Hollowing Out: The Channels of Income Polarization in the United States

67 Pages Posted: 1 Feb 2018

See all articles by Ali Alichi

Ali Alichi

International Monetary Fund (IMF)

Rodrigo Mariscal

El Colegio de Mexico; Mexico's Ministry of Finance

Daniela Muhaj

International Monetary Fund (IMF)

Date Written: November 2017

Abstract

Data show that middle-income households have continued moving down, and less so up, the income distribution in the United States since the 1970s-a phenomenon that is often referred to as the polarization or 'hollowing out' of the income distribution. While the level of income polarization is generally lower in the richer states (i.e., those with higher median household income levels), there have been wide variations in the changes in income polarization over time across states. The paper develops two indices to measure income polarization including a novel hollowing-out index. Another important contribution of the paper is to examine the proximate causes of income polarization. The econometric analysis is done at both state and household levels. The results suggest that technology, measured by job routinization, and international trade, measured by job offshoring, can fully explain the non-trend rise in income polarization, with broadly equal contributions. Household characteristics, including age, education, race, and gender have also been important drivers but with a net countervailing effect on income polarization. This is mainly thanks to the rising education level of households, which has led to better incomes.

Keywords: United States, Western Hemisphere, Middle Class; Middle-Income Class; Income Polarization; Hollowing Out; Inequality, Middle Class, Middle-Income Class, Income Polarization, Hollowing Out, Inequality

Suggested Citation

Alichi, Ali and Mariscal, Rodrigo and Muhaj, Daniela, Hollowing Out: The Channels of Income Polarization in the United States (November 2017). IMF Working Paper No. 17/244, Available at SSRN: https://ssrn.com/abstract=3116203

Ali Alichi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Rodrigo Mariscal

El Colegio de Mexico ( email )

Camino al Ajusco 20
Col. Pedregal de Santa Teresa
Mexico, City, 10740
Mexico

HOME PAGE: http://www.colmex.mx/

Mexico's Ministry of Finance ( email )

Av. Insurgentes Sur No. 1971
Torre III, Piso 9
Mexico City, CDMX 01020
Mexico

Daniela Muhaj

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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