N°42 DECEMBER 2018

ECONOTE
Societe Generale
Economic and sectoral studies department

THE DYNAMICS OF INEQUALITY: IS THERE A GENERAL

PATTERN?
 The world today is both more and less unequal than it was back in the
1970s. Inequality between countries has narrowed over the course of the last
few decades, mainly due to the extraordinary growth of China, but inequality
within countries, especially rich countries, which had declined between the
1930s and the 1970s, has risen substantially. A high level of inequality is
problematic, as it can undercut social cohesion, lead to more instability, and,
as research at the IMF and elsewhere has recently shown, undermine the
sustainability of growth itself. Looking closely at inequality can provide us with
an important key to understanding major political and economic events of the
recent past.

 What does the theoretical literature say about the long-term dynamics
of inequality? Simon Kuznets (1901-1985) hypothesized that inequality first
increases when economies industrialize and then subsides once countries
reach economic maturity. But his hypothesis, which had long dominated much
of mainstream thinking in economics, gradually fell out of favour in the face of
the rise in inequality in practically all advanced nations since the 1980s.
Thomas Piketty challenged Kuznets’s hypothesis with his assertion that
worsening inequality is inherent to a capitalist economy. Then came Branko
Milanovic with his concept of “Kuznets Waves”: inequality rises, falls and then
rises again, perhaps endlessly.

 What does the future hold for inequality? Within-country inequality will
likely keep rising in the short- to medium-term, mainly due to globalisation,
technological progress, and the rising share of capital in the total net product.
However, the reality of different inequality trends across countries suggests
that high inequality is not a fatality; policy choices – notably with regard to
education, taxes, social transfers, employment and business regulations – can
play a big role in counteracting the forces that propel increasing inequality.

Top 1% , national income share

30%
25%
20%
15%
10%
5%
Marie-Hélène DUPRAT
0%
+33 1 42 14 16 04
[email protected]

USA France
Germany China
United Kingdom Russian Federation
Sweden Denmark
Source : WID.world
ECONOTE | N°42 – DECEMBER 2018

Although income and wealth inequality has been on the INEQUALITY: SOME BASIC NOTIONS AND
rise for nearly 40 years, the attention devoted to it has FACTS
increased substantially in recent years. One reason is
that the recent surge of populism (of various political DIFFERENT CONCEPTS AND MEASURES OF
colours) in Europe and the US has been attributed, INEQUALITY
among other factors, to increasing inequalities and the
decline of a middle class, which has historically been a Key concepts
traditional social base of the political centre. In wealthy Inequality is typically understood as referring to the
economies, stagnant median incomes have put a difference in living standards between people or
squeeze on middle-class households over the last few households at a moment in time. Thus, inequality is
decades, while the top 1% (or even the top 0.1%) of concerned with the relative position of different
households have seen sharp growth in their incomes and individuals (or households) within a distribution. There
wealth. Kuznets’s belief that inequality will eventually are three key measures of inequality: income1,
stabilise and subside on its own as countries reach consumption (as people’s living standards can be
economic maturity has long dominated much of understood through what they consume – including food,
mainstream economics thinking, as well as policy clothing, housing, education, and health services) and
prescriptions. The long-held view has been that a free wealth (or accumulated capital). Financial measures,
market economy would deliver both growth and equity, however, fail to capture inequalities beyond material
and not (as Karl Marx predicted) the concentration of standards of living. Hence, the concept of inequality of
income and wealth in ever-fewer hands. opportunity (among others), which refers to
Our aim in this paper is to describe in very broad circumstances that have an impact on living standards
brushstrokes the state of research regarding inequality. but over which individuals have no control, such as family
We start by defining some basic notions of inequality and socioeconomic status, gender, ethnic background,
take stock of empirical research in the distribution of educational opportunities, or place of birth. Of course, all
income and wealth. Next, we present the main theories these concepts of inequality are related. Most often,
that have been put forward to explain long-term inequality is based on household income and wealth, as
inequality dynamics within countries. Kuznets’s this is the best documented data available.
hypothesis that development first increases inequality,
then durably reduces it as countries reach economic Key measures
maturity gradually fell out of favour in the face of the The most widely quoted index of inequality is the Gini
sustained rise in income and wealth inequality in coefficient (see Box 1), which compares each person's
practically all advanced nations since the 1980s. Piketty income with that of every other person in the population.
challenged the Kuznets Curve with his assertion that It ranges from 0 (everybody has the same household
rising wealth concentration is the “norm” for a capitalist income per capita) to 1 (the entire income of the group,
economy. Against this background, Milanovic posited a country for example, is appropriated by one
what he calls “Kuznets Waves” – successive periods of household). Currently, the Gini coefficient for countries
rising, and then falling, inequality within a given country. ranges from 0.25 (Norway) to 0.71 (Namibia). Another
Finally, we address the question of the future of category of inequality measures is the General Entropy
inequality. Within-country inequality is likely to keep measures (derived from the notion of entropy in
rising in the short- to medium-term, mainly as a result of information theory), the best-known of which are the
globalisation, technological progress, and the rising Theil indexes, which allow for a breakdown of inequality
share of capital in the total net product. However, there into the part that is due to inequality within areas (e.g.
is nothing inevitable about worsening inequality; policy urban, rural) and the part that is due to differences
choices – notably with regard to education, taxes, social between areas (e.g. the rural-urban income gap). There
transfers, employment rules and business regulations – are also welfare-based measures of inequality, the most
can play a big role in counteracting the forces that propel popular of which is the Atkinson’s inequality measure (or
increasing inequality. Atkinson’s index), which is based on an explicit
formulation of social welfare that indicates the welfare
loss arising from an unequal distribution of income2.

1
Income is defined as the flow of revenues received over one year distribution, these normative measures of inequality are based on
from self-employment, wages, dividends, interest, and government value judgements, notably the degree of society aversion to
transfers such as pensions and unemployment benefits (minus inequality, which is a theoretical parameter defined by the
taxes directly paid to the government). Income also includes the researcher. See Atkinson, Anthony B. (1970), “On the
imputed value of owned housing. Measurement of Inequality”, Journal of Economic Theory 2: 244-63.
2
Unlike positive measures of inequality, such as the Gini
coefficient, which seek to describe the existing pattern of income

2
ECONOTE | N°42 – DECEMBER 2018

BOX 1 - THE LORENZ CURVE AND THE GINI COEFFICIENT

The Lorenz curve, which was developed by American economist Max Lorenz in 1905, is a graphical
representation of income inequality. On the horizontal axis is the cumulative number of income recipients
ranked from the poorest to the richest individual or household. The vertical axis displays the cumulative
percentage of total income. The Lorenz curve shows the proportion of income earned by any given
percentage of the population. It is usually shown in relation to a 45-degree line that represents perfectly equal
income distribution (so that the poorest 20% of the population earned 20% of the income, the poorest two-
fifths 40% of the income and soon). Thus, the further away the Lorenz curve is from the 45-degree line, the
more unequal the distribution of income.

