Income Inequality in the United States, 1913-1998 (Series Updated to 2000 Available)

Abstract

This paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the US using individual tax returns data. Top income and wages shares display a U-shaped pattern over the century. Our series suggest that the 'technical change' view of inequality dynamics cannot fully account for the observed facts. The large shocks that capital owners experienced during the Great Depression and World War II seem to have had a permanent effect: top capital incomes are still lower in the late 1990s than before World War I. A plausible explanation is that steep progressive taxation, by reducing drastically the rate of wealth accumulation at the top of the distribution, has prevented large fortunes to recover fully yet from these shocks. The evidence on wage inequality shows that top wage shares were flat before WWII and dropped precipitously during the war. Top wage shares have started recovering from this shock since the 1960s-1970s and are now higher than before WWII. We emphasize the role of social norms as a potential explanation for the pattern of wage shares. All the tables and figures have been updated to the year 2000, the are available in excel format in the data appendix of the paper.