Identifying the Driver of Economic Inequality in the U.S. in the Growing Economic Gulf

Using a statistically robust decomposition framework, we assess group-level contributions to overall economic inequality. Applying this approach to a comprehensive set of microdata files from 1962 to 2019, we find that the recent surge in U.S. inequality is primarily driven by rising within-group income dispersion among the top decile of earners, rather than by between-group inequality (mean differences) relative to the rest of the population. Specifically, our results show that over 87% of post-2000 U.S. pre-tax income inequality can be attributed to income variation within the top 10%, with the top 1% alone accounting for more than 70%. Our post-tax income analysis reveals that a similar pattern, though weaker, where over 80% of post-2000 U.S. post-tax income inequality is explained by within-group inequality among the top decile. Furthermore, our findings suggest that wealth-based inequality in the U.S. is predominantly driven by substantial contributions from the extreme right tail of the distribution.