Although the increase in inequality over the last two decades has been extensively documented in the economics and policy literature, the authors find that this inequality largely constituted an increase in permanent inequality. Using a large panel of income data from U.S. federal tax returns for the period 1987-2009, the authors show that for men’s labor earnings, the increase in inequality was entirely permanent (100 percent), while for total household income, roughly three-quarters of the increase in inequality was permanent. They estimate that the permanent variance for men’s earnings roughly doubled in the 20 years between 1987 and 2009, while the permanent variance of total household income increased by about 50 percent over the same period.

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