A tale of two Ginis

What is it about?

We show that while inequality at the top (e.g. the income share going to the top 1%) first decreased after WWII and then increase since 1980, inequality at the bottom increased during the '50s, '60s and '70s before decreasing since 1980. What this tells us is that as the share of income going to the top increased recently, the share going to the bottom majority of the income distribution was spread out more equitably. Top income earners got a bigger piece of the pie while the bottom split their shrinking piece up more equally. We further show that these changes almost certainly imply a welfare loss due to growing inequality when not considering the welfare gains from growth.

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Why is it important?

Much attention has been dedicated to the rising share of income going to the top income earners, but our paper provides a much overdue analysis of what is happening at the bottom. We also provide a direct link to the welfare consequence of the changes in inequality. For both reasons, it is an important contribution to the evolving discussions of income inequality.