A U-Curve of Inequality? Measuring Inequality in the Interwar Period

I have a new working paper fresh out of the oven. My co-authors (John Moore and Philip Schlosser) are myself are seeking comments. Basically, this is part of a series of papers on the economic history of the United States from 1890 to 1940 for which we obtained funding.

In fact, it is the first paper of that series and questions the use of tax data for the measurement of inequality during the era from the late 1910s to the 1940s. We argue that this is a crucial period in our understanding of inequality in America. The period from the end of the Great War to the beginning of the Second World War is marked by a high level of inequality that falls thereafter, reaching the trough in the 1970s. After that point, inequality increases dramatically up to the present time and returns to 1920s-like level. This is Thomas Piketty’s U-Curve of Inequality

We argue that the tax data overestimates inequality in the 1920s and underestimates it in the 1930s. This changes the left-side of the U-Curve. We argue that this tail is flatter than what Piketty, Emmanuel Saez and Gabriel Zucman have claimed. It looks more like a J-curve or even a steady linear increase thereafter.

The paper can be consulted here on Academia or here on SSRN. The abstract can be found below:

Abstract: In this paper, we question the level of inequality in the 1920s as presented in recent works by Piketty (2014, 2015), Piketty and Saez (2003) and Atkinson, Piketty and Saez (2011). Their work purports to observe a U-shaped curve of the evolution for inequality over time; it falls from the 1920s to the 1960s and increases thereafter. The implicit assumption is that we are now returning to 1920s-like inequality. We argue that it is quite likely that they dramatically overstate the level of inequality observed in the 1920s which materially affects any narrative of the evolution of inequality thereafter.

 

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