The Drivers of Income Inequality in Rich Countries

Abstract

Rising income inequality has recently come centre‐stage as a core societal concern for rich countries. The diagnosis of the forces driving inequality upwards and their relative importance remain hotly contested, notably with respect to the roles of globalization versus technology and of market forces versus institutions and policy choices. This survey provides a critical review and synthesis of recent research. The focus is on income inequality across the entire distribution, rather than only on what has been happening at the very top. We pay particular attention to include what has been learned from the analysis of micro‐data, to ensure that the coverage is not unduly US‐centric and to analyses of the interrelations between the different drivers of inequality. The marked differences in inequality trends across countries and time periods reflect how global economic forces such as globalization and technological change have interacted with differing national contexts and institutions. Major analytical challenges stand in the way of a consensus emerging on the relative importance of different drivers in how income inequality has evolved in recent decades.

Inequality and Globalization: A Review Essay

“…11 To his eyes, the graph shows how the rich world's lower-middle class has seen little or no gain from globalization-these are the people (he claims) living around the eightieth percentile of figure 2, with near zero gain over the period. 12 By contrast, the poor and middle class of the developing world have seen substantial gains. The largest percentage gain in the elephant graph is close to the global median.…”

Testing the Superstar Firm Hypothesis

“…This important nexus is theoretically 2 For a detailed presentation of the model, we refer to Appendix A in Autor et al (2017b). 3 See Eq. 9 in Appendix A in Autor et al (2017b, p.52).…”

“…An increasing number of studies suggest a rise of market power and a growing concentration in many economic sectors (Grullon et al, 2019;De Loecker et al, 2018;Rossi-Hansberg et al, 2018;VanReenen, 2018). 1 Simultaneously, the literature discusses the potential reasons for the shrinking share of labor in GDP and rising inequality in most western economies (Mertens, 2019;Nolan et al, 2018;Bourguignon, 2017;Karabarbounis and Neiman, 2014;Rodriguez and Jayadev, 2013;Elsby et al, 2013). Autor et al (2017a,b) have developed the widely recognized superstar model that links both observations and provides a possible explanation for them.…”

Reevaluating Distributional Consequences of the Transition to Market Economy in Poland: New Results From Combined Household Survey and Tax Return Data

“…Additionally, monopolistic markups adjusted for cyclical effects increased substantially in Poland over 2004-2009(Hagemejer and Popowski 2014 and the markups were significantly higher for manufacturing and non-exporting firms. Nolan et al (2018) suggest that higher markups and associated increased product market power could make income distribution more unequal through higher firm profits and higher incomes of the richest firm 16 The surge in business income over 2004-2008 can be also a result of shifting top labor earnings to business income (see Bukowski and Novokmet 2017 for further discussion). 17 The GDP per capita growth amounted to 5.3% per year over 2005-2008, and to 6.7% over 2006-2007.…”