Working Paper: NBER ID: w13106
Authors: Frank Levy; Peter Temin
Abstract: We provide a comprehensive view of widening income inequality in the United States contrasting conditions since 1980 with those in earlier postwar years. We argue that the income distribution in each period was strongly shaped by a set of economic institutions. The early postwar years were dominated by unions, a negotiating framework set in the Treaty of Detroit, progressive taxes, and a high minimum wage -- all parts of a general government effort to broadly distribute the gains from growth. More recent years have been characterized by reversals in all these dimensions in an institutional pattern known as the Washington Consensus. Other explanations for income disparities including skill-biased technical change and international trade are seen as factors operating within this broader institutional story.
Keywords: Income Inequality; Economic Institutions; Labor Market; Productivity; Unions
JEL Codes: J31; J53; N32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| postwar economic institutions (P16) | equitable distribution of income (D31) |
| strong unions, progressive taxation, high minimum wage (J58) | bargaining power index (BPI) (J52) |
| bargaining power index (BPI) (J52) | median compensation growth (J31) |
| collapse of postwar institutions (P16) | decline in bargaining power index (BPI) (J52) |
| decline in bargaining power index (BPI) (J52) | stagnant wages for average worker (J31) |
| Washington Consensus (O20) | greater income inequality (D31) |
| skill-biased technical change and globalization (F66) | income disparities (I24) |
| government intervention (O25) | equitable distribution of productivity gains (O49) |