The Gini coefficient, developed by the Italian statistician Corrado Gini in 1912, measures the extent to which
the distribution within an economy deviates from a perfectly equal distribution. The index is computed as the
ratio of the area between the two curves (Lorenz curve and 45-degree line) to the area beneath the 45-
degree line. A Gini coefficient of 0 expresses perfectly equal distribution. A Gini coefficient of 1 (or 100%)
expresses perfectly unequal distribution, with all income going to one individual or household. The coefficient
allows for a direct comparison of the income distribution of two populations, regardless of their sizes.
The Gini coefficient, however, is sometimes criticized for attaching too much weight to income transfers
affecting the middle of the income distribution at the expense of income transfers affecting its lower or higher
tails (that is, the very rich and very poor). Moreover, this coefficient only captures relative changes, which
means that if, for example, the incomes of the rich and the poor increase at the same rate, then the Gini index
remains the same, even though absolute inequality is increasing. This has led a number of authors to argue
that the Gini index is a misleading indicator that obscures the true extent of inequality.

Ratios are also popular. They constitute the simplest mainly about how much the rich (the top 10%) and
measurement of inequality. The decile dispersion ratio, poorest (the bottom 40%) get – or what are known as
which presents the ratio of the average consumption or “the tails” of the distribution – because there tends to be
income of the top 10% (the “rich”) divided by the average relative stability in the share of national income that goes
consumption or income of the poorest decile (the “poor”), to the “middle” 50% of the population – defined as
can be easily interpreted. It can also be calculated for households in the 5th to the 9th deciles3.
other percentiles. For instance, expressing the average
These measures of inequality, which focus on the
income of the richest 1% or 5% – the 99th or 95th
differences between those in the top and bottom income
percentile – as a multiple of that of the poorest 1% or 5%
brackets, have become increasingly common in
– the 1st of 5th percentile. Another example of decile
inequality research in recent decades, given the growing
dispersion ratios is the Palma ratio, which is the ratio of
divide between the richest and poorest in society.
the richest 10% of the population’s share of gross
national income divided by the poorest 40% of the
population’s share. This ratio is based on economist
Gabriel Palma’s empirical observation that inequality is

3
Palma found that the relative stability in the share of national not only in countries at different income levels, but also in any given
income that goes to the middle 50% of the population is observed country over time.

3
ECONOTE | N°42 – DECEMBER 2018

Evidence from recent international panel data DECLINE IN GLOBAL INEQUALITY

For a long time, research on income and wealth
Milanovic’s three concepts of global inequality
distribution was based on very limited empirical
observations. It was only recently that a huge body of Branko Milanovic distinguishes three concepts of global
research into long-term patterns of inequality in the US, inequality (see Milanovic, (2007, 2016)9:
Europe and other developed economies became 1. The first, which he calls “concept 1” or
available thanks to major works by Klaus Deininger and “unweighted international inequality”, focuses
Lyn Squire4, Thomas Piketty5, Anthony Atkinson, on inequality between countries based on their
François Bourguignon6 and Branko Milanovic7. These level of average income (or GDP) per capita, as
researchers have made great strides in informing the derived from national accounts statistics.
debate around the evolution of wealth and income 2. The second concept, which Milanovic calls
distribution by assembling large-scale datasets with “concept 2” or “population-weighted
internally consistent time-series of inequality spanning international inequality”, also focuses on the
several decades for a large number of countries. An differences in countries’ average GDP per
important milestone was reached in December 2017 capita; unlike concept 1, however, it is weighted
when the World Inequality Report (WIR) 2018 was by the size of each country’s population10.
published8. 3. As for the third concept, “concept 3” or “global
These large-scale panel data show that the pattern of inequality”, it focuses on the individual or
change in income distribution varies significantly household (rather than the country), and is thus
depending on whether income inequality is assessed at concerned with the distribution of income over
the global level (that is, abstracting from national the entire global population, ignoring national
boundaries) or within national boundaries: boundaries.

• International inequality – that is, the income It is important to note that concept 3 is much harder to
gaps between rich and poor countries – has calculate than concept 2 and 1, as each person or
declined in recent decades, as poorer countries household, regardless of its country, enters in the
have caught up with richer ones, calculation with its actual level of income or consumption.
• but inequality within countries, notably high- Therefore, the main source of data for estimating
income ones, has substantially increased. concept 3 is household surveys (rather than the national
account statistics), which are not available prior to the
mid-1980s for many parts of the world11, or are not
available at all for many of the poorest countries, as they
do not conduct household surveys. This means that any

4 6
Deininger and Squire (1996, 1998) assembled the first large-scale Bourguignon, François (2015), The Globalisation of Inequality,
data set with enough observations (682 observations of Gini Princeton University Press, United States of America.
coefficients and quintile shares for 108 countries) to study the 7
See Branko Milonevic (2016), Global Inequality. A New Approach
evolution of inequality within countries. See Deininger, Klaus, and
for the Age of Globalization, Cambridge, Harvard University Press,
Lyn Squire (1996), “A New Data Set Measuring Income Inequality”,
299 pages.
World Bank Economic Review 10(3): 565-91, and Deininger, Klaus,
and Lyn Squire (1998), “New Ways of Looking at Old Issues: 8
This report relies on the most extensive database to date on the
Inequality and Growth”, Journal of Development Economics 57: historical evolution of income and wealth inequality, drawing on 175
259-87. million tax and statistical data from the WID.world (Wealth and
5 Income Database) project. It is the result of the work of around 100
See Piketty, Thomas (2001), Les hauts revenus en France au XXe
economists from around the world, including Thomas Piketty, Tony
siècle. Inégalités et redistribution 1901-1998, Paris, Grasset, 807 p.
Atkinson, Facundo Alvaredo, Emmanuel Saez, Lucas Chancel and
The French study was followed by similar long-term studies of top
Gabriel Zucman. See https://wir2018.wid.world/.
incomes in the UK, the United States, the rest of Europe and other
developed countries and more recently in a number of emerging 9
See Branko Milanovic (2007), “The Three Concepts of Inequality
market economies. See Atkinson, Anthony B., and Thomas Piketty Defined”, A chapter in Worlds Apart: Measuring International and
(ed.) (2007), Top Incomes over the Twentieth Century: A Contrast Global Inequality, from Princeton University Press; Branko
between Continental European and English-Speaking Countries, Milanovic (2016), “All Three concepts of Global Inequality Show
Oxford and New York: Oxford University Press; Atkinson, Anthony Continued Convergence”, on Twitter, 25 October.
B., and Thomas Piketty (ed.) (2010), Top Incomes: A Global 10
This means that if China, for example, becomes richer, this will
Perspective. Oxford and New York: Oxford University Press;
have a greater impact on international inequality than if Eritrea, for
Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty, and
example, were to see a proportional increase in wealth.
Emmanuel Saez (2013), “The Top 1 Percent in International and
Historical Perspective”, Journal of Economic Perspectives, vol.27, 11
For example, the first available Chinese household surveys date
n°3, Summer, pp. 3-20; Alvaredo, Facundo, Lucas Chancel, back to 1982.
Thomas Piketty, Emmanuel Saez and Gabriel Zucman (2017),
“Global Inequality Dynamics: New Findings from WID.World”,
NBER Working Paper 23119.

