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Income Inequality, Permanent Incomes, and Income Dynamics

Comparing Europe to the United States

University of Mannheim

As income mobility over time serves to offset income inequality existing at any point in time, cross-national differences in social stratification are preferably assessed from data on average incomes over an extended period of time. Hence, this article uses longitudinal income data from the Panel Study of Income Dynamics and the European Community Household Panel to reassess the received empirical evidence. Even discounting the impact of income mobility, however, the United States continues to exhibit the highest level of permanent income inequality in this particular sample of industrial countries. In addition, older workers and individuals at the bottom of the income distribution have faced significantly worse income prospects than common in many European countries.

Key Words: income inequality • income mobility • permanent income • transitory variance of incomes • cross-national comparison

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