A new look at the distributional effects of economic growth during the 1980s: a comparative study of the United States and Germany

Beginning in 1983, and following the worst recession since the Great Depression, the United States experienced six years of uninterrupted economic growth, the longest such period since World War II. Along with this expansion came an increase in income inequality that many suggest diminished the middle class and made the United States unique among industrialized nations in its pace of economic growth and increase in income equality. This paper addresses these issues by using kernel density estimation to document changes in the United States income distribution during the 1980s economic expansion and the compare these changes to those experienced in Germany. The findings confirm that income inequality did increase and the United States middle class did lose members during the 1980s. However, these outcomes were due largely to real income gains rather than real income losses. The comparative analysis shows that these patterns were similar to those observed in Germany.