Decomposing Income Inequality in the United States, 1962-2018

Abstract

Income inequality in the United States has been on the rise. To understand why, we use several complementary techniques to decompose total income inequality into components attributable to five personal traits: sex, race, education, occupation, and industry of work. By examining how income differences along these traits add to net inequality, and how their contributions have changed over time, we vet competing hypothesis for the growing earnings gap. Our findings suggest that changes in human capital accumulation, in particular, the returns to education, drove much of the recently observed changes.