Distributional changes in the U.S. in recent decades represent a fundamental shift in the allocation of economic resources as both income and wage disparities have widened and the level of real income and earnings at the bottom of the scale has declined. This paper provides an overview of the recent trends in income inequality in the U.S., reviews the factors that are behind the significant distributional changes, and provides a menu of policy options for addressing the new inequality. The analysis focuses on a series of possible policy objectives in light of the nature of the distributional shifts, and a framework for thinking about the range of policy options available given those objectives. Options include reliance on macroeconomic and fiscal policies, as well as initiatives targeting labor markets, human capital investments and family decisionmaking.
Originally published in: The Inequality Paradox: Growth of Income Disparity, James A. Auerbach and Richard S. Belous, eds., Washington, D.C.: National Policy Association, 1998, pp. 239-259.
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