Rurality and Income Inequality in the United States, 1975–2015

Abstract Recent events have focused attention on the perceived widening of the economic divide between urban and rural areas, and on the continued rise of national income inequality. We demonstrate that, in fact, the average income gap between urban (metropolitan) and rural (nonmetropolitan) households has not risen over the past 40 years, and makes virtually no contribution to national income inequality. Rising national inequality is driven by rising inequality within both urban and rural America, not by an urban/rural divergence. As is well known, the growing dispersion of household money income is partly driven by rising wage inequality, particularly in urban areas. Less well recognized is the role played by other income sources. We show that a decline in the progressivity of the distribution of social security payments and cash transfers, and an increase in the regressivity of the distribution of retirement incomes, have jointly made a comparably large contribution to rising income inequality. At the same time, the share of income from self‐employment has declined, particularly in rural America, and because self‐employment income is very unequally distributed, its diminution has retarded the growth of rural inequality. In 2014–15, however, rural inequality increased, cutting the urban/rural inequality gap in half.