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Income Inequality and Industrial Composition

PAQ, Vol. 33 No. 4, (2009)

This paper starts with a review of a few selected papers on the magnitude, and trends in income inequality in the United States as a nation, at the state level, and internationally. Some of the potential determinants of income inequality in the United Sates are identified and briefly discussed as well. The paper then explores the relationship between industrial composition in the United States and income inequality. The primary finding is that there appears to be an association between the changes in the US manufacturing and services sectors and income inequality but not completely in the manner hypothesized in past research. Further increasing the size of the construction sector may provide the greatest reductions in income inequality. The paper concludes with a summary of the estimation results and some thoughts on the policy implications.

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