Income inequality over time

by on March 21, 2004 at 9:01 am in Economics, History | Permalink

How great a share has the top ten percent of the American income distribution earned over time?

Ben Muse tells us (based on, Income Inequality in the United States, 1913-1998, by Thomas Piketty and Emmanuel Saez):

In 1917, the top 10% of “tax units” had about 40% of national income. The percent of the income earned by this group rose until about 1929, ranged from about 44% to about 46% until 1940, then plummeted to the area of 32% during the war, and sat there until about 1972. From 1972 to 1998, the share of income received by this group rose almost continuously, ending the period in the area of 42%.

Here is the graph (click to expand):


Breaking the top 10% into even finer gradations we see that:

Percentiles 90-99 appear to rise gradually from 1917 to 1940, do the 1940 WWII drop, then, following the war, begin a long sustained increase through 1998.

But the top percentile is all over the place. The authors had enough data to start this series up in 1913, before the start of WWI. It plummets on U.S. entry into the war and during a post-war depression, rises through the boom of the 1920s, peaking in 1929, plummets with the onset of the Great Depression, and again with the onset of WWII, then continues to fall following the war, bottoming out about 1972, and then rising over the period 1972-1998. A large part of this last rise takes place in 1987 and 1988, following the Tax Reform Act of 1986….

What else do we learn? War and other disruptions appear to damage capital income more than labor income. If that is the case, a healthy and peaceful society might have increasing income inequality. In other words, if we are lucky, income inequality will increase even more.

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