Estimating trends in US income inequality using the Current Population Survey: the importance of controlling for censoring

We analyze trends in US size-adjusted household income inequality between 1975 and 2004 using the most commonly used data source?the public use version of the March Current Population Survey. But, unlike most researchers, we also give substantial attention to the problems caused by the topcoding of each income source in the CPS data. Exploiting our access to Census Bureau internal CPS data, we examine estimates from data incorporating imputations for topcoded incomes derived from cell means and estimates from data multiply-imputed from parametric distribution models. Our analysis yields robust conclusions about inequality trends. The upward trend in US income inequality that began in the mid-1970s and increased in the 1980s slowed markedly after 1993.