4
ECONOTE | N°42 – DECEMBER 2018

calculation of global inequality (i.e. the gap between rich

and poor people worldwide, regardless of where they
live) is substantially underestimated.

The income gap between countries has

narrowed…
The graph below shows the trend in the Gini index of
inequality after the Second World War, according to the
three concepts of global inequality as calculated by
Milanovic.

During 1980-2017, average purchasing-power-adjusted

per capita income in China surged from less than 4% of
the average per capita income in advanced countries in
1980 to 34%; in India, it rose from 7% to 15%. Initially
underpinned by China, and then India, the trend towards
income convergence has, since the early 2000s,
extended to the rest of Asia (approximately 50% of the
world population).

According to concept 1 (unweighted international

inequality), average incomes across countries became
more divergent over the 1980-2000 period, meaning that
advanced countries grew, on average, faster than
developing countries. However, measured by concept 2
China’s and India’s impressive growth led to large-scale
(population-weighted international inequality), inequality
poverty reduction and major improvements in living
has been shifting gradually towards convergence
standards in these two countries, which almost entirely
between developed and developing countries since the
explains the process of income convergence between
early 1980s, a downward trend which has accelerated
developing and developed countries that has been under
since the early 1990s. The difference in trends between
way in the last few decades (see Milanovic, 2010, 2013,
concept 1 and concept 2 until the turn of the century is
201612, and Bourguignon, 201513). The downward swing
mainly due to the high economic growth of China and
in global income inequality propelled by the “catch up”
India, the two most populous countries in the world
growth of relatively poor and very populous countries in
(respectively, 22% and 16% of the world’s population),
Asia in recent decades followed a dramatic increase in
which have greater weight in the calculation of concept 2
inequality during the 19th and most of the 20th centuries
(given their larger populations) than any other country.
that reflected the economic take-off of developed
countries compared with the rest of the world.

…but remains at a very high level

As remarkable as it is, the global income convergence
that has taken place in the recent past still leaves the

12
Milanovic, Branko (2010), The Haves and the Have Nots: A Brief Numbers: in History and Now”, Global Policy Volume 4, Issue 2,
and Idiosyncratic History of Global Inequality, Basic Books, New May. Milanovic,, Branko (2016), op.cit.
York; Milanovi, Branko (2013), “Global Income Inequality in 13
Op.cit.

5
ECONOTE | N°42 – DECEMBER 2018

average citizen in developing countries, even in fast- Top 10% , national income share
growing Asian countries, with less than one fourth of the
60%
average citizen’s income in advanced countries. With a 55%
global Gini coefficient above 60, as calculated by 50%
45%
Milanovic (see concept 3 in figure 1 above), the gap 40%
between rich and poor people worldwide remains vast. 35%
30%
25%
20%

USA France Germany

UK Sweden Denmark
Source : WID.world

In the United States – the most unequal of the rich

countries – wealth and income inequality has soared
over the last forty years and is now approaching the
levels that prevailed prior to the Great Depression.
America’s high inequality primarily reflects the
emergence of “supersalaries”, with the lion’s share of
income gains going to people at the very top of US
income distribution.
This very high level of global inequality – i.e. global Gini
coefficient – reflects two main phenomena14: Top 1% in the USA, national income share
30%
1) The first is that the process of global
convergence has been largely limited to Asia. 25%

Excluding Asia, the income gap between 20%

Share of total

developed and developing countries has either

increased or hardly changed over the past 15%

decades15. 10%
2) The second phenomenon is a marked rise in
inequality within many countries, especially 5%

high-income ones. 0%
Source : WID.word

1913 1923 1933 1943 1953 1963 1973 1983 1993 2003 2013
INCREASE IN INEQUALITY WITHIN COUNTRIES,
ESPECIALLY HIGH-INCOME ONES Top 1% in the USA, national wealth share
While individual countries display different levels of 60%
inequality, the rise in inequality – which occurred after a
50%
decline in the period from the interwar years until the
1970s – has been evident in virtually all developed 40%
Share of total

countries, with income and wealth increasingly 30%

concentrated at the very top. In the advanced world, the
20%
sharpest rises in inequality are found in the US and the
UK, although more egalitarian societies like Australia and 10%
Sweden have also exhibited notable increases in Source : WID.world
0%
inequality in recent past. 1913 1938 1963 1988 2013

Back in 1928, up to 24% of all income received by

Americans went to the richest 1%. Starting from 1929,
and up until the mid-1970s, the share of the top 1% in the

14
Milanovic, B. and J. Roemer (2016), “Interaction of Global and Distribution: From the Fall of the Berlin Wall to the Great
National Income Inequalities”, Journal of Globalisation and Recession”, World Bank Economic Review 30(2): 203-232.
Development, 7(1), 109-115; Branko Milanovic (2016), “The 15
For example, average per capita income in Latin American and
Greatest Reshuffle of Individual Incomes since the Industrial
the Caribbean countries fell from the equivalent of 55% of per capita
Revolution”, Vox, CEPR’s policy Portal, July 1. Breaking-down
income in advanced countries in 1980 to 30% in 2017. In Sub-
global inequality into its between- and within-country components,
Saharan Africa, average per capita income dropped from 14% of
Lakner and Milanovic (2016) reckons that differences in per capita
per capita income in advanced countries in 1980 to less than 8% in
income between countries accounted for 65% of global inequality in
2017.
2013. See Lakner, C. and B. Milanovic (2016), “Global Income

