Question

How would you define income inequality? How is income inequality measured? What has happened to income inequality in the United States since the end of the Second World War in 1945? What evidence can you provide to support your answer? What are the reasons for the changes in income inequality since 1945.

Answer 1

Income inequality may be defined as the extent of disparity between high and low incomes. An unequal distribution of income in an economy results in income inequality .

The most commonly used measure of income inequality is the poverty rate, which provides a measure of the proportion of persons whose income is not sufficient to provide for a defined set of basic needs.

World War II dramatically reshaped the nation’s income distribution. The income inequality in the United States reduced after the second world war and would remain more of less stable for the next three decades .

Lewellen 1968 has studied the evolution of executive compensation from 1940 to 1963 and his results show strikingly that executive salaries were frozen in nominal terms from 1941 to 1945 consistent with the sharp drop in top wage shares . The surprising fact, however, is that top wage shares did not recover after the war. A partial and short-lived recovery can be seen for all groups, except the very top. But the shares never recover more than one third of the loss incurred during World War II.