Income Polarization in the USA (1983-2016): what happened to the middle class?

Khan, Haider and Schettino, Francesco (2018): Income Polarization in the USA (1983-2016): what happened to the middle class?

Abstract

Abstract The rise in inequality in the US over the last few decades has been well documented. However, the effects of inequality on polarization and middle class in particular are less well studied and understood. We employ Relative Distribution tools (Handcock and Morris, 1998) on the well known PSID longitudinal dataset in order to provide a detailed analysis of the US income distribution during the period 1983 to 2015. The main result shows a hollowing out of the mid-range deciles with a corresponding fattening of the highest ones. Thus the analysis confirms the hollowing out of the middle class in the US over the last few decades---starting with the age of Reaganomics. Analyzing further the “pure distribution” effect (i.e., depurated by the growth one), we find that this typical polarization profile emerged over time but especially in the 1990s and the 21st century. The typical hollowing out of the central deciles of the US income distribution has been indeed accompanied by “fattening” of both tails of income distribution with greater weight going increasingly to the bottom deciles. There are even some signs of acceleration of this trend recently. We also find some preliminary evidence for intersectionality, i.e. race, class and gender working together in a vicious cycle.Policies to counteract these tendencies must be anti-polarization policies along with those of relatively more egalitarian growth. However, the current policies including tax policies are headed in exactly the opposite direction.

• Item Type: MPRA Paper
• Language: English
• Keywords: Polarization, Political Economy of the US, Relative Distribution Tools, Middle Class, Inequalities, Growth Effect, Distribution Effect
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes; N - Economic History > N3 - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy; N - Economic History > N3 - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy > N31 - U.S. ; Canada: Pre-1913; N - Economic History > N3 - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy > N32 - U.S. ; Canada: 1913-; Y - Miscellaneous Categories > Y1 - Data: Tables and Charts; Y - Miscellaneous Categories > Y8 - Related Disciplines; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z13 - Economic Sociology ; Economic Anthropology ; Social and Economic Stratification; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z18 - Public Policy

