Decomposing Changes in Subnational Income Inequality in the United States, 1980-2019

The rapid growth of income inequality in the United States has unfolded unevenly across the country. Levels of, and changes in, income inequality within local economies have been spatially and temporally heterogeneous. While previous research has identified the correlates of subnational inequality, it has given less attention to the contribution of compositional changes. Drawing on commuting zone (CZ)-level estimates produced from U.S. Census and American Community Survey data, we extend the literature on subnational income inequality by addressing four main objectives. First, we track changes in the prevalence of five sets of inequality risk factors. Second, we measure the associations between these factors and within-CZ income inequality in 1980 and 2019 and describe changes in these relationships over time. Third, we decompose changes in within-CZ income inequality (1980-2019) into components attributable to changes in the prevalence of risk factors (i.e., composition effects) and changes in the penalties (i.e., coefficient effects) associated with each factor. Fourth, we compare the South to other regions in these respects to explore relevant patterns of socioeconomic change unique to the South. We find substantively large shifts in the prevalence of all five sets of risk factors and significant changes in the penalties associated with many factors, especially the age and industrial structures of CZs. Shifts in penalties explained the largest overall share of changing inequality between 1980 and 2019, but these overall effects mask considerable heterogeneity in the strength and direction of changing penalties We also find significant regional variation in the size of coefficient effects and the relative contributions of composition and coefficient effects. Together, these analyses underscore the importance of simultaneously accounting for the prevalence of and penalties to inequality risk factors.