The Feasibility of a Quarterly Distribution of Personal Income

The U.S. Bureau of Economic Analysis (BEA) conducted a feasibility study to evaluate whether it is possible to produce a quarterly distribution of personal income and construct inequality metrics that are valid, informative, and transparent. The primary obstacles to producing such estimates are the lack of available quarterly microdata and inability to follow households over time (panel data). Therefore, we cannot account for household behavioral responses to shocks, such as applying for transfers after a wage loss, or participating in the gig economy, and we miss interdependency of these income sources. In this paper, BEA presents estimates of an interpolated quarterly distribution for 2007–2018. The estimates are driven by changes in aggregate income composition, such that the average of the quarterly estimates for each year is equal to the annual estimate. Many sources of data were considered to improve the quarterly estimates. An in-sample forecast exercise using a simplified methodology shows reasonable results during stable growth years but significantly underestimates inequality during periods of economic volatility (Great Recession and recovery). Forecast results can incorrectly show rising (falling) inequality during quarters when it is falling (rising).