6
ECONOTE | N°42 – DECEMBER 2018

United States fell substantially, first quickly, and then national income held by the wealthiest 1% of individuals
more slowly. Since the early 1980s, the share of national stood at around 10% in both regions, while the poorest
income held by the wealthiest 1% of Americans has 50% of households received 24% of all income in
nearly doubled to stand at 22% in 2015. Meanwhile, the Western Europe and 21% in the US. But since the 1970s,
1970-2014 period saw a collapse in the share of national these income shares have changed only moderately
income going to the poorest half of the population, from across Western Europe, contrary to the US.
21% in 1970 to 12.5% in 2015.
Top 1% , national income share
Income inequality, USA, 1962-2014 23%
22% 21%
20% 19%
Share of total

Share of total
18% 17%

16% 15%

14% 13%

12% 11%

10% 9%
1980 1986 1992 1998 2004 2010 2016

Europe Northern America Source : WID.world

Bottom 50% Top 1% Source : WID.word

Bottom 50% , national income share

Wealth inequality, USA, 1962-2014 24%
40% 22%
38%
20%
Share of total

36%
34% 18%
Share of total

32%
16%
30%
28% 14%
26% 12%
24%
22% 10%
1980 1986 1992 1998 2004 2010 2016
20%
1962 1975 1988 2001 2014 Europe Northern America Source : WID.world
Middle 40% Top 1% Source : WID.world
In France, for example, the share of national income
But the surge in the ultra-high-net-worth individuals going to the richest 1% rose from less than 8% in the
(UHNWI) is not a development confined to the US. Over early 1980s to 11% in 2014, while that going to the
the past forty years, the numbers of UHNWI have poorest 50% declined only a little over that period, from
23.8% to 22.5%. Income inequality in Europe, including
rocketed around the globe. Many countries, including
France, is much lower today than it was at the beginning
Russia, China and even the more egalitarian France,
Germany and Sweden have seen a marked rise in the of the 20th century.
share of national income taken by the top 1% in the last Income inequality, France, 1900-2014
few decades.
25%

Top 1% , national income share

20%
Share of total

30%
25%
20% 15%
15%
10%
5% 10%
0%

5%
1900 1911 1922 1933 1944 1955 1966 1977 1988 1999 2010
USA France
Germany China Top 1% Bottom 50%
United Kingdom Russian Federation
Sweden Denmark Which parts of the global distribution registered the
Source : WID.world
largest gains over the past four decades? The World
Inequality Report (WIR) 2018 shows that it was the
However, as noted in the World Inequality Report (WIR)
wealthiest 1% in the world, which captured twice as much
2018, the United States and Western Europe have been
income growth as the poorest 50%.
on very different income inequality paths. In 1980, these
two regions had similar levels of inequality: the share of

7
ECONOTE | N°42 – DECEMBER 2018

Top 1% in the world, national income share

“elephant chart” produced and popularized by the
economist Branko Milanovic (see Box 2)16.
23%
22% Middle 40% , national income share
21% 49%
Share of total

20% 47%
19% 45%

Share of total
18% 43%
17% 41%
16% 39%
Source : WID.word
15% 37%
1980 1985 1990 1995 2000 2005 2010 2015
35%
1980 1985 1990 1995 2000 2005 2010 2015
In contrast, the North American and European middle Europe Northern America China World
and working classes saw virtually no income growth over Source : WID.world

the past four decades, which brings us back to the

BOX 2 – THE “ELEPHANT CHART”

Milanovic produced a graph – quickly dubbed “the elephant chart” because the shape of its curve resembles
an elephant with a raised trunk – that shows the growth of real disposable income recorded between 1988
and 2008 by households around the world, ranked by percentile of global income distribution.

Milanovic’s chart reveals that these two decades (1988-2008), marked by the accelerating pace of
globalisation and technological innovations, saw a redistribution of income on the global scale, which resulted
in winners and losers.
Clearly evident in the chart is the rise of a “global middle class” – the households lying around the median of
global distribution, at the highest point on the chart – which saw its purchasing power rise by 60 to 80%
between 1988 and 2008. This reflects, to a large extent, the burgeoning of the middle classes in emerging
market economies, primarily China. Equally evident are the gains of the top 1% of global households – the tip
of the elephant’s trunk – which saw their real income surge by more than 60% in twenty years.
But the elephant curve also shows that even though some have gained, others have not seen their prospects
improve at all. The big losers in these global income sweepstakes have been the poorest 10% in the world,
the majority of whom live in Africa, and the households that lie between the 75th and 85th percentiles of
distribution (at the base of the elephant’s trunk), whose income stagnated or fell between 1988 and 2008.
This “decile of dissatisfaction”, as Milanovic calls it, is made up of 90% households in the lower middle
classes of OECD countries.

16
Also see IMF (2017), “World Economic Outlook, Gaining declining share of national income while a growing share of
Momentum?”, April. The IMF finds that since the early 1990s, productivity gains has been captured by the owners of capital.
workers in the majority of advanced economies have received a

8
ECONOTE | N°42 – DECEMBER 2018

WHAT DOES THE THEORETICAL

LITTERATURE SAY ABOUT THE
DYNAMICS OF INEQUALITY?
KUZNETS’ HYPOTHESIS
Income inequality first rises and then falls as
economic development proceeds
In his 1954 Presidential Address to the American
Economic Association, Simon Kuznets suggested the
existence of a general relationship between income The empirical backing for this hypothesis came from
inequality and per capita income (Kuznets, 1955)17. He Kuznets’ investigation of a time-series of inequality data
hypothesized a typical pattern of change for income for England, two states in Germany and the United
distribution. In his view, inequality initially rises when States (Kuznets, 1955)18. In the 1950s, these were
economies “take off” and industrialize, eventually levels basically the only countries for which a sufficiently long-
off over time, then begins to decline as countries reach time series was available. By that time, the US and the
advanced stages of economic development. To quote UK were in the midst of the most significant decline in
him: “One might thus assume a long swing in the income inequality ever registered in history, after a
inequality characterizing the secular income structure: period of highly unequal industrialization. They were also
widening in the early phases of economic growth when enjoying substantial income growth. Given the very
the transition from the pre-industrial to the industrial limited range of empirical observations on which his
civilization was most rapid; becoming stabilized for a argument was based, Kuznets issued a word of caution
while; and then narrowing in the later phases.” (Kuznets, about the scope of his findings. In his concluding
1955). According to Kuznets’ hypothesis, the relationship statements, he noted (Kuznets, 1955, p.26), “The paper
between income levels and inequality follows a trajectory is perhaps 5 per cent empirical information and 95 per
in the shape of an inverted U (see the figure below), cent speculation, some of it possibly tainted by wishful
which is known as the Kuznets’ curve. thinking.”

