Recovering the Missing Middle: Place Effects and Within-Group Inequality

Tom VanHeuvelen, Indiana University

American wage and income inequality has grown rapidly since the 1970s. Of central importance has been within-group inequality: inequality occurring among individuals otherwise similar on observed characteristics. This research examines within-group inequality in relation to economic and political characteristics of local labor markets, or “place effects.” A dataset is constructed locating the within portion of wages and income from 9 waves of public use microdata series from the US Census in 722 temporally stable geographical units, commuting zones, covering the entire contiguous United States. Results from heteroscedastic and multilevel repeated measures regression models on male and female wages and household income reveal the primary importance of economic development and secondary importance of politics to within-group inequality. Results reveal a “volatility curve:” within-group inequality initially declines, and then increases, with economic development. Other factors have important cross-sectional and longitudinal effects, including deindustrialization, union decline, educational change, party competition, and social spending.