Unpacking transatlantic income inequality

This paper uses newly harmonized survey and register data on incomes and labor mar-ket outcomes as the basis for consistent comparisons of inequalities across 17 NorthAmerican and European countries over the period 1995–2021. We examine trends indisposable income inequality in the working-age population, defined as persons aged25 to 60, as well as its component parts of market income inequality and redistributionthrough government tax and transfer systems. We adjust incomes to allow for changesin education, population aging, and household structure in each country. We test forconvergence across countries in demographically-adjusted disposable income inequality,along with market income inequality and redistribution. There is strong evidence ofconvergence over time in disposable income inequality across the 17 countries, despite adivergence in the dispersion of market income inequality driven by very heterogeneoustrends for hours of work and the number of workers in households across countries.Consistent with this we find a strong convergence across countries in the dispersion ofour measure of redistribution. There are reductions over time in inequality-reducingredistribution in the Nordic countries and increases in some other European and NorthAmerican countries, with the net effect being more similarity across countries, a loweraverage level of redistribution, and a higher average level of disposable income inequality.These trends are being driven by the bottom 95% of the income distribution. Our resultsare robust to a variety of alternative specifications including the measure of inequality,trimming of data outliers, and sample period.