Inequality and Institutions in 20th Century America
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.
The authors thank Nirupama Rao and Julia Dennett for excellent research assistance and the Russell Sage and Alfred P. Sloan Foundations for financial support. We have benefited from helpful comments from Elizabeth Ananat, David Autor, Jared Bernstein, Barry Bosworth, Peter Diamond, John Paul Ferguson, Carola Frydman, Robert Gordon, Harry Katz, Larry Katz, Tom Kochan, Richard Murnane, Paul Osterman, Steven Pearlstein, Michael Piore, Dani Rodrik, Emmanuel Saez, Dan Sichel, Robert Solow, Katherine Swartz, Eric Wanner and David Wessel and from seminar participants at NBER and the Sloan School Institute for Work and Employment Research. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.