Power, Markets, and Top Income Shares

Abstract

The Kellogg Institute for International Studies at the University of Notre Dame has built an international reputation by bringing the best of interdisciplinary scholarly inquiry to bear on democratization, human development, and other research themes relevant to contemporary societies around the world.Together, more than 100 faculty and visiting fellows as well as both graduate and undergraduate students make up the Kellogg community of scholars. Founded in 1982, the Institute promotes research, provides students with exceptional educational opportunities, and builds linkages across campus and around the world. The Kellogg Working Paper Series:! Shares work-in-progress in a timely way before final publication in scholarly books and journals ABSTRACTThe rise of the super-rich has attracted much political and academic attention in recent years. However, to date there have been few attempts to explain the cross-national variation in the recent rise of very top incomes. Drawing on the World Top Incomes Database, we study the income share of the top 1% in almost all current postindustrial democracies from 1975 to 2012. We find that extreme income concentration at the very top is a predominantly political phenomenon, not the outcome of economic changes. Top income shares are largely unrelated to economic growth, increased knowledge-intensive production, export competitiveness, market size, financialization, and wealth accumulation. Instead, they are driven by various political and policy changes that reflect a decline in the relative power and resources of labor, such as union density and centralization, secular-right governments, and cuts in top marginal income tax rates as well as in public spending on education. RESUMENEn los últimos años, el ascenso de los super-ricos atrajo mucha atención política y académica. Sin embargo, hasta el momento se hicieron pocos intentos de explicar la variación internacional en el crecimiento reciente de los ingresos más altos. Tomando información de la Base Mundial de Datos sobre los Ingresos más Altos (World Top Incomes Database) estudiamos la porción del ingreso del 1% superior en casi todas las democracias postindustriales actuales desde 1975 hasta 2012. Encontramos que la extrema concentración del ingreso en la cúspide es un fenómeno predominantemente político y no resulta de cambios económicos. La participación de los ingresos superiores no está relacionada en ninguna medida significativa con el crecimiento económico, un aumento en la producción que hace un uso intensivo del conocimiento, la competitividad de las exportaciones, el tamaño de los mercados, el desarrollo del sector financiero o la acumulación de riqueza. En cambio, está guiada por varios cambios en la política y en las políticas que reflejan una declinación en el poder relativo y en los recursos de los trabajadores, tales como la densidad sindical y la centralización, los gobiernos seculares de derechas y las reducciones tanto en las tasas marginales superiores de impuestos sobre los ingresos como en el gasto púb...

Macroeconomic conditions, inequality shocks and the politics of redistribution, 1990–2013

“…Redistribution through taxes actually increased in seven of our eleven core countries between and 2007, but it declined in all but two countries in the first half of the 1990s. The retreat from progressive taxation appears to have preceded the rise in top income shares and, following Piketty and Saez (2014), might be invoked to explain the latter development (see also Huber et al 2016). To be clear, we do not wish to deny there is widespread pro-rich bias in advanced democracies nor to deny that pro-rich bias has increased over time.…”

Why the Surge in Income Inequality?

“…The contrast between the United States and Canada is illustrative. Canada’s unionization rate has remained fairly constant over the past generation, and the top 1 percent’s income share in Canada has risen only half as much as in the U.S. Several recent quantitative studies that examine developments over the past generation in the United States alone or in the U.S. along with other affluent democracies have found unionization to be one of the best predictors of variation in top-end income inequality (Volscho and Kelley 2013; Jaumotte and Buitron 2015; Huber, Huo, and Stephens 2015).…”

Labor Unions, Political Representation, and Economic Inequality

“…In aggregate, union density is negatively correlated with top income shares cross-nationally (Scheve & Stasavage 2009, Huber et al 2015 and in the United States (Volscho & Kelly 2012), even after conditioning on a variety of covariates. At the subnational level, however, the relationship differs.…”