Core Societies Exactly How Has Income Inequality Changed? : Patterns of Distributional Change in

ABSTRACT The recent resurgence of income inequality in some of the core societies has spawned awide-ranging debate as to the culprits. Progress in this debate has been complicated by thefact that many of the theories that have been developed to account for the inequalityupswing imply radically different patterns of distributional change, while predicting thesame outcome in terms of the behavior of standard summary measures (e.g. a rise in theGini coefficient or in Theil’s inequality). Handcock and Morris (1999) have developedmethods that allow the analyst to precisely identify patterns of distributional change anda set of summary measures to characterize such changes. These are based on the relativedistribution, defined for our purposes as the ratio of the fraction of households in thebaseline year to the fraction of households in the comparison year in each decile of thedistribution of income. We use the available high-quality data from the LuxemburgIncome Study to explore the evolution of household income inequality in 16 core societies.We describe exactly how inequality grew in some core societies since the late 1960s anddiscuss the extent to which patterns of distributional change were homogeneous or hetero-geneous across the core. We find that: 1) rising inequality is generally associated with polar-ization, rather than upgrading or downgrading alone; 2) among those societiesexperiencing the largest increases in inequality, upgrading typically takes precedence overdowngrading in the course of such polarization; and 3) declining inequality, where itoccurs, has been the result of convergence, with the magnitude of the shift from the lowertail to the middle exceeding that of the shift from upper tail to the middle.