Income Polarization in the United States

June 28, 2016

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Ali Alichi, Kory Kantenga, and Juan Sole. Income Polarization in the United States, (USA: International Monetary Fund, 2016) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper uses a combination of micro-level datasets to document the rise of income polarization—what some have referred to as the “hollowing out” of the income distribution—in the United States, since the 1970s. While in the initial decades more middle-income households moved up, rather than down, the income ladder, since the turn of the current century, most of polarization has been towards lower incomes. This result is striking and in contrast with findings of other recent contributions. In addition, the paper finds evidence that, after conditioning on income and household characteristics, the marginal propensity to consume from permanent changes in income has somewhat fallen in recent years. We assess the potential impacts of these trends on private consumption. During 1998-2013, the rise in income polarization and lower marginal propensity to consume have suppressed the level of real consumption at the aggregate level, by about 3½ percent—equivalent to more than one year of consumption.

Subject: Consumption, Disposable income, Income distribution, Income inequality, National accounts, Personal income

Keywords: Consumption, Disposable income, Global, Hollowing Out of the Middle Class, Household income, Income, Income distribution, Income inequality, Income polarization, Income series, Income share, Incomemedian income, Inequality, Marginal Propensity to Consume, Middle Class, Middle-Income Class, Personal income, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/121
Stock No:

WPIEA2016121
ISBN:

9781475522501
ISSN:

1018-5941

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