Changes in Income Inequality within U.S. Metropolitan Areas.

• Author: Jefferson, Philip N.
• Position: Review

By Janice F. Madden.

Kalamazoo, MI: W. E. Upjohn Institute for Employment Research, 2000. Pp. xiii, 199 $15.00 (paper).

Feldstein (1998) argues that the attention economists pay to income inequality is somewhat curious. From a Pareto perspective, changes in the distribution of income that leave one group better off without hurting any other groups are an improvement. If the increase in income inequality that occurred during the 1980s was of this sort, then the case for policy intervention is weak. According to Feldstein, the issue that economists should try to understand better is poverty. If policies can be devised that lift groups out of poverty, then this is good for society as a whole. Janice Madden's appealing monograph has much to say about income inequality, poverty, and policy. This review begins by describing the scale and scope of this well-written work. Then, distinguishing features and strengths of the book are highlighted. Finally, some reservations are expressed.

In this book, Janice Madden examines the determinants of income inequality and poverty. She does this by studying how demographic, educational, structural, and labor market characteristics are correlated with measures of household income inequality, earnings inequality, and poverty in 182 metropolitan statistical areas (MSAs) in the United States. Her data are drawn from the 1980 and 1990 censuses. A motivation for using these disaggregated data is their potential to reveal effects that are important at the microeconomic level that might be obscured in more aggregated data. For example, she is able to analyze the factors that determine the distribution of impoverished households over suburban and urban communities within an MSA. Another possible advantage of using disaggregated data is the implementation of policy remedies at the local level that might be inappropriate or infeasible at the macro level.

Three strengths characterize Madden's monograph. First, she is careful to distinguish between household income inequality and earnings inequality. The former is influenced by household formation patterns and the distribution of earners across households. The latter is not. Thus, the two measures of inequality can move in opposite directions. A complete statistical analysis provides insight into the possible reasons why the two measures of inequality might diverge. Second, the econometric methods employed are modern and appropriate to the task. The author recognizes that...