BOX 3 – THE RATIONALE OF THE KUZNETS CURVE

Kuznets recognised that there were powerful economic forces that tended to fuel inequality in a market
economy. But he argued that, even in the absence of redistributive economic policies, a range of powerful
economic forces would operate to offset the trend towards increased inequality. His explanation for the
theorized inverted U-shaped relationship between inequality and per capita income can be summarized as
follows:
He assumed that in agrarian societies, before the advent of industrialization, inequality was relatively low as
the very low average income level left little room for high levels of inequality 19.
As the nation develops and undergoes industrialization, he argued, two groups of forces will combine to drive
income inequality higher: first, “the concentration of savings in the upper-income bracket”; second, the shift
away from agriculture into nascent industry. As people move from slow-growing, low-productivity (and low-
inequality) traditional sectors of the economy, to faster-growing, higher-productivity (and medium-inequality)
industrial sectors, the centre of the economy shifts from rural to urban areas. In the process, average
incomes rise, but so does income inequality, as a rising percentage of workers earns higher industrial wages.
Moreover, an increasing proportion of income-yielding assets is concentrated in the hands of the wealthier
groups.
Inequality will increase until a tipping point is reached where the nation achieves a certain level of average
income, coupled with a high level of income inequality. Beyond that point, the predominance of industrial

17
Kuznets, Simon (1955), “Economic Growth and Income in the developing countries). See Kuznets, Simon (1963),
Inequality”, American Economic Review 45 (March): 1–28. “Quantitative Aspects of the Economic Growth of Nations: VIII.
18 Distribution of Income by Size”, Economic Development and
In his 1963 study, Kuznets provided further evidence of his
Cultural Change 11, no. 2, Part 2 (January): 1-80.
inverted U-shaped relationship between income levels and
19
inequality in cross-section data of a mixture of developed and New international panel data showed that pre-industrial societies
developing countries. He found that income inequalities were higher were often characterized by significantly higher inequality than
in developing countries compared to those in developed countries modern societies. See notably Milanovic, B., Lindert, P., and
(in his sample, the share of upper income groups in the wealthy Williamson, J. (2007), “Measuring Ancient Inequality”, World Bank
developed countries was significantly lower than their counterparts Policy Research Paper, No. 4412.

9
ECONOTE | N°42 – DECEMBER 2018

employment will improve income distribution, as most workers earn similar industrial wages. Hence, the
decline in inequality.
This natural decline in inequalities is, according to Kuznets, set to be reinforced by two other mechanisms:
the first is that as a country “moves to higher economic levels”, there will be an “increasing pressure of legal
and political decision on upper-income shares” (Kuznets, 1955:9), which will counteract the cumulative effect
of the concentration of savings (thanks to the introduction of measures such as, for example, an inheritance
tax limiting the accumulation of property). The second mechanism is that, as urbanization deepens and
education expands, the political power of the lower-income groups within the urban population will increase,
allowing them to get “protective and supportive legislation” (Kuznets, 1955:17). Thus, better and broader
access to education as well as higher political demand for redistribution leading to public and social policies
(direct taxes and government benefits) will drive inequality lower.
In sum, high income inequality, argued Kuznets, should be viewed as the inevitable but temporary side-effect
of a country’s development process; inequality is set to fall as the country reaches economic maturity not only
because of determinist economic forces but also because of other factors such as mass education and a
change in the political regime towards a more redistributive system.

One of the most influential statements on countries and over time for individual countries) became
inequality and development available20. The sharp rise in inequality in practically all
advanced nations since the early 1980s, after a decline
Notwithstanding Kuznets’ note of caution, his speculative from the 1930s to the 1970s, has posed a direct
hypothesis captured the imagination of economists. challenge to the Kuznets curve.
Scores of empirical studies were carried out with gradual
improvements in country coverage and econometric PIKETTY’S HYPOTHESIS
technique, to test his inverted U-hypothesis. Due to the
non-availability of income distribution data for individual Worsening inequality is the norm for a capitalist
countries as they grow over time from an economy
underdeveloped stage, none of this research tested Unlike Simon Kuznets, Thomas Piketty, author of the
Kuznets’ hypothesis directly, that is, that income best-seller Capital in the Twenty-First Century (2013)21,
inequality would increase and then decrease within believes that there is no natural tendency for inequality
countries as the economy develops. Like Kuznets, other to decline when a country reaches economic maturity.
researchers had to conduct inter-country empirical Rather, argues Piketty, increasing inequality is the
studies, with a mixture of developed and developing natural state of a capitalist economy. The central variable
countries, based on cross-sectional data. in his Capital in the Twenty-First Century is capital, which
The cross-sectional data were generally consistent with Kuznets did not consider. Here, “capital” means “wealth”
Kuznets’ hypothesis: poor and wealthy countries tended in all its various forms: stocks, real estate, land,
to have lower levels of inequality than middle-income equipment, gold, intellectual property, etc. Capital, of
countries, but the data did not allow Kuznets’ hypothesis, course, has a significant impact on overall household
which is a proposition about the trend of inequality within income, but also on income inequality, as it is more
countries, to be readily tested on an empirical level. It unequally distributed than labour income.
was only recently that large data sets (both across

BOX 4 – PIKETTY’S CHALLENGE TO THE KUZNETS CURVE

For Piketty, the Kuznets curve is the exception not the rule. The fall in inequality during the 1913-1948 period
that the Kuznets curve documents, he argues, had little to do with countries reaching economic maturity.
Rather, this was the result of massive destruction of capital caused by exceptional circumstances, namely,
World War I, along with the Great Depression (1929-1932) that it spawned, and then World War II.
Piketty’s challenge to Kuznets’ hypothesis is based on a huge body of research into long-term patterns of
income and wealth inequality in the US, Europe and other developed economies that he has conducted with

20
Deininger and Squire (1996, 1998) assembled the first large-scale data set with enough observations (682 observations of Gini coefficients
and quintile shares for 108 countries) to study the evolution of inequality within countries. See Deininger, Klaus, and Lyn Squire (1996), “A
New Data Set Measuring Income Inequality”, World Bank Economic Review 10(3): 565-91, and Deininger, Klaus, and Lyn Squire (1998),
“New Ways of Looking at Old Issues: Inequality and Growth”, Journal of Development Economics 57: 259-87.
21
Piketty, Thomas (2013), Le Capital au XXIe siècle, Le Seuil, coll. « Les Livres du nouveau monde », 5 September, 976 pages.

10
ECONOTE | N°42 – DECEMBER 2018

several other leading scholars22. And in fact, the long-term trends in inequality based on Piketty’s data – both
longer and broader than the highly scarce data used by Kuznets – show the opposite of Kuznets’ bell curve:
inequality in advanced economies has followed a U-shape pattern rather than the inverted U-shape pattern
predicted by Kuznets.