References

Alderson, A. S., & Doran, K. (2011). Global Inequality, Within-Nation Inequality, and the Changing Distribution of Income in Seven Transitional and Middle-Income Societies. In C. Suter (Ed.), Inequality Beyond Globalization: Economic Changes, Social Transformations, and the Dynamics of Inequality (pp. 183–200). New Brunswick, NJ: Transaction Publishers. Alderson, A. S., & Doran, K. (2013). How Has Income Inequality Grown? The Reshaping of the Income Distribution in LIS Countries. In J. C. Gornick & M. Jantti (Eds.), Income Inequality: Economic Disparities and the Middle Class in Affluent Countries (pp. 51–74). Stanford, CA: Stanford University Press. Alderson, A. S., Beckfield, J., & Nielsen, F. (2005). Exactly How Has Income Inequality Changed? Patterns of Distributional Change in Core Societies. International Journal of Comparative Sociology, 46 , 405–423. Alichi A, Katenga K and J Solé (2016), Income Polarization in the United States, IMF Working paper, WP16/121 Anderson, G., Linton, O., & Leo, T. W. (2012). A Polarization-Cohesion Perspective on Cross-Country Convergence. Journal of Economic Growth, 17 , 49–69. Araar, A., & Duclos, J.-Y. (2009). User Manual for Stata Package DASP: Version 2.3 [Computer software manual]. (Available at http://dasp.ecn.ulaval.ca/modules/DASP V2.3/DASP MANUAL V2.3.pdf) Borraz, F., Pampillon, N. G., & Rossi, M. (2011). Polarization and the Middle Class, dECON Working Paper No. 20. Montevideo: Universidad de la Republica. Bourguignon, F. (2003). The Growth Elasticity of Poverty Reduction: Explaining Heterogeneity across Countries and Time Periods. In T. S. Eicher & S. J. Turnovsky (Eds.), Inequality and Growth: Theory and Policy Implications (pp. 3–26). Cambridge, MA: The MIT Press. Bourguignon, F. (2004). The Poverty-Growth-Inequality Triangle, Working Paper No. 125. New Delhi: Indian Council for Research on International Economic Relations. Chakravarty, S. R. (2009). Inequality, Polarization and Poverty: Advances in Distributional Analysis. New York, NY: Springer-Verlag Inc. Chakravarty, S. R. (2015), Inequality, Polarization and Conflict – An Analytical Study, New York NY, Springer Verlag Chakravarty, S. R., and D’Ambrosio, C. (2010). Polarization Orderings of Income Distributions. Review of Income and Wealth, 56 , 47–64. Chakravarty, S. R., and Majumder, A. (2001). Inequality, Polarization and Welfare: Theory and Applications. Australian Economic Papers, 40 , 1–13. Clementi, F., and Schettino, F. (2015), “Declining inequality in Brazil in the 2000s: what is hidden behind? ”, Journal of International Development, 27, 929-52. Clementi, F., Dabalen, A. L., Molini, V., and Schettino, F. (2015), “When the centre cannot hold: patterns of polarization in Nigeria”, Review of Income and Wealth, DOI: 10.1111/roiw.12212. Conti, P. L., Pittau, M. G and Zelli, R. (2006). Metodi non parametrici nell’analisi della distribuzione del reddito: problemi empirici ed aspetti metodologici. Rivista di Politica Economica, 96 , 195–242. Corral P, Molini V and G Oseni (2015), No Condition is Permanent - Middle Class in Nigeria in the Last Decade, Policy Research Working Paper 7214 WB March 2015 Duclos, J.-Y., Esteban, J.-M., & Ray, D. (2004). Polarization: Concepts, Measurement, Estimation. Econometrica, 72 , 1737–1772. Esteban, J.-M., & Ray, D. (1994). On the Measurement of Polarization. Econometrica, 62 , 819–851. Esteban, J.-M., & Ray, D. (1999). Conflict and Distribution. Journal of Economic Theory, 87 , 379–415. Esteban, J.-M., & Ray, D. (2011). Linking Conflict to Inequality and Polarization. The American Economic Review, 101 , 1345–1374. Esteban, J.-M., Gradin, C., & Ray, D. (2007). An Extension of a Measure of Polarization, with an Application to the Income Distribution of Five OECD Countries. Journal of Economic Inequality, 5 , 1–19. Foster JE and MC Wolfson, (1992). Polarization and the Decline of the Middle Class: Canada and the US (OPHI Working Paper No. 31). Oxford: University of Oxford. (Available at http://www.ophi.org.uk/working-paper-number-31/; now in Journal of Economic Inequality, 8, 247–273, 2010) Galbraith, J.(2012). Inequality and Instability, Oxford: Oxford University Press. Ghosh, P.(2016). What happened to the Bhadrolok? New Delhi: Primus Publications. Gochoco-Bautista MS, Bautista CC, Maligalig DS and NR Sotocinal (2013) Income Polarization in Asia, Asian Economic Papers 12:2, The Earth Institute at Columbia University and the Massachusetts Institute of Technology doi:10.1162/ASEP_a_00214 Gradin, C. (2000). Polarization by Sub-Populations in Spain, 1973–91. Review of Income and Wealth, 46 , 457–474. Handcock, M. S. (2011). Relative Distribution Methods. Los Angeles, CA. Version 1.6. Project home page at http://www.stat.ucla.edu/~handcock/RelDist. Handcock, M. S. and Morris, M. (1998). Relative distribution methods. Sociological Methodology 28: 53-97. Handcock, M. S. and Morris, M. (1999). Relative Distribution Methods in the Social Sciences. New York: Springer-Verlag. Hout, M (2008). “How Class Works: Objective and Subjective Aspects of Class Since the 1970s.” Pp. 25–64 in Social Class: How Does It Work, edited by A. Lareau and D. Conley. New York: Russell Sage Foundation Jackman, Mary R. and Robert W. Jackman. 1983. Class Awareness in the United States. Berkeley: University of California Press. James, J. and Khan, Haider A. (1993). “The Employment Effects of Income Redistribution,” World Development (March): 817-28. ---------. (1997). “Technology Choice and Income Distribution” World Development, (February): 153-165. ---------. (1998). Technological Systems and Development, London: Macmillan. Jenkins, S. P. (1995). Did the Middle Class Shrink During the 1980s? UK Evidence From Kernel Density Estimates. Economic Letters, 49 , 407–413. Jenkins, S. P. (1996). Recent Trends in the UK Income Distribution: What Happened and Why? Oxford Review of Economic Policy, 12 , 29–46. Kakwani, N. (1993). Poverty and Economic Growth with Application to Cote d’Ivoire. Review of Income and Wealth, 39, 121–139. Kanbur, R and X Zhang (2001). "Fifty Years of Regional Inequality in China: A Journey through Revolution, Reform and Openness," CEPR Discussion Papers 2887, C.E.P.R. Discussion Papers. Khan, H. A. (2018), Development Orders and Disorders, paper presented at the graduate school seminar at the New School University, NYC, January 30. ----------------(2017). “Asymmetric Globalization in the 21st Century and Global Economic Justice”, Nagorik (Global Citizen),Vil. 1, No. 2, Washington DC, April -------------(2016)“On Capitalism and Racism”, E-International Relations, July. ------------- (2006) “Value, Social Capabilities, Alienation: The Right to Revolt”, EconPapers, 2006 -------------(2004), Global Markets and Financial Crisis: Asia’s Mangled Miracle, Macmillan/Palgrave. -------------(2003), "Creating Social Capabilities in a POLIS", in Tom Misa et als. Eds. Technology and Modernity, The MIT Press. ------------- (1996). “Beyond Distributive Justice in the McWorld”, Global Justice, Spring/Summer, pp. 30-40. Khan, H. A., Francesco Schettino and Alberto Gabriele. 2017. “ Polarization and the Middle Class in China: a Non-Parametric Evaluation Using CHNS and CHIP Data”, Discussion Paper, JKSIS, University of Denver Khan, H.A. and M. Parvin. 1984. “Multidimensional Potential Real Consumption” , Working Paper, University of Akron and University of Denver.

