9.1Some Facts About Income Inequality in the United States

Katz and Autor (1999), Levy and Murnane (1992) offered thoughtful descriptions of the trends in the U.S. earnings levels and inequalities. Overall, income inequality was stable in the 1970s, increased sharply in the 1980s, and increased moderately in the 1990s, as shown in Table 9.1. A first sub-section (9.1.1) will describe trends in more details. One striking fact of the 1980s is that not only was there an increase in inequality between groups, but also inequality within groups increased. The groups considered here are usually workers of the same sex, age, educational level, or level of experience. In subsections 9.1.2 and 9.1.3, Levy and Murnane discuss between and within inequalities .

Fortin and Lemieux (1997), Topel (1997), Johnson (1997), Katz and Murphy (1992), Borjas and Ramey (1994) have all searched for explanations for the observed changes in inequality. Candidates include education, age, experience, industry of employment, supply and demand shifts, and institutional changes. Sub-sections 9.1.4 will discuss Fortin and Lemieux’s study on the effects of three institutional changes: “deunionization,” weak minimum wage, and deregulation. Regarding the supply-side explanation, it states that the arrival of numerous well-educated baby boomers increased the supply of labor tremendously and affected income inequality. This will be discussed in the last sub-section. The demand-side explanation, arguing that fierce competition and booming information technology implied an increase in the demand for highly skilled labor and increased income inequality, is left to be discussed in the section following this one (9.2).