Rising family income inequality in the United States, 1968-2000: impacts of changing labor supply, wages, and family structure

This study estimates what fraction of the rise in family income inequality in the United States between 1968 and 2000 is accounted for by the change in each of the family income components, such as wages, employment, hours of work of family heads and spouses, family structure, and other incomes. The increased disparities in other incomes and labor supply account for 29% and 28%, respectively, of the rise in the difference in incomes between the top 10% and bottom 10% families. Structural changes in wages, largely regarded as the major culprit for the increase in income inequality, explain less than a quarter of the rise in the measure of family income inequality. Changing fractions of families with both husband and wife and changes in the composition of the income sources account for 11% and 16%, respectively, of the widening income gap. The relative importance of the effect of changing labor supply declined over time, while that of wage changes increased. For the upper half of the income distribution, wage changes were the dominant cause of the increase in the gap between the richest 10th and middle-income families. In sharp contrast, changes in labor supply and other incomes were the principal causes of the growing distance between the poor and middle-income families for the lower half of the income distribution.