Wealth inequality, top 10%

100%

90%

Share of total
80%

70%

60%

50%

40%
1902 1918 1934 1950 1966 1982 1998 2014

USA France UK Source : WID.world

Piketty’s research shows that capitalism started out highly unequal, with private wealth dwarfing national
income. On the eve of WWI, Europe had accumulated capital worth six or seven times national income and
wealth concentration was extremely high, with about 90% of national wealth going to the top 10% of families
and about 60% going to the richest 1%.

Source. Piketty, Thomas (2013), Le Capital au XXIe siècle.

According to Piketty, it was only the chaos of the two world wars and the destruction they caused, especially
for families with large fortunes, that disrupted this normal pattern. A combination of the destruction of physical
capital, high rates of inflation that eroded the assets of creditors and high taxes to finance war expenses led
to a dramatic decline in private wealth23. The bloodshed and vast destruction, in turn, set the stage for a
unique set of political conditions, which ushered in a period of welfare state expansion, in particular the rise of
progressive taxation, the expansion of social security benefits, active labor market policies, and the
institutionalization of collective bargaining with unions.
Capital accumulation resumed after World War II. But as the post-war years saw exceptionally high growth
rates related to reconstruction, the ratio of capital to income remained moderate, at around 200-300%, in the
1950s and the 1960s. The unusual period of 1945-1975, when inequality declined, was, according to Piketty,
the product of the previous loss of capital, combined with the golden age of economic growth of that era.
Since the mid-1970s, however, the slowing rate of economic growth has caused the ratio of capital to income
to climb again, reaching 500-600% in the 2000s and the 2010s.

22
Piketty, in conjunction with other scholars, including Anthony Atkinson, Emmanuel Saez, Gilles Postel-Vinay, Jean-Laurent Rosenthal,
Facundo Alvaredo and Gabriel Zucman, has used fiscal data for measuring incomes rather than household surveys used by analysts in
recent times. The advantages of using tax data are that they are available for much longer periods than household survey data and that they
capture the income that accrues to individuals at the top of the income scale, which tends to be overlooked entirely in survey data.
23
In a recent book, Walter Scheidel thoroughly documents the view that only violent shocks, such as wars, revolutions, collapsed states and
other forms of wealth destruction have, throughout history, proved powerful enough to flatten large income and wealth inequalities. He shows
how the two world wars in the past century became a uniquely powerful catalyst for the flattening of disparities and for equalizing reforms
(highly progressive taxation, creation of the welfare state). See Scheidel, Walter (2017), “The Great Leveler. Violence and the History of
Inequality from the Stone Age to the Twenty-first Century, Princeton University Press, 528 pages.

11
ECONOTE | N°42 – DECEMBER 2018

Since the 1980s, Piketty’s research shows, the ratio of wealth to income in low-growth countries has risen to
high levels, albeit below the extreme levels seen prior to WWI. In Europe about 60-70% of national wealth is
now held by the wealthiest 10% (55% in France) and about 20-30% by the richest 1% (23% in France); the
bottom 50% still owns almost nothing (less than 5% national wealth; 6% in France), but the middle 40% now
owns 20-30% of national wealth (38% in France), which bears testimony to the rise of a patrimonial middle
class in that region.

Wealth inequality, France, 1807-2014

100%
90%
80%
70%
Share of total 60%
50%
40%
30%
20%
10%
0%
1807 1830 1853 1876 1899 1922 1945 1968 1991 2014
Bottom 50% Top 10% Top 1% Middle 40%
Source : WID.world

In sum, Piketty argues that the fall in inequality over much of the 20th century should be viewed as a historical
anomaly caused by exceptional events (i.e. two destructive wars and the consequent need for high taxation),
and that it had nothing to do with the normal functioning of a market economy. Although Piketty believes that
the fruits of economic maturity, such as improved health conditions and the diffusion of knowledge and skills
through education, do promote greater equality, they are, in his opinion, offset by a more fundamental force
that propels increasing inequality, namely, that wealth normally grows faster than economic output.

The main message of Capital in the Twenty-First Century when it began to rise towards 2%. It climbed to nearly 4%
is that modern economies are not just approaching levels in the middle of last century, after which it started falling
of inequality not seen since before World War I; they are – slowly at first, then faster – for the first time since the
also slowly recreating the “patrimonial capitalism” of the fall of the Roman Empire. Thus, for most of human
18th and 19th centuries. Why? It’s all about the rate of history, r has been greater than g – in antiquity,
return on capital (r), versus the rate of economic growth throughout the 19th century, and again since the 1970s.
(g). When the rate of return on capital is higher than the The exception to this pattern was the era of the two world
rate of economic growth, Piketty argues, this tends to wars and post-war years which saw a collapse in capital
automatically drive inherited wealth inequalities higher. and, in post-war reconstruction, exceptionally high rates
Historically, Piketty’s research shows, r has almost of economic growth. It is this shrinking gap between the
always been greater than g; hence, Piketty’s assertion rate of return on capital and the overall economic growth
that rising wealth concentration is an inevitable outcome rate which explains, in Piketty’s opinion, the fall in
of free market capitalism. inequality in the second half of the 20th century.
Capital inequality has reverted to its long-term
increasing trend
However, argues Piketty, this period of low return on
capital compared to economic growth should be seen as
an accident that interrupted the long-term trend of
increasing inequality, a trend that resumed soon after the
post-war recovery, and then accelerated until it was
stunted by the global financial crisis of 2008. The gap
between r and g returned to its “normal” level soon after
the post-war recovery, causing capital inequality to revert
to its long-term increasing trend.
Looking ahead, Piketty expects the rate of economic
Source: Piketty, Thomas (2013), Le Capital au XXIe siècle.
growth (g) to continue to decline, owing to diminishing
growth in the working-age population and slow
Since antiquity, Piketty’s research shows, the average productivity, while the return on capital (r) should hover
rate of return on capital has stood at around 4% to 5%. between 4 and 5%. As economic growth slows, says
The global economic growth rate, for its part, remained Piketty, the gap between r and g will widen, perhaps
below 1% for centuries, until the Industrial Revolution, significantly. And since ownership of capital is more

