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Convergence in Income Inequality: Further Evidence from the Club Clustering Methodology across States in the U.S.

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Abstract

This paper contributes to the sparse literature on inequality convergence by empirically testing convergence across states in the U.S. This sample period encompasses a series of different periods that the existing literature discusses -- the Great Depression (1929–1944), the Great Compression (1945–1979), the Great Divergence (1980-present), the Great Moderation (1982–2007), and the Great Recession (2007–2009). This paper implements the relatively new method of panel convergence testing, recommended by Phillips and Sul (2007). This method examines the club convergence hypothesis, which argues that certain countries, states, sectors, or regions belong to a club that moves from disequilibrium positions to their club-specific steady-state positions. We find strong support for convergence through the late 1970s and early 1980s, and then evidence of divergence. The divergence, however, moves the dispersion of inequality measures across states only a fraction of the way back to their levels in the early part of the twentieth century.

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Notes

  1. In this paper, we set L(t) = log t.

  2. Appendix B of Phillips and Sul (2007) reports the analytic proof under the convergence hypothesis for this regression equation.

  3. Following the recommendation of Phillips and Sul (2007), we choose r values in the interval [0.2, 0.3].

  4. The log t test exhibits favorable asymptotic and finite sample properties.

  5. The data are is available for download from: http://www.shsu.edu/eco_mwf/inequality.html.

  6. These measures of inequality use the information in each state to calculate the state inequality indexes. Frank (2014) also computes the Top 1%, the Atkinson inequality measure, the relative mean deviation, and the Theil index. Convergence clubs are more heterogeneous across these different measures of inequality. Thus, we follow Frank (2014) and rely on the Top 10% and the Gini as more robust measures of inequality. In a longer version of this paper, we also discuss the findings from these additional four measures of inequality. See https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2623724.

  7. The solid vertical lines divide the sample period into the WWI and “Roaring 20s” (1916–1928), the Great Depression (1929–1944), the Great Compression (1945–1979), and the Great Divergence (1980–2012).

  8. Figs. 1 and 2 plot the transition curves, which measure the inequality measure (i.e., Top 10% and Gini coefficient) relative to the average inequality measure across all states. See Eq. (2).

  9. We also performed the Philips-Sul (2007) method to identify convergence clubs for annual real personal income per capita from 1929 to 2012. The method identifies two convergence clubs whereby the states in Club 1 come from the highest income states (i.e., 7 of the top 11 states ranked by income). Results are available from the authors on request.

  10. One referee suggested this line of research.

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Authors and Affiliations

  1. University of Piraeus, Piraeus, Greece

    Nicholas Apergis

  2. Open University of Cyprus, Latsia, Cyprus

    Christina Christou

  3. University of Pretoria, Pretoria, 0002, South Africa

    Rangan Gupta

  4. University of Nevada, Las Vegas, Las Vegas, NV, 89154-6005, USA

    Stephen M. Miller

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  1. Nicholas Apergis
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  2. Christina Christou
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  3. Rangan Gupta
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  4. Stephen M. Miller
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Correspondence to Stephen M. Miller.

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Apergis, N., Christou, C., Gupta, R. et al. Convergence in Income Inequality: Further Evidence from the Club Clustering Methodology across States in the U.S.. Int Adv Econ Res 24, 147–161 (2018). https://doi.org/10.1007/s11294-018-9675-y

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