Hollowing Out: The Channels of Income Polarization in the United States

By Ali Alichi, Rodrigo Mariscal, Daniela Muhaj

November 15, 2017

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Ali Alichi, Rodrigo Mariscal, and Daniela Muhaj. Hollowing Out: The Channels of Income Polarization in the United States, (USA: International Monetary Fund, 2017) accessed November 5, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Data show that middle-income households have continued moving down, and less so up, the income distribution in the United States since the 1970s—a phenomenon that is often referred to as the polarization or “hollowing out” of the income distribution. While the level of income polarization is generally lower in the richer states (i.e., those with higher median household income levels), there have been wide variations in the changes in income polarization over time across states. The paper develops two indices to measure income polarization including a novel hollowing-out index. Another important contribution of the paper is to examine the proximate causes of income polarization. The econometric analysis is done at both state and household levels. The results suggest that technology, measured by job routinization, and international trade, measured by job offshoring, can fully explain the non-trend rise in income polarization, with broadly equal contributions. Household characteristics, including age, education, race, and gender have also been important drivers but with a net countervailing effect on income polarization. This is mainly thanks to the rising education level of households, which has led to better incomes.

Subject: Education, Income distribution, Income inequality, National accounts, Personal income, Population and demographics

Keywords: Global, Hollowing Out, Hollowing-out index, Household population, Households decrease, Income data, Income distribution, Income inequality, Income polarization, Inequality, Middle Class, Middle-Income Class, Personal income, Population share, WP

Publication Details

Pages:

66
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/244
Stock No:

WPIEA2017244
ISBN:

9781484328293
ISSN:

1018-5941

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