Using Relative Distribution Methods to Study Economic Polarization across Categories and Contexts

Abstract

In addition to overall dispersion, the distributional shape of economic status has attracted growing attention in the inequality literature. Economic polarization is a specific form of distributional change, characterized by a shrinking middle of the distribution and a growing top and bottom, with potentially important and unique social consequences. Building on relative distribution methods and drawing from the literature on job polarization, the authors develop an approach for analyzing economic polarization at the individual level. The method has three useful features. First, it offers intuitive and flexible measurement of economic polarization both between and within categories. Second, it helps disentangle two potential sources of economic polarization: compositional change, which involves changes to the allocation of workers across categories, and relative economic status change, which involves changes to the allocation of economic rewards between individuals. Third, it enables researchers to uncover and examine potential heterogeneity in economic polarization, for example, across occupations, geographic units, demographic and educational groups, and firms. The authors demonstrate the utility of this approach through two empirical applications: (1) an analysis of trends in wage polarization between and within occupations and (2) an examination of geographic variation in income polarization.