A Simple Hypothesis of Income Distribution

Joseph Newhouse

Journal of Human Resources, 1971, vol. 6, issue 1, 51-74

Abstract: Income distributions across American cities have remarkably different shapes. This article attempts to explain that observation. After a brief review of the income distribution literature, a theory of an area's income distribution is proposed which can account for the dissimilar shapes. The theory focuses upon the industry mix of an area and ignores other factors. For reasons of data availability, the theory is tested using data from states. Approximately 88 percent of the variance is explained, which lends supports to the hypothesis that factors other than industry mix do not strongly affect the shape of the income distribution or are correlated with industry mix.

Date: 1971
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