Decomposing changes in income polarization by population group: what happened during the crisis?

Abstract

In this paper, we use two different methods to compare changes in income polarization across different population groups (by gender, occupational status, education, age, residential area and state of birth) during the Great Recession in Italy. By using data from the latest wave of the Survey on Household Income and Wealth by the Bank of Italy, first we decompose the Duclos et al. (Econometrica 72:1737–1772, 2004) polarization index by population group. Second, we employ the Relative Distribution Approach by group. Comparing income distributions between 2006 and 2016, our results show a general downgrading of low-educated, young, southern and foreign heads of household coming out of the crisis. Young people and especially foreigners have suffered the most from the crisis. The lowest (highest) homogeneity within groups and the lowest (highest) heterogeneity between groups is observed when groups are formed on the basis of the state of birth (residential area). Thus, the decomposition of the polarization indices by population group is able to provide specific useful policy indications tailored to the needs of particular groups.