Publications des chercheurs de PSE

The mid-20th century American decline in income inequality has beencalled “the greatest leveling of all time,” despite a similarly unmatchedrate of economic growth. To establish this insight, pioneering researchhas tracked a century of top income shares. However, limitations inthe historical data had meant that we still do not fully understand thedynamics of change within the bottom 90% of the income distribution(prior to the 1960s). This paper sheds light on changes within the mid-dle class—to study early and midcentury trends in income and wage in-equality, by applying a powerful statistical model to archival tax recordsand survey data. We find that: (i) pre-war economic growth (and reduc-tion in inequality) reached the upper middle class sooner than it (andthey) reached the poorest households; and (ii) wartime relative incomegains for the poorest were short-lived, while they proved durable forthe upper middle class. In short, the relative gains from the New Deal,World War II and postwar eras were both more pronounced and moredurable for the upper middle class than for the poorest. However, post-warwagecompression lasted 30 years, to the particular benefit of theworking poor.

This paper examines shifts in labour productivity growth in the United States and in Europe between 1970 and 2007 based on econometric tests of structural breaks. Additionally, it makes use of time-series-based projections of labour productivity growth up to 2009 in order to detect breaks depending on confidence intervals of the projections. The identification of structural breaks in US labour productivity growth is far from obvious. A statistically significant break is found in the late 1990s only if at least the 97.5th percentile of forecasts materialises in the future, which means that despite a clear pick-up in productivity growth in the second half of the 1990s, the size of the hump is not large enough compared with past variations to make this change a statistically significant break. However, a significant breakpoint is detected in the mid-1990s for the difference in labour productivity growth between the United States and the EU15, even when controlling for the convergence of Europe towards US productivity levels that has contributed to higher European performance in the early catch-up phase. Finally, within Europe, the accumulation of ICT capital seems to be related to differences in the shifts in structural labour productivity growth across countries.

Growth has fallen in the U.S. amid a rise in firm concentration. Market share has shifted to low labour share firms, while within-firm labour shares have actually risen. We propose a theory linking these trends in which the driving force is falling overhead costs of spanning multiple products or a rising efficiency advantage of large firms. In response, the most efficient firms (with higher markups) spread into new product lines, thereby increasing concentration and generating a temporary burst of growth. Eventually, due to greater competition from efficient firms, within-firm markups and incentives to innovate fall. Thus our simple model can generate qualitative patterns in line with the observed trends.