High inequality is a well-known fact of life in America today. Much less well-known are the sources of change: what causes inequality to increase or decrease? This chapter seeks to answer that question. It presents a measure of inequality in the manufacturing wage structure, and analyzes changes in that measure. The causes of rising inequality turn out to be mainly macroeconomic: unemployment, inflation, rapid economic growth, the exchange rate of the dollar, and the minimum wage all contribute to an explanation of the pattern of inequality over time. Such factors are reversible; that is, this analysis leads to a prescription for reducing inequality in the future.
