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Inequality and poverty in the United States: the effects of changing family behavior and rising wage dispersion

Listed author(s):
  • Mary C. Daly
  • Robert G. Valletta

The trend toward increasing inequality in family income in the United States since the late 1960s is well documented. Among key possible explanations for this increase are rising dispersion in individual earnings, changes in female labor supply decisions, and changes in family composition and living arrangements. We analyze the contribution of these factors to changes in family income inequality and poverty during the years 1969-1998, focusing on labor supply and family structure as behavioral changes but accounting also for changes in the distribution of male earnings. Our analyses rely on conditionally weighted density estimation, a semiparametric decomposition technique recently developed by DiNardo, Fortin, and Lemieux (1996). We also use a relatively novel rank-based distributional exchange to assess the effects of changes in the distribution of male earnings. ; In our empirical work, we first analyze changes between 1969 and 1989, which corresponds roughly to the period of rising inequality that has been the focus of previous work. Our results indicate that rising dispersion of male earnings and the decline of traditional forms of family structure respectively explain up to about three-fourths and about one-half of rising inequality in family income during this period. The impact of changing family structure was most pronounced in the lower half of the distribution. In contrast, the increase in female labor force participation offset rising inequality to some degree, mainly in the upper half of the distribution, although its impact has moved down the distribution over time. In extending the analyses to the 1990s, we find that the rate at which inequality grew slowed after 1989, but the explanatory factors continued to have substantial effects. In each decade, the effects of the explanatory factors on poverty were especially large and followed a pattern similar to that for inequality.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2000-06.

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Date of creation: 2000
Handle: RePEc:fip:fedfwp:2000-06
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  1. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
  2. Burkhauser, Richard V, et al, 1999. "Testing the Significance of Income Distribution Changes over the 1980s Business Cycle: A Cross-National Comparison," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(3), pages 253-272, May-June.
  3. Robert A. Moffitt, 2000. "Welfare Benefits and Female Headship in U.S. Time Series," American Economic Review, American Economic Association, vol. 90(2), pages 373-377, May.
  4. Timothy Smeeding & Gunther Schmaus & Brigitte Buhmann & Lee Rainwater, 1988. "Equivalence Scales, Well-Being, Inequality and Poverty: Sensitivity Estimates Across Ten Countries Using the LIS Database," LIS Working papers 17, LIS Cross-National Data Center in Luxembourg.
  5. Dickens & David T. Ellwood, 2004. "Whither Poverty in Great Britain and the United States? The Determinants of Changing Poverty and Whether Work Will Work," NBER Chapters,in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 313-370 National Bureau of Economic Research, Inc.
  6. Rebecca London, 1998. "Trends in single mothers’ living arrangements from 1970 to 1995: Correcting the Current Population Survey," Demography, Springer;Population Association of America (PAA), vol. 35(1), pages 125-131, February.
  7. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
  8. Chinhui Juhn, 1992. "Decline of Male Labor Market Participation: The Role of Declining Market Opportunities," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 79-121.
  9. Juhn, Chinhui & Murphy, Kevin M, 1997. "Wage Inequality and Family Labor Supply," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 72-97, January.
  10. Anthony F. Shorrocks, 1983. "The Impact of Income Components on the Distribution of Family Incomes," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 311-326.
  11. Martin Biewen, 2001. "Measuring the Effects of Socio-Economic Variables on the Income Distribution: An Application to the East German Transition Process," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 185-190, February.
  12. Jenkins, Stephen P, 1995. "Accounting for Inequality Trends: Decomposition Analyses for the UK, 1971-86," Economica, London School of Economics and Political Science, vol. 62(245), pages 29-63, February.
  13. Jenkins, Stephen P, 1996. "Recent Trends in the UK Income Distribution: What Happened and Why?," Oxford Review of Economic Policy, Oxford University Press, vol. 12(1), pages 29-46, Spring.
  14. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
  15. Burtless, Gary, 1999. "Effects of growing wage disparities and changing family composition on the U.S. income distribution," European Economic Review, Elsevier, vol. 43(4-6), pages 853-865, April.
  16. Carlson, Marcia & Danziger, Sheldon, 1999. "Cohabitation and the Measurement of Child Poverty," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(2), pages 179-191, June.
  17. Maria Cancian & Deborah Reed, 1998. "Assessing The Effects Of Wives' Earnings On Family Income Inequality," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 73-79, February.
  18. Lynn Karoly & Gary Burtless, 1995. "Demographic change, rising earnings inequality, and the distribution of personal well-being, 1959–1989," Demography, Springer;Population Association of America (PAA), vol. 32(3), pages 379-405, August.
  19. Buhmann, Brigitte, et al, 1988. "Equivalence Scales, Well-Being, Inequality, and Poverty: Sensitivity Estimates across Ten Countries Using the Luxembourg Income Study (LIS) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-142, June.
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