Declining earnings inequality, rising income inequality: What explains discordant inequality trends in the United States?

Abstract:

From 2010 to 2019, personal earnings inequality declined in the United States (U.S.) for the first time in decades, yet household income inequality continued to increase. Discordance between the inequality trends reached its highest rate in recent history. We introduce a framework to decompose differences in inequality trends. We find that 46% of post-2010 discordance in inequality trends is due to changing household composition, namely a larger share of young workers living with their parents and combining low (but increasing) personal earnings with high household incomes. The remaining discordance stems from increases in private income among higher-earning households and declining redistributive effects of government transfers. Declines in personal earnings inequality do not imply declines in household income inequality.