Inequality and Institutions in 20th Century America

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, Institutions, Treaty of Detroit, Washington Consensus

JEL Classification: J31, J53, N32