A Life Course Perspective on U.S. Income Inequality : An Age-Period-Cohort Analysis

Abstract

The United States continually has one of the highest levels of income inequality in the Western world. When trying to understand the evolution of income inequality, most studies have focused on age and period characteristics, neglecting cohort effects and preventing researchers from obtaining a comprehensive understanding of income inequality across the life course. This study explores income inequality within the United States through a detrended age-period-cohort model that allow for the simultaneous analysis of the three characteristics to better understand their impacts on income distribution. This study utilizes United States income data from the Luxembourg Income Study (LIS): specifically, data on U.S. disposable household income from 1965–2020, with 100,000–200,000 individual observations for each year contained in 20,000–70,000 households. The results of the study indicate that age effects are rather significant, and individuals in the 40–55-year age group have the most significant advantage. Birth cohorts from 1915–1929 have the largest income advantage over other cohorts. Period characteristics show negative income effects around the 1970s recessions and the 2007–2009 recession. The findings of this study support the idea that one’s position within the life course affects their income level and the income inequality they experience. In the case of the U.S., one’s age matters more than one’s position within a birth cohort. The early stages of the life course present the highest levels of income inequality, as younger individuals are considerably disadvantaged in comparison, and only move toward stabilization or advantage when they approach middle-age.