Wage or Wealth: Unpacking the Driving Forces Behind U.S. Inequality

Abstract

This scholarly research endeavors to investigate the intricate interplay between labor and non-labor income and its contribution to the disparity of income across various states in the United States. The paper employs an analytical approach, utilizing an array of data and sophisticated econometric techniques, to examine the relationship between the different income groups and overall inequality, as well as the correlation between wage inequality and income inequality in each state. The findings of the study present a nuanced picture, indicating that inequality between U.S. states (between-group inequality) has limited influence on overall inequality and that each state presents its own distinct relationship between wage and income inequality. These insights accentuate the criticality of state-specific policies that aim to address the specific source of income driving inequality in each state. The simulation results further emphasize the need for decisive redistributive policies, such as a transfer of 10% of wages from the 90th percentile to the 10th percentile, to address inequality and improve the standard of living of the citizens.

Keywords: Inequality, Labor Income, Non-Labor Income, Redistribution Policies, U.S. States

JEL Classification: D31, E00