Did The Great Levelling Begin After 1921?

Abstract

The U-Curve of income inequality in the United States is a longstanding stylized fact in economic history. The “Great Levelling” that led to the trough that lasted from the 1940s to the early 1980s is argued by scholars like Piketty and Saez (2003) to have happened precipitously during the 1940s whereas others like Geloso et al. (2022) argue that it was a gradual levelling that began with the Great Depression. In this paper, we argue that large regional price level differences make it hard to measure “real” inequality levels. More importantly, as these price differences collapsed in the first half of the 20th century, the trends in “real” income inequality could be far different than those using “nominal” income. Adjusting income levels from 1921 to 1941 for regional price levels shows a faster decline in inequality during the period. We argue that this indicates that the Great Levelling was a gradual process than began far earlier than the 1940s.

Keywords: Income inequality, US economic history, regional price levels