Convergence in Income Inequality: Further Evidence from the Club Clustering Methodology Across the U.S. States
International Advances in Economic Research, online March 20, 2018
36 Pages Posted: 28 Jun 2015 Last revised: 26 May 2018
Date Written: June 26, 2015
This paper contributes to the sparse literature on inequality convergence by empirically testing convergence across the U.S. States. This sample period encompasses a series of different periods that are discussed in the existing literature -- the Great Depression (1929-1944), the Great Compression (1945-1979), the Great Divergence (1980-present), the Great Moderation (1982-2007), and the Great Recession (2007-2009). This paper implements the relatively new methodology of panel convergence testing, recommended by Phillips and Sul (2007). This method examines the club convergence hypothesis, which argues that certain countries, states, sectors, or regions belong to a club that moves from disequilibrium positions to their club-specific steady-state positions. We find strong support for convergence through the late 1970s and early 1980s and then evidence of divergence. The divergence, however, moves the dispersion of inequality measures across states only a fraction of the way back to their levels in the early part of the 19th Century.
Keywords: Club convergence, Inequality measures, Panel data, US states
JEL Classification: C22, D63
Suggested Citation: Suggested Citation