A new study released by researchers from the Federal Reserve Board, the U.S. Treasury, and Indiana University found that income inequality is becoming increasingly permanent in the U.S.
The paper, titled “Rising Inequality: Transitory or Permanent: New evidence from a Panel of U.S. Tax Returns" examines tax returns between 1987 and 2009 to identify a trend of income inequality as more permanent than transitory. Whereas transitory inequality refers to variation in incomes from year to year, permanent inequality refers to disparities that consistently do not reverse. Thus, while transitory inequality speaks to disparity in income, it leaves more room for the possibility of economic mobility.
Interestingly, the authors chose to examine male earners, followed by their entire household earnings. The study showed a greater trend for permanent inequality both among male earners and their entire households, but when spouses' income was taken into account, there was a slight increase in transitory inequality. Perhaps this is because wives' income varies more according to whether the family has children.
The paper concludes with a recommendation for tax policy to do more to mitigate the permanency of income inequality, pointing out that the tax system slightly mitigated the troubling trend, but not by much.