In Search of the Roots of American Inequality Exceptionalism: An Analysis Based on Luxembourg Income Study (LIS) Data
Earlier work has established that the US has exceptionally high inequality of disposable household income (i.e., income after accounting for taxes and transfers). There is a debate whether it is due to an unusually high inequality of market (pre-tax-pre-transfer) income or to weak redistribution. In this paper, we look more deeply at market income inequality, focusing on its main component – labor income – across a group of 24 OECD countries. We disaggregate the working-age population into household types, defined by the number and gender of the household’s earners and the partnership and parenting status of its members. We conclude that within-group inequality of labor incomes in the US is, in almost all groups, high by OECD standards. The roots of US inequality exceptionalism are not to be found in an unusual demographic composition, nor in unusually high or low mean incomes of some demographic groups, but in pervasive high inequality within each of these groups.
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.