The Macro Model of the Inequality Process and The Surging Relative Frequency of Large Wage Incomes

Angle (2006) shows that the macro model of the Inequality Process provides a parsimonious fit to the U.S. wage income distribution conditioned on education, 1961-2001. Such a model should also account for all time-series of scalar statistics of annual wage income. The present paper examines one such time-series, the relative frequency of large wage incomes 1961-2003. Figure 1 shows an aspect of this kind of statistic: the larger the wage income, the greater the proportional increase in its relative frequency. The phenomenon that figure 1 shows, a surge in wage income nouveaux riches, has caused some alarm and given rise to fanciful theories. The present paper shows that the macro model of the Inequality Process (IP) accounts for this phenomenon. In fact, it is simply an aspect of the way wage income distributions change when their mean and all their percentiles increase, which they do simultaneously, i.e., it is good news for a much larger population than the nouveaux riches alone. Nevertheless, many economists and sociologists have interpreted the surge in wage income nouveaux riches as an alarming bifurcation of the U.S. wage income distribution into two distributions, one poor, the other rich, a