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Tuesday, May 05, 2015

Explaining US Inequality Exceptionalism

Paul Krugman:

Explaining US Inequality Exceptionalism: Disposable income in the United States is more unequally distributed than in most other advanced countries. But why? ... Janet Gornick and Branko Milanovic at the CUNY Graduate Center’s Luxembourg Income Study Center shed light on the question, partly overturning what all of us believed until recently. They explain their findings in the first Research Brief in a new series launched on the LIS Center website.
The standard story up until now has been that the source of US inequality exceptionalism lies in the unusually low amount of redistribution we do through our tax and transfer system. ...
But can this be right? We know that the US has unusually weak unions, a low minimum wage, an exceptionally wide skills premium and, of course, an exceptionally imperial one percent. Shouldn’t all this leave some mark on market income?
What Gornick and Milanovic realized (helped by suggestions from a number of colleagues, notably Larry Mishel at EPI) was that true US market inequality might be being masked by another exceptional piece of the US system – delayed retirement, causing many older households to have positive market income where comparable households in other countries have no or very little market income. ...
To correct for this possible problem, they recalculated the numbers for households containing only persons under age 60... The US remains the most unequal nation (after taxes and transfers), but now a main driver of that inequality is market inequality. ... Indeed, America also does less redistribution than several other rich countries, European countries in particular, so that’s still part of the story, but it’s not the whole story or even most of it. ...

    Posted by on Tuesday, May 5, 2015 at 08:19 AM in Economics, Income Distribution | Permalink  Comments (4)


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