The State(s) of Inequality: Changes in Income Distribution in the US States and the District of Columbia

Abstract

We study the changes in the distribution of household income from 1976 to 2008 in the 50 states of the United States and the District of Columbia, using annual data from the Current Population Survey. Most jurisdictions experienced an increase in household income inequality, although there are considerable differences in the precise patterns of disequalization. Many of the jurisdictions with the largest increases in inequality were in the Northeast, while many of the jurisdictions with small increases in inequality, or even small decreases, were in the South, the Plains, and the Mountains. In most jurisdictions, we document a pattern of divergence between the top and the middle of the income distribution, but we do not find a similar degree of divergence between the middle and bottom of the distribution. Thus, the increases in overall inequality in most jurisdictions were dominated by changes in the upper half of the income distribution. Regression analysis indicates that an increase in the proportion of the population which is comprised of high-school graduates tends to be associated with a decrease in income inequality, while an increase in the proportion of people with education beyond a bachelor's degree tends to be associated with an increase in inequality. An increase in the unemployment rate tends to be associated with an increase in inequality, as does an increase in the proportion of families headed by a single parent. An increase in the percentage of income in the jurisdiction that comes from transfer payments tends to be associated with a reduction in income inequality, as does an increase in the percentage of the jurisdiction's economy in manufacturing. Jurisdictions that started with a higher level of inequality tended to have lower rates of inequality growth. Many of these jurisdictions had very low levels of high-school attainment at the beginning of the period but experienced relatively rapid increases in high-school attainment over the ensuing decades.