During the period between 2010 and 2019, something a bit counterintuitive happened in U.S. economic inequality trends. During that time, personal earnings inequality decreased in the U.S. for the first time in a number of decades. But, in the same period, household income inequality continued to grow.
Why would those two trends move in different directions?
A newly published paper coauthored by Professor Nathan Wilmers of the MIT Sloan School of Management analyzes the reasons for this divergence in the two inequality trends. Using data from the U.S. Current Population Survey Annual Social and Economic Supplement, researchers Zachary Parolin, Lukas Lehner, and Wilmers found that almost half (46 percent) of the divergence in U.S. personal and household income inequality between 2010 and 2019 was caused by changes in the composition of households. In particular, the researchers found, the period saw an increase in the number of young working adults who live with their parents—a trend that grew steadily through the period studied, reaching a “record-high” level in 2019.
In those cases, the young adults’ relatively low earnings become part of a generally more affluent household’s income. “Should the share of young workers living with parents continue to increase,” the authors write, “changes in personal earnings inequality may be increasingly disconnected from household income inequality.”
Parolin is an Associate Professor of Social Policy at Bocconi University in Milan, and Lehner is an Assistant Professor at the University of Edinburgh. Wilmers is the Sarofim Family Career Development Associate Professor and an Associate Professor of Work and Organization Studies at MIT Sloan, and is in the core faculty of the MIT Institute for Work and Employment Research (IWER). The authors’ paper, “Declining Earnings Inequality, Rising Income Inequality: What Explains Discordant Inequality Trends in the United States?” was published in the April 2025 issue of the Journal of Public Economics.
The researchers found that young adults being more likely to live with their parents wasn’t the only cause for the differing directional trends in personal earnings inequality and household income inequality. The authors note that household income in low-income families in the U.S. may include food benefits through the Supplemental Nutrition Assistance Program (SNAP) and refunds from tax credits such as the earned income tax credit. As the economy increasingly recovered from the aftermath of the Great Recession that began in 2008, fewer lower-income workers were receiving benefits like SNAP food assistance, and, as wages increased, some lower-income families were earning too much to get a refund via the earned income tax credit.
Those two trends dampened the household income growth in lower-income families some, even as individual earners saw their wages increase. “During the Great Recession, refundable tax credits played a particularly important role in reducing inequality…, which began to gradually return to its pre-crisis level from 2010 to 2019,” the authors explain. “Food and nutrition support (SNAP, especially) also saw a gradual return to pre-crisis levels from 2010 to 2019.”
