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The dynamics of personal income distribution and inequality in the United States

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  • Kitov, Ivan
  • Kitov, Oleg

Abstract

We model the evolution of age-dependent personal income distribution and inequality as expressed by the Gini ratio. In our framework, inequality is an emergent property of a theoretical model we develop for the dynamics of individual incomes. The model relates the evolution of personal income to the individual’s capability to earn money, the size of her work instrument, her work experience and aggregate output growth. Our model is calibrated to the single-year population cohorts as well as the personal incomes data in 10- and 5- year age bins available from March Current Population Survey (CPS). We predict the dynamics of personal incomes for every single person in the working-age population in the USA between 1930 and 2011. The model output is then aggregated to construct annual age-dependent and overall personal income distributions (PID) and to compute the Gini ratios. The latter are predicted very accurately - up to 3 decimal places. We show that Gini for people with income is approximately constant since 1930, which is confirmed empirically. Because of the increasing proportion of people with income between 1947 and 1999, the overall Gini reveals a tendency to decline slightly with time. The age-dependent Gini ratios have different trends. For example, the group between 55 and 64 years of age does not demonstrate any decline in the Gini ratio since 2000. In the youngest age group (from 15 to 24 years), however, the level of income inequality increases with time. We also find that in the latter cohort the average income decreases relatively to the age group with the highest mean income. Consequently, each year it is becoming progressively harder for young people to earn a proportional share of the overall income.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48649.

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Date of creation: 27 Jul 2013
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Handle: RePEc:pra:mprapa:48649

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Keywords: income dynamics; income distribution; inequality; age profiles; Gini; United States.;

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References

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  1. repec:ese:iserwp:2008-25 is not listed on IDEAS
  2. Ivan O. Kitov, 2005. "Modelling the overall personal income distribution in the USA from 1994 to 2002," Working Papers 07, ECINEQ, Society for the Study of Economic Inequality.
  3. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March.
  4. Richard Burkhauser & Shuaizhang Feng & Stephen Jenkins & Jeff Larrimore, 2008. "Estimating Trends in U.S. Income Inequality Using the Current Population Survey: The Importance of Controlling for Censoring," Working Papers 08-25, Center for Economic Studies, U.S. Census Bureau.
  5. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
  6. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
  7. Ivan O. Kitov, 2006. "Modelling the age-dependent personal income distribution in the USA," Working Papers 17, ECINEQ, Society for the Study of Economic Inequality.
  8. Kitov, Ivan, 2007. "Comparison of personal income inequality estimates based on data from the IRS and Census Bureau," MPRA Paper 5372, University Library of Munich, Germany.
  9. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2009. "Top Incomes in the Long Run of History," NBER Working Papers 15408, National Bureau of Economic Research, Inc.
  10. Richard V. Burkhauser & Shuaizhang Feng & Stephen P. Jenkins & Jeff Larrimore, 2012. "Recent Trends in Top Income Shares in the United States: Reconciling Estimates from March CPS and IRS Tax Return Data," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 371-388, May.
  11. Thomas Piketty, 2003. "Income Inequality in France, 1901-1998," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1004-1042, October.
  12. Ivan O. Kitov, 2008. "Evolution of the personal income distribution in the USA: High incomes," Papers 0811.0352, arXiv.org.
  13. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, July.
  14. Kitov, Ivan, 2008. "Modeling the evolution of age-dependent Gini coefficient for personal incomes in the U.S. between 1967 and 2005," MPRA Paper 10107, University Library of Munich, Germany.
  15. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  16. Ivan O. Kitov, 2005. "A model for microeconomic and macroeconomic development," Working Papers 05, ECINEQ, Society for the Study of Economic Inequality.
  17. Jeff Larrimore & Richard V. Burkhauser & Shuaizhang Feng & Laura Zayatz, 2008. "Consistent Cell Means for Topcoded Incomes in the Public Use March CPS (1976-2007)," NBER Working Papers 13941, National Bureau of Economic Research, Inc.
  18. Wataru Souma & Makoto Nirei, 2005. "Empirical study and model of personal income," Papers physics/0505173, arXiv.org.
  19. A. B. Atkinson, 2005. "Top incomes in the UK over the 20th century," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 168(2), pages 325-343.
  20. Salem, A B Z & Mount, T D, 1974. "A Convenient Descriptive Model of Income Distribution: The Gamma Density," Econometrica, Econometric Society, vol. 42(6), pages 1115-27, November.
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Cited by:
  1. Kitov, Ivan & KItov, Oleg, 2013. "Does Banque de France control inflation and unemployment?," MPRA Paper 50239, University Library of Munich, Germany.

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