American Income Distribution through the Lens of Industry and Employment

No.55

FRI Research Report Series, No.55

American Income Distribution through the Lens of Industry and Employment
June 1999

Advisor
Yutaka Kosai

sAssistant Resaerch Associate
Mizuho Nagatakiya

ABSTRACT


Income inequality in the United States has grown since the 1980s. Several explanations as to thecauses of this increase have been put forward. Using microdata from the Decennial Census (theequivalent of Population Census of Japan), in this paper we shall measure inequality in variousindustries and occupations based on the earned income of full-time workers and we shall assessthe increasing income inequality by industry and by occupation.

In studying overall trends for full-time workers, we are able to establish that income inequalityincreased during the 1980s. However, judging from the results of our inequality measures andthe range of median incomes and averages incomes for each occupation, we determined that theimpact of this inequality was greater for middle income earners than it was for lower incomeearners. This finding seems to support the position that income inequality is not the main reasonfor poverty.

We identified (1) trade, (2) increased use of computers, (3) growth of Winner-Take-All Society,and (4) trade-offs between equity and efficiency and between risk and return as the primaryfactors influencing income distribution, and we added our analysis, mainly with regard to trendsat the lowest income levels. These factors are thought to contribute to income inequality, butthey do not necessarily signify an increase in the number of people earning the lowest incomes,nor do they necessarily exacerbate poverty. The negative impact of this inequality has beenrelatively insignificant. As for the current situation, though this is only a theory, considering thefact that the U.S. has experienced very significant improvements in economic performance overthat of the 1980s, it is possible that the attitude that income inequality is not the main cause ofpoverty has grown even stronger.

If we look at the situation in Japan, some people believe income inequality will eventually resultdue to factors such as the shift from seniority-based to merit-based salary systems. Japan hasplaced significant importance on maintaining income equality, but, in following the example ofthe U.S., if, indeed, income inequality is not the main cause of poverty, it would not necessary tofear income inequality too much. In addition, in the United States, income redistributionsystems also function by means other than taxation, including through donations and not-for-profit organizations, and the government actively supports these types of income redistribution.In response to increased income inequality, it is worth considering strengthening these types ofincome redistribution functions in Japan as well.

CONTENTS

1. Trade
2. Increased Use of Computers
3. Growth of Winner-Take-All Society
4. Trade-offs Between Equity and Efficiency and Between Risk and Return

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• Japanese
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