Maqsood, A.(2017). The New Pakistani Middle Class, Cambridge, Ma.: Harvard University Press. Marx K (1861), Das Kapital - A Critique of Political Economy, pub. Chicago: Charles H. Kerr and Co., 1906 Marx K and Engels F (1848), The Communist Manifesto, London, 1998, Verso pub. Murakami, Y.(1997). An Anti-Classical Political Economic Analysis: A Vision for the Next Century, trans. Kozo Yamamura, Stanford, Ca.: Stanford University Press. OECD (2011), Latin American Economic Outlook 2011: How Middle Class is Latin America?, OECD Publishing Piketty T. (2014). Capital in the 21st Century. Cambridge: Harvard University Press. Pittau, M. G., & Zelli, R. (2001). Income Distribution in Italy: A Nonparametric Analysis. Statistical Methods and Applications, 10 , 175–189. Pittau, M. G., & Zelli, R. (2004). Testing for Changing Shapes of Income Distribution: Italian Evidence in the 1990s From Kernel Density Estimates. Empirical Economics, 29 , 415–430. Pittau, M. G., & Zelli, R. (2006). Trends in Income Distribution in Italy: A Non-Parametric and a Semi-Parametric Analysis. Journal of Income Distribution, 15 , 90–118. Pittau, M. G., Zelli, R., & Johnson, P. A. (2010). Mixture Models, Convergence Clubs and Polarization. Review of Income and Wealth, 56 , 102–122. Roediger, D.(2017). Class, Race and Marxism, London: Verso. Rose, Stephen J., 2016, “The Growing Size and Incomes of the Upper Middle Class.” Research Report, Urban Institute. Sosnaud B, Brady D and Frenk S (2013), Class in Name Only: Subjective Class Identity, Objective Class Position, and Vote Choice in American Presidential Elections - Author(s): Benjamin S, David Brady and Steven M. Frenk Source: Social Problems, Vol. 60, No. 1 (February 2013), pp. 81-99 Published by: University of California Press on behalf of the Society for the Study of Social Problems Taylor, L. (1990), Socially Relevant Policy Modeling, Cambridge, Ma.: The MIT Press