Selected Issues in the Rise of Income Inequality

Abstract

INCREASED AMERICAN INCOME INEQUALITY, in particular the increased skewness at the very top of the income distribution, has received enormous attention.This paper surveys three aspects of rising inequality that are usually discussed separately: inequality within the bottom 90 percent, inequality within the top 10 percent, and international differences in inequality, particularly among top earners.We begin by examining data from the Current Population Survey (CPS) on income ratios between the 90th, 50th, and 10th percentiles, both for men and women separately and for the two sexes combined.We then examine several proposed explanations of changes in relative incomes within the bottom 90 percent, including the impacts of unions, free trade, immigration, the real minimum wage, and top-bracket tax rates.We also assess the hypothesis that the primary driver of increased inequality is skill-biased technological change.We then tackle the most controversial issue, namely, why American incomes at the very top have increased so much, both relative to incomes below the 90th percentile in this country and relative to top incomes in Europe and Japan. 1 We distinguish three types of top-level income earners: 169

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