The State(s) of Inequality: Changes in Income Distribution in the U.S. States and Census Divisions, 1976-2008

We study the changes in the distribution of income from 1976 to 2008 in the 50 states, the District of Columbia, and the nine Census Divisions, using annual data from the Current Population Survey. Most jurisdictions experienced an increase in household income inequality, although there are considerable differences in the precise patterns of disequalization. Many of the jurisdictions with the largest increases in inequality were in the Northeast, while many of the jurisdictions with small increases in inequality (or even small decreases) were in the South, the Plains, and the Rocky Mountains. In most jurisdictions, we document a pattern of divergence between the top and the middle of the income distribution, but we do not find a similar degree of divergence between the middle and bottom of the distribution. Thus the increases in overall inequality in most jurisdictions were dominated by changes in the upper half of the income distribution. Jurisdictions that started with a higher level of inequality tended to have lower rates of inequality growth. On the other hand, jurisdictions with more rapid disequalization during the first half of the period under study were not more likely to have more rapid disequalization during the second half. Our regression analysis indicates that jurisdictions with a higher proportion of high-school graduates tend to have a more equal income distribution, while jurisdictions with a higher proportion of college graduates tend to be more unequal. Jurisdictions with a relatively larger share of output from the services sector tend to experience greater inequality. A higher unemployment rate tends to add to inequality, while jurisdictions in which a relatively higher percentage of income comes from transfer payments tend to exhibit lower income inequality. JEL Codes: D63, R11, R12