Rich versus Poor? An Econometric Analysis of Relative Income Extremes

We explore the hypothesis that income of the rich increases at the expense of income of the poor. In a simple linear regression model, the relative (to the median) incomes of the poor and the rich are significantly and inversely related. Using standard time-series methods, we demonstrate that this relationship is not spurious. We also show that changes in the relative income of the rich are related to changes in the relative income of the poor, but that the reverse situation does not hold. Finally, we present a research puzzle about the underlying mechanism accounting for these asymmetric results.