12
ECONOTE | N°42 – DECEMBER 2018

unevenly distributed than labour income, the resulting Kuznets curve, as Piketty does, he builds on the
rise in the ratio of capital to income (that is, the changing hypothesis. Across history, he says, inequality has
distribution of income in favour of capital) will directly moved in cycles, which he refers to as “Kuznets waves”.
increase inequality. Unless opposed by effective Kuznets saw just one wave, says Milanovic, with the
distributive economic policies24, asserts Piketty, this transition from an agrarian to an industrial economy, but
accumulation of capital will eventually reach, or even the modern era is now experiencing a second wave, with
surpass, the 600-700% observed in the wealth-based a huge transfer of labour from more homogeneous
societies of the late 19th century (that is, the restoration manufacturing industries to skill-heterogeneous
of the “patrimonial capitalism”). services. Like Piketty, Milanovic draws on vast data sets
assembled over years of research.
MILANOVIC’S HYPOTHESIS
Inequality moves in cycles
Branko Milanovic’s explanation of the dynamics of
inequality differs from Piketty’s: instead of dismissing the

BOX 5 – MILANOVIC’S ATTEMPT TO RECONCILE KUZNETS’ AND PIKETTY’S RATIONALES

In Global Inequality. A New Approach for the Age of Globalization (2016)25, Milanovic highlights a regular
rise-and-fall pattern of inequality over centuries.
In the “pre-industrial” era, he says, cycles of inequality basically replicated the Malthusian cycles, because
they took place in conditions of quasi-stationary mean income: changes in population almost entirely
explained the rise and fall of inequality. Typically, wars or deadly epidemics dragged populations down,
leading to higher mean income and higher wages because of labour scarcity. In pre-modern societies, he
says, non-economic factors, such as conquests, wars, state collapse and epidemics, were practically the sole
drivers of inequality cycles.

Source: Milanovic (2016), Global Inequality. A New Approach for the Age of Globalization.

Milanovic argues that in the modern era, from the beginning of the Industrial Revolution to today, cycles of
rising and falling inequality have responded to three dominant economic forces: technology, openness and
politics (which he calls “TOP”).
What he views as the first Kuznets wave in advanced countries lasted from the beginning of the Industrial
Revolution to approximately the 1980s. The transition away from an agricultural-based economy towards an
industry-based one drove inequality up until a peak occurred at the end of the 19th century or the beginning of
the 20th century.
After that point, he notes, the decline in inequality that took place in wealthy nations – the downward portion
of the first Kuznets wave – reflected the interplay of both “benign” (improved education and the creation of
welfare states) and “malign” (wars and depressions) forces.
Importantly, while Piketty views this downswing in inequality as an accident, Milanovic sees it as the
inevitable outcome of the high inequalities that predated World War I.

24
Piketty recommends progressive income taxation and, above all, capital is highly mobile and the most affluent social groups dominate
a progressive global tax on capital. However, he is not very the political system.
optimistic that such a global tax could be practicable in an era when 25
Op.cit.

13
ECONOTE | N°42 – DECEMBER 2018

The 1980s ushered in the second Kuznets wave horizon of the next 4 to 5 years, and not even the next 10
years, especially in the United States. What will cause
For Milanovic, the rise in inequality in most developed
the turning point and begin to push inequality down? Like
countries since the 1980s should be viewed as the first
Piketty, Milanovic emphasizes the crucial role of
part of the second Kuznets Wave. He points out that it
governments.
has been driven by many of the same factors as the first
Kuznets Wave, namely technological advances, In Milanovic’s opinion, policies of choice should notably
globalisation, and policies. Like the Industrial Revolution include higher inheritance taxes, much higher rates of
of the early 19th century, the second technological income taxation, corporate tax policies that would
revolution, which has been characterized by momentous encourage companies to distribute shares to workers,
changes in information and communication technologies minimum-wage legislation, and greater attempts to
(ICT), has been a major force of income divergence. This equalise ownership of assets. But these policies, he
is mainly because the gains created by new technologies stresses, would need to be combined with more equal
have disproportionately favoured high-skilled workers access to good education. Pro-unskilled labour
through increased productivity and strong demand for technological change (which will become profitable as
their services – a phenomenon called “skills-biased skilled labour’s wages increase) could also play a role,
technological change” 26. In addition, by driving the cost as could the dissipation of current rents. Milanovic also
of capital lower, new technologies have led firms to points out the role that malign forces, such as wars and
increasingly replace workers with machines, which has revolutions, could play in bringing high inequality down.
taken a heavy toll on middle-skilled workers to the extent
that they are more liable to have routine jobs, which are INEQUALITY – WHAT’S NEXT?
highly exposed to automation.
THE CONTINUED FALL IN GLOBAL INEQUALITY IN
Middle-skilled jobs are affected not only by automation QUESTION
but also by import competition and offshoring. Greater
integration of economies has resulted in relocation of After increasing for decades, global inequality began to
factories, displacing middle-skilled and lower-skilled decline in the early 2000s. This declining trend may not
workers. Milanovic shows how technological innovations continue, however. China’s stellar growth was the
and globalisation have worked together to squeeze the dominant force behind the process of global
Western middle classes, which have, in recent decades, convergence between developed and developing
suffered large employment declines and sluggish or countries. But as China becomes richer and its growth
negative wage growth (see Box 2)27. The decline in slows, its impact on the global distribution of income will
middle-skilled labour's income share has been reinforced be mixed: once its per capita income rises above the
by two factors, argues Milanovic: (1) economic policies, world average, its growth will start adding to, rather than
which have lowered high tax rates on high-skilled labour curbing, inequality. Prospects for further reductions in
and mobile capital, most notably in the US and the UK28, global inequality will then depend on the rate of growth in
and (2) workers’ declining political power, as the very rich other large developing economies, such as India and
tend to use their fortunes to exert control over the political sub-Saharan Africa. It seems highly unlikely, however,
sphere. that these countries will experience anything in the
coming decades that compares to what China
Ultimately some internal dynamics should oppose experienced in the last thirty years.
the current upswing in inequality If catch-up growth in developing countries does not
Milanovic expects inequality to ultimately peak and then shrink the income gap between wealthy and poor
decrease (downward portion of the second Kuznets countries faster than inequality increases within
wave) because of the endogenous evolution of many countries, then the worldwide income gap will rise again.
different factors that he has combined under the acronym
of TOP – technology, globalisation, and policy. However,
he does not expect the turning point to be within the

26
On the relationship between wage polarisation and technology, Share of Income”, IMFBlog, 14 April. IMF (2017), “Understanding
see, for example, Autor, David, Lawrence F Katz and Melissa S the Downward Trend in Labor Income Shares”, World Economic
Kearney (2006), "Measuring and Interpreting Trends in Economic Outlook, Chapter 3, April. Karabarbounis, Loukas and Brent
Inequality: The Polarization of the U.S. Labour Market", AEA Neiman (2013), “The Global Decline of the Labor Share”, NBER
Papers and Proceedings, and Acemoglu, Daron and David H Autor Working Paper No. 19136, June.
(2010), "Skills, Tasks and Technologies: Implications for 28
Inspired by the economic theory of Arthur Laffer, Ronald Reagan
Employment and Earnings", Handbook of Labor Economics
and Margaret Thatcher adopted a similar strategy to reduce income
Volume 4, Orley Ashenfelter and David E Card (eds.), Amsterdam:
tax rates. Reagan’s tax policies reduced the top income-tax rate
Elsevier.
from 70% in 1980 to 28% in 1986. Thatcher, likewise, dropped the
27
Also see, for example, Dao, Mai, Mitali Das, Zsoka Koczan, and top rate of income tax, which fell from over 80% when she took
Weicheng Lian (2017), “The Hollowing Out of Middle-Skilled Labor office to 40%.

