Is income becoming more polarized Italy? A closer look with a distributional approach

During the 1990’s and the early 2000’s income inequality in Italy shows levels higher than many other OECD countries, not displaying any significant trend, upward or downward. This evidence relies essentially on summary measures of inequality, which may not capture aspects of the whole income probability density, such as multi-modalities and polarization. This paper applies a non-parametric tool, the “relative distribution”, to describe patterns of changes on the entire Italian household income distribution over the period 1989–2006. Furthermore, this approach also allows us to decompose the relative density into changes in location and changes in shape, in order to emphasize whether income distribution becomes more polarized or exhibits patterns of convergence toward middle income classes. A similar decomposition enables us to analyze the impact of selected covariates on income distribution. During the period Italy experienced a significant increase of household income polarization, which has particularly affected incomes below the median. In addition, this relative polarization is mainly correlated to changes in the returns to household-head occupational status.