Tuesday, March 6, 2012

Picture of the Day: Income Inequality

Emmanuel Saez updates his well-known data on income inequality:

Notice the massive concentration of wealth that occurred during the Gilded Age and then again in the run up the the financial crisis.  Well with the crash, you might be tempted to think that it was a temporary blip - and you'd be wrong, the trend is continuing right on through the recession.

And here is the takeaway, stated beautifully by Saez:
The labor market has been creating much more inequality over the last thirty years, with the very top earners capturing a large fraction of macroeconomic productivity gains. A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II - such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality. We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.

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