Trends in U.S. Income Inequality: Evidence from a Panel of States

Many studies have attempted to explain the sharp increase in U.S. income inequality. These studies typically used time series data of the U.S. or compared the trends in the U.S. with those in other countries. We employ panel data from 1960-1990 for the 48 contiguous states to examine trends in U.S. income inequality. Advantages of our panel data set include the addition of a large number of sufficiently similar cross-sectional units and extension of the period of analysis to before the increase in U.S. income inequality. Based on state fixed effect estimates, we find that greater international migration, greater metropolitan shares of population, find increased percent of households headed by females increase income inequality while greater participation rates decrease income inequality. Also, advanced stages of economic development may increase income inequality. Other factors such as unionization did not affect state income inequality.