14
ECONOTE | N°42 – DECEMBER 2018

INEQUALITY WITHIN COUNTRIES SET TO RISE IN THE traditionally egalitarian countries, such as Sweden and
SHORT- TO MEDIUM-TERM Denmark, show, national institutional and political
frameworks play an important role in wealth and income
While the causes of rising inequality are still being
distribution. In fact, all fields of government action
debated, the trend of rising inequality within advanced
contribute to shaping the inequality trend within a
countries is likely to continue, at least in the short- to
country: from public investments, to education policy, to
medium-term. Further technological developments in
health, tax and social protection policies, to labour
artificial intelligence and robotization will continue to
market policies, to employment and corporate mergers
favour the well-educated over the less-skilled, causing a
rules, to anti-trust laws, to business and financial sector
greater concentration of wealth and income and a rising
regulations30.
share of capital in the total net product. This, combined
with the impact of globalisation and weaker worker Most of the policies required to address rising inequality
bargaining power will continue to gradually hollow out are well known. Fiscal policy is a powerful instrument that
middle-class jobs. All of these forces are, of course, not can be used to lower inequality. More progressive
independent of one another and tend to mutually taxation on income and wealth is an instrument of choice.
reinforce each other. Social benefits and transfers can help protect the most
vulnerable. A good system of inheritance and estate
Moreover, there is growing evidence, at least in the
taxation plays an important role in preventing excessive
United States, that many employers exercise so-called
wealth concentration. More – and more efficient –
monopsony power over the wages of their workers – that
spending on roads, rail networks, power grids, broad-
is, the power to set wages below competitive levels –
based access to affordable and quality education
owing to rising employer concentration and/or to search
(including skills upgrading and retraining, assistance with
frictions, including imperfect information and other
job search and job matching), more equal access to
constraints to job mobility, such as sparse public
health, broadening access to financial services, effective
transportation29. Monopsony power may be one of the
enforcement of anti-discrimination laws, and better anti-
reasons behind North America’s high levels of income
trust laws are all key to closing the outcome gaps
inequality. And given the trend of corporate consolidation
between advantaged and disadvantaged groups. Given
and the increased concentration levels in a number of US
the global nature of markets – goods, capital, and
economic sectors, chances are that employers’
intellectual property rights – many policies require
monopsony power will rise, raising the probability of
effective international cooperation. This is no easy feat,
inequitable outcomes for workers and super-normal
however.
profit margins.
Failure to achieve greater inclusiveness comes at a
YET GROWING WITHIN-COUNTRY INEQUALITY IS NOT price: it impairs social and political cohesion, stokes
INEVITABLE social tensions, fuels already-resurgent populism and
It is tempting to see the rising concentration of incomes extremism, and can undermine stability, producing
and wealth as an unavoidable consequence of disruptions (such as gridlock, conflict, poor policy
globalisation and technological progress (both favouring choices, or crises) that could ultimately threaten the very
those with higher levels of education and skills). And yet, growth needed to help mitigate the effects of rising
the reality of different inequality trends across countries inequality31.
suggests that high inequality is not a fatality. As more

29
Azar et al. (2017) analyzed over 8,000 local labor markets in the Distribution”, Labour Economics 35, 123-134. Monopsony is one
US and found that, on average, labor markets were highly increasingly recognized area of research in labor economics.
concentrated, with concentration varying by occupation and city 30
See, for example, Atkinson, Anthony (2015), “Inequality: What
(larger cities being less concentrated). They calculated that going
Can Be Done?”, Harvard University Press. p. 384. To reduce
from a less concentrated labor market (the 25th percentile in the
inequality, Atkinson recommends ambitious new policies in five key
distribution) to a more concentrated one (the 75th percentile) was
areas: technology, employment, social security, the sharing of
associated with a 17% decline in the wages employers were posting
capital, and taxation.
to the website. See Azar, José, Ioana Marinescu, Marshall I.
Steinbaum (2017), “Labor Market Concentration”, NBER Working 31
See, for example, Joseph Stiglitz (2013), The Price of Inequality:
Paper No. 24147, December. Webber (2015) also finds pervasive How Today’s Divided Society Endangers our Future, W.W. Norton
monopsony across the US labor market, with the effect that & Company, New York, London.
employers are able to set wages lower than a competitive level. See
Douglas A. Webber (2015), “Firm Market Power and the Earning

15
ECONOTE | N°42 – DECEMBER 2018

PREVIOUS ISSUES ECONOTE

N°41 Asia: Growth jeopardized by the trade war?

Bei XU (September 2018)
N°40 Monetary policy: Back to normal?
Marie-Hélène DUPRAT (April 2018)
N°39 Trade globalization: Going into reverse?
Marie-Hélène DUPRAT (November 2017)
N°38 Italy: companies' difficulties are hampering investment and growth potential
Danielle SCHWEISGUTH (April 2017)
N°37 “Super-aged” nations and inflation: Case studies
Marie-Hélène DUPRAT (March 2017)
N°36 Housing in Europe: Are there any overheated markets?
Emmanuel PERRAY (December 2016)
N°35 Population aging: Risk of deflation or inflation?
Marie-Hélène DUPRAT (November 2016)
N°34 Emerging markets’ external debt: It’s the same old song?
Juan Carlos DIAZ MENDOZA (November 2016)
N°33 US public debt: Towards more domestic and private financing
Amine TAZI, Clémentine GALLÈS (September 2016)
N°32 China: Assessing the global impact of a Chinese slowdown
Sopanha SA, Théodore RENAULT (July 2016)
N°31 France: A private sector in better financial health, despite higher debt
François LETONDU (June 2016)
N°30 A world without inflation
Marie-Hélène DUPRAT (March 2016)
N°29 Low interest rates: the ‘new normal’?
Marie-Hélène DUPRAT (September