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Rising Inequality? Changes in the Distribution of Income and Consumption in the 1980s

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  • David M. Cutler
  • Lawrence F. Katz

Abstract

This paper examines changes in the distribution of income and consumption in the United States during the 1980s. using data from the Current Population Survey (income) and Consumer Expenditure Survey (consumption). We reach three primary conclusions. First. changes in the distribution of consumption parallel changes in the distribution of income. The lowest quintile of the consumption distribution received 0.9 percentage points less of total consumption in 1988 than in 1980; the corresponding decline for income was 0.6 percentage points. Second. broad conclusions concerning recent changes in the consumption distribution are not very sensitive to the exact choice of a measure of family needs. Under a wide variety of alternative household equivalence scales. there is a widening in the consumption distribution in the 1980s. Third. the usc of consumption measures of well-being in place of measures based on current money income docs change conclusions concerning the extent of poverty in the United Stales. Using the official federal poverty thresholds. we find that the overall consumption poverty rate was three percentage points below the income poverty rate in 1988. Comparisons of the poverty rates of the elderly and the non-elderly are substantially affected by the choice of poverty measure. The consumption poverty rare for the elderly was only 60 percent of the rate for adults and one-third of the rate for children in 1988.

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  • David M. Cutler & Lawrence F. Katz, 1992. "Rising Inequality? Changes in the Distribution of Income and Consumption in the 1980s," NBER Working Papers 3964, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3964
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    1. 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.
    2. Rebecca M. Blank, 1991. "Why Were Poverty Rates So High in the 1980s?," NBER Working Papers 3878, National Bureau of Economic Research, Inc.
    3. Deaton, Angus S & Muellbauer, John, 1986. "On Measuring Child Costs: With Applications to Poor Countries," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 720-744, August.
    4. 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.
    5. David M. Cutler & Lawrence F. Katz, 1991. "Macroeconomic Performance and the Disadvantaged," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 1-74.
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