorded value from the internal CPS.

Using various layers of CPS data (see Table 1 for a more precise definition of the various layers of CPS data we use) we show why not adjusting for topcoding in the public-use CPS data will falsely show that American income inequality has been rapidly growing. Once properly
adjusted, we find that for at least the bottom 99 percent of the income distribution, the rise in income inequality since 1993 has been small and its yearly growth much slower than in the previous two decades. Our results hold even when we estimate income values for the very top
part of the income distribution missing in the internal CPS data. Our findings are consistent with those found using IRS data on the 90th-99th percentile groups, only differing with respect to the top 1 percent of the income distribution. It is uncertain to what degree this difference is the result of our decreasing ability to capture income at the very highest income levels, even using internal CPS data, or of behavioral changes in the way that individual tax units report their adjusted gross income on their tax returns captured in the IRS data. . . .

Download file Click here to view the full text of this speech as an Adobe Acrobat PDF.

Richard Burkhauser is a visiting scholar at AEI.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Richard
Burkhauser

What's new on AEI

Defeating ISIS: AEI experts weigh-in before the president’s address on Wednesday
image Degrading, defeating, and destroying the Islamic State
image Wealth Building Home Loan: Building wealth through homeownership and retirement savings
image The $3 iPhone
AEI on Facebook
Events Calendar
  • 15
    MON
  • 16
    TUE
  • 17
    WED
  • 18
    THU
  • 19
    FRI
Tuesday, September 16, 2014 | 5:00 p.m. – 6:00 p.m.
The Constitution as political theory

Please join us for the third-annual Walter Berns Constitution Day Lecture as James Ceasar, Harry F. Byrd Professor of Politics at the University of Virginia, explores some of the Constitution’s most significant contributions to political theory, focusing on themes that have been largely unexamined in current scholarship.

Wednesday, September 17, 2014 | 8:10 a.m. – Thursday, September 18, 2014 | 1:30 p.m.
Third international conference on housing risk: New risk measures and their applications

We invite you to join us for this year’s international conference on housing risk — cosponsored by the Collateral Risk Network and AEI International Center on Housing Risk — which will focus on new mortgage and collateral risk measures and their applications.

Thursday, September 18, 2014 | 2:15 p.m. – 3:00 p.m.
Speaker of the House John Boehner on resetting America’s economic foundation

Please join us as Speaker John Boehner (R-OH) delivers his five-point policy vision to reset America’s economy.

Friday, September 19, 2014 | 9:15 a.m. – 11:00 a.m.
Reforming Medicare: What does the public think?

Please join us as a panel of distinguished experts explore the implications of the report and the consumer role in shaping the future of Medicare.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.