Income Inequality and Advanced Democracies

by

Vicki L. Birchfield, Raisa Mulatinho Simões

• LAST REVIEWED: 29 January 2020
• LAST MODIFIED: 26 February 2020
• DOI: 10.1093/obo/9780199756223-0099

Introduction

Over the past several decades, social scientists from a wide range of disciplines have produced a rich body of scholarship addressing the growing phenomenon of income inequality across and within advanced capitalist democracies. As globalization intensifies some scholars are beginning to put income disparities in developed democracies into wider perspective, examining inequality in advanced economies within the framework of global income distribution. As an object of inquiry, income inequality must be distinguished from the presumably more value-neutral term, income distribution, which has been studied since the origins of classical economics. How one derives a judgment about whether or not a given society’s income distribution is characterized by inequality requires an evaluative metric of either a longitudinal or a cross-sectional nature. Generally speaking and to side-step explicitly normative questions—the relative degree of inequality may be empirically assessed by temporal or longitudinal comparisons for single country studies (e.g., income distribution in the United States is more unequal now than in the 1950s and 1960s) or, alternatively, through cross-national comparisons (e.g., income inequality is higher in Great Britain than in Sweden). It is important to note that the lack of authoritative, comparable cross-national data until relatively recently impeded progress of this latter category of research. As a result, systematic investigations of income inequality or patterns of income distribution tended to be the exclusive domain of economists or sociologists and mostly focused on the United States. Within the past decade, however, political scientists—especially comparative political economists—have mined new databases and generated an impressive body of literature that moves research beyond a narrow focus on single-country studies to rigorous cross-national and time-series analyses and into new theoretical directions engaging the classic, paradigmatic questions of “who gets what, when, and how” that have long exercised the minds of students of politics and political economists. Given the intrinsic multidisciplinarity of the subject of income inequality, this article includes research by economists and sociologists as well as political scientists. Most research on income inequality addresses one of the following areas of inquiry: (1) the causal forces driving increasing inequality in developed economies; (2) the socioeconomic effects and political consequences of income inequality; (3) the relationships between income inequality and macroeconomic conditions, such as economic growth, unemployment, and the degree of trade and internationalization of the domestic economy. The recent work by French economist Thomas Piketty, whose 2013 book (2014, English translation) sold 2. 5 million copies, warrants special comment given its comprehensive scope and influence in putting income inequality at the forefront of global debates. Lastly, a new and growing body of scholarship explores the relationship among the environment, climate change, and income inequality.

General Overviews

Given the complexity and multidisciplinary nature of a subject like income inequality, unsurprisingly few general introductions to the literature or journal articles comprehensively survey the research on income inequality and advanced democracies. An early overview, Gottschalk and Smeeding 1997 points to the paltry and inadequate nature of the research at that time, and, more recently, Brandolini and Smeeding 2006 presents a survey of the aggregate data and discusses methodological and technical issues related to different measures of income inequality. Neither of these works, however, provides a thorough discussion of the scholarly literature. The only two book-length studies by political scientists that specifically address the subject of income inequality and advanced democracies, and do so in broad comparative perspective with thorough discussions of the existing literature, are Birchfield 2008 and Pontusson 2005. Two monographs that might serve as gateways to the state of research on income inequality, albeit from very different prisms, are the tour de force analysis in Atkinson 2008, which draws together new data and case studies of twenty Organisation for Economic Co-operation and Development (OECD) countries, and the more global overview in Firebaugh 2003, which provides substantial discussion on measurement issues as well as commentary on income inequality research more broadly. Written by a sociologist, Kenworthy 2004 offers an excellent overview as well as original analyses of the complex relationships among growth, income inequality, and employment. One of the latest publications (though by an economist, not a political scientist) that provides both a critique of previous research and inequality measurements as well as a comprehensive review of previous debates about the drivers of income inequality in the United States, Europe, and globally is Galbraith 2012. Galbraith 2016 offers a more recent and concise overview, though one that is intended for a general audience. Another economist, Thomas Piketty, made a dramatic impact with Piketty 2014, a publication introducing income inequality research to a much wider audiences (2.5 million copies sold) while also proving a milestone achievement in the field of economics offering unparalleled historical analyses of income and capital in the United Kingdom and France particularly, with significant coverage of the United States as well. Also, from two other prominent economists, Atkinson 2015 and Stiglitz 2013, are works providing overviews of the levels of income inequality in advanced democracies and its various societal consequences,

• Atkinson, A. B. The Changing Distribution of Earnings in OECD Countries. Oxford: Oxford University Press, 2008.

  DOI: 10.1093/acprof:oso/9780199532438.001.0001

  Assembling new and previously underutilized sources of data, this study challenges conventional wisdom that growing income inequality is a new phenomenon and shows that the entire 20th century has been marked by patterns of compression and expansion in earnings and that technological progress does not necessarily result in greater income dispersion.

• Atkinson, A. B. Inequality: What Can Be Done? Cambridge, MA: Harvard University Press, 2015.

  DOI: 10.4159/9780674287013

  Drawing on a lifelong career of research on income inequality, the author presents a comprehensive set of policies for developed economies that could shift current patterns of income distribution. Such proposals include policies in five specific areas: technology, employment, social security, the sharing of capital, and taxation.

• Birchfield, Vicki. L. Income Inequality in Capitalist Democracies: The Interplay of Values and Institutions. University Park: Pennsylvania State University Press, 2008.

  Employs both quantitative and qualitative methods to examine the variation in rising income inequality among a set of sixteen advanced democracies and explains differences among those countries in terms of the varying and interactive effects of political institutions and societal values.

• Brandolini, Andrea, and Timothy M. Smeeding. “Patterns of Economic Inequality in Western Democracies: Some Facts on Levels and Trends.” PS: Political Science & Politics 39.1 (2006): 21–26.

  This article reviews and analyzes trends and levels in income inequality in rich democracies and documents the methodological differences underlying the diverse patterns of income inequality across affluent countries.

• Firebaugh, Glenn. The New Geography of Global Income Inequality. Cambridge, MA: Harvard University Press, 2003.

  DOI: 10.4159/9780674036895

  This book puts forth the thesis that global income inequality between nations is actually decreasing, while inequality within nations is increasing.

• Galbraith, James K. Inequality and Instability: A Study of the World Economy Just before the Great Crisis. New York: Oxford University Press, 2012.

  DOI: 10.1093/acprof:osobl/9780199855650.001.0001

  Pathbreaking analysis of global inequality that challenges conventional ideas of the common drivers of inequality while emphasizing the need for new measures and better data. Posits and shows evidence of the impact of finance-driven technological change as a causal mechanism behind increasing inequality worldwide.

• Galbraith, James K. Inequality: What Everyone Needs to Know. New York: Oxford University Press, 2016.

  Synthesizes the latest economic research and offers a comprehensive, yet highly accessible introduction to the study of economic inequality. The book includes surveys of the philosophical and theoretical origins, explains a variety of relevant concepts and empirical measures as well as discusses competing theories of the causes and effects of rising inequality in the United States and worldwide.

• Gottschalk, Peter, and Timothy M. Smeeding. “Cross-National Comparisons of Earnings and Income Inequality.” Journal of Economic Literature 35.2 (1997): 633–687.

  Overview of the stylized facts culled from research addressing income inequality in cross-national perspective. Authors argued that much of the research at that point did not stand up to methodological scrutiny and pointed to the need for a unifying theoretical structure to guide cross-national research, thereby significantly influencing the subsequent scholarship, particularly in comparative political economy.

• Kenworthy, Lane. Egalitarian Capitalism: Jobs, Incomes, and Growth in Affluent Countries. New York: Russell Sage Foundation, 2004.

  Although broader in scope than a strict focus on income inequality, the author explores many of the classic questions surrounding the causes of growing income inequality in capitalist democracies and offers a counterpoint to the dominant thesis about trade-offs between prosperity and equality.

• Piketty, Thomas. Capital in the Twenty-First Century. Cambridge, MA: Harvard University Press, 2014.

  DOI: 10.4159/9780674369542

  A groundbreaking work drawing on a decade of research and analyzing historical data going back to the 18th century, this ambitious study traces concentration in wealth and income in Europe and the United States. Sounds an alarm about the relationship between extreme income disparities and social instability and argues for a progressive income tax and a global wealth tax.

• Pontusson, Jonas. Inequality and Prosperity: Social Europe and Liberal America. Ithaca, NY: Cornell University Press, 2005.

  A defining work from a comparative political economy perspective examining income inequality within two models of political economy—market liberalism of the United States and Britain and the social market capitalism of northern Europe. Empirical analyses show the decisive role of policies and institutions in explaining variations in inequality.

• Stiglitz, Joseph E. The Price of Inequality: How Today’s Divided Society Endangers Our Future. New York: W. W. Norton, 2013.

  Nobel Prize–winning economist Joseph E. Stiglitz exposes the rent-seeking behavior of the wealthy and asserts the political causes of growing inequality in the United States. The author shows how this trend has stifled dynamic capitalism, eroded the rule of law, and weakened democratic politics.