Kitov, Ivan and Kitov, Oleg (2013): The dynamics of personal income distribution and inequality in the United States.

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Abstract
We model the evolution of agedependent personal income distribution and inequality as expressed by the Gini ratio. In our framework, inequality is an emergent property of a theoretical model we develop for the dynamics of individual incomes. The model relates the evolution of personal income to the individual’s capability to earn money, the size of her work instrument, her work experience and aggregate output growth. Our model is calibrated to the singleyear population cohorts as well as the personal incomes data in 10 and 5 year age bins available from March Current Population Survey (CPS). We predict the dynamics of personal incomes for every single person in the workingage population in the USA between 1930 and 2011. The model output is then aggregated to construct annual agedependent and overall personal income distributions (PID) and to compute the Gini ratios. The latter are predicted very accurately  up to 3 decimal places. We show that Gini for people with income is approximately constant since 1930, which is confirmed empirically. Because of the increasing proportion of people with income between 1947 and 1999, the overall Gini reveals a tendency to decline slightly with time. The agedependent Gini ratios have different trends. For example, the group between 55 and 64 years of age does not demonstrate any decline in the Gini ratio since 2000. In the youngest age group (from 15 to 24 years), however, the level of income inequality increases with time. We also find that in the latter cohort the average income decreases relatively to the age group with the highest mean income. Consequently, each year it is becoming progressively harder for young people to earn a proportional share of the overall income.
Item Type:  MPRA Paper 

Original Title:  The dynamics of personal income distribution and inequality in the United States 
English Title:  The dynamics of personal income distribution and inequality in the United States 
Language:  English 
Keywords:  income dynamics, income distribution, inequality, age profiles, Gini, United States. 
Subjects:  D  Microeconomics > D0  General > D01  Microeconomic Behavior: Underlying Principles D  Microeconomics > D3  Distribution > D31  Personal Income, Wealth, and Their Distributions E  Macroeconomics and Monetary Economics > E1  General Aggregative Models > E17  Forecasting and Simulation: Models and Applications J  Labor and Demographic Economics > J1  Demographic Economics O  Economic Development, Innovation, Technological Change, and Growth > O1  Economic Development > O12  Microeconomic Analyses of Economic Development 
Item ID:  48649 
Depositing User:  Ivan Kitov 
Date Deposited:  27 Jul 2013 13:14 
Last Modified:  17 Oct 2016 21:23 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/48649 