The trend in U.S. income inequality and the role played by economic freedom

Objective: Studies by both private and governmental researchers indicated that income inequality in the United States has been on the rise over the last 30 years.  Numerous causes have been cited for this trend.  These forces include, but are not limited to, rates of economic growth, relative tax rates, the degree of unionization and the educational levels and skill sets of the labor force.  The prevailing degree of economic freedom has also received some attention in this regard.  However, in this latter case research emphasis was placed on international comparisons.  This paper examines the impact of economic freedom on income distribution among the 50 U.S.  states.   The objective is to determine the relationship between economic freedom and income distribution within the U.S.

Data/Methods:  A series of multiple regression models will be used to identify and quantify what demographic, economic and policy measures impact income distribution.   Measures of income inequality include the familiar Gini coefficient as well as a comparison of the first and last deciles of the income stratum.  The degree of economic freedom is taken from the measures provided by the Fraser Institute in Vancouver, Canada.  The extent to which these other factors contribute to or inhibit income distributions is also analyzed.  Finally, actions that might be taken to abate growing income inequality are also suggested and evaluated.

Results: The findings clearly suggest that after accounting for control variables, those states characterized by higher levels of economic freedom exhibit greater income equality.  States with higher levels of unionization, lower growth rates and higher industrial concentration reported greater income inequality.