Association for Public Policy Analysis & Management

The relationship between macroeconomic growth and income inequality has been the focus of many recent studies (see Boushey and Carter 2014), and part of the impetus for the Occupy Wall Street movement.  The concern is whether a rising tide is lifting all boats equally.  While most studies agree that “the rich have gotten richer,” the issue is whether those on the lower levels of the distribution have also experienced an improvement in their economic well-being.  Consensus on the evolution of inequality in America is complicated both by choice of dataset and the sources used to define income. Over the past 30 years, per-capita GDP increased 65 percent, while household-based median income rose only 11 percent.  More recently, between 1999 and 2010, real mean Census Bureau household income fell 5.7 percent, while real per capita personal income from the National Income and Product Accounts (NIPA) increased 11.1 percent. To reconcile the relationship between NIPA-based measures of macroeconomic growth and household income-based measures of inequality, we construct a time series combining NIPA and Current Population Survey (CPS) data from 1979-2012. First, we calculate adjustments that bring NIPA and Census-based definitions of income inequality into closer agreement. To address concerns surrounding underreported income in the CPS, we match CPS survey respondents to 1040 income records.  Since the distribution of income is affected by government transfers, we examine whether and how inequality levels and trends are altered after accounting for the cash value of Medicare and Medicaid, and other sources of income.  Finally, we examine  policy changes in the level of government transfers and how these have impacted the level and trend of households in various points in the distribution.