Panel Paper: Rising Income Inequality and Instability - Putting Pieces Together

Saturday, November 8, 2014 : 2:25 PM
Taos (Convention Center)

*Names in bold indicate Presenter

Sisi Zhang, Shanghai University and Peter Gottschalk, Boston College
The increases in inequality and transitory fluctuations in head’s earnings and in family income are well documented. While these changes in head’s earnings surely contributed to the rise in family income inequality and instability, this is but one potential factor. The distribution of family income is the result of changes in the joint distribution of all sources of family income. This paper provides a consistent framework for estimating changes the marginal distributions of the permanent and transitory components of each income source and changes in the covariances across each pair of income sources.

We use the Panel Study of Income Dynamics 1970-2010 to estimate the covariance structure of head’s earning, spouse’s earnings and a residual category that includes other public and private non-labor income. The increase in the transitory component of head’s earnings was an important factor behind the rise in family income instability. However, the increase in the covariance across all income sources played a significant role that has been largely overlooked.

Full Paper: