income-inequalityWhat have economists written about the recent rise in income inequality? Thomas Piketty and Emmanuel Saez wrote a paper, Income Inequality in the US, 1913-1918, published in the Quarterly Journal of Economics (2003). What evidence is there for the recent rise? What is its impact, if any?
I don’t think this claim would be subject to flaming, and it is worth reiterating that there is no controversy here IF we are careful about our terminology. First, given the context of the question by @thepiachu, I assume the question is about about U.S. income inequality. @Dimitris has written a good answer for the global situation, and I’ll supplement it slightly with some U.S. data since it isn’t clear whose income inequality the OP is concerned about.
We often measure inequality (of many types) using a Gini coefficient, and it is standard practice to report income inequality using this metric. The metric is constructed so that it is equal to one if there is complete inequality (one person has/makes all the money), and zero if there is perfect equality (we all have/make the same amount of money). Here we find that the gini coefficient on household income rose from 0.397 to 0.469 between 1969 and 2010. Other metrics show a similar trend. The mean log deviation of income (AKA Theil’s L) has also been increasing. See the U.S. Census Bureau’s Historical Table IE-1 for the full time series of these and other measures.
One could argue about how important increasing income inequality is (especially if median income is rising) or whether these metrics provide good indicators of income inequality, but there would be no point arguing about whether or not income inequality is on the rise (as it is usually measured).
The polarization of the labor force is something that has been receiving research interest lately. See also this recent report out of Brookings. The same fellow is involved in both; I haven't read both so I am not sure how much overlap there is. Good data, though!
A quote from the intro of the first:
"We first document that wage inequality in the top half of the distribution has exhibited an unchecked secular rise for 25 years, but it has ceased growing since the late 1980s (and for some measures narrowed) in the bottom half of the distribution. We next demonstrate that employment growth differed sharply in the 1990s versus the 1980s, with more rapid growth of employment in jobs at the bottom and top relative to the middle of the skill distribution. Borrowing terminology from Maarten Goos and Alan Manning (2003), we characterize this pattern as a “polarization” of the U.S. labor market, with employment polarizing into high-wage and low-wage jobs at the expense of middle-skill jobs"
Overwhelming evidence on the rise in income inequality, especially from the perspective of top incomes, is presented for many and diverse countries in two Oxford Univ. Press volumes, namely Top Incomes over the Twentieth Century and Top Incomes - A Global Perspective.
The first of these volumes is much more informative: including the paper by Piketty and Saez in an expanded version, there is a discussion on the contrast between continental european countries (where taxes are high and redistribution is strong) and the anglosaxon countries (where tax cuts for the rich have been on the rise and the welfare state has been shrinking ever since the beginning of the 1980s) on the secular increase of top incomes. Almost all of the papers included in the volume have been published in top-tier academic journals.
Overall, the evidence is clear and transparent. We must now understand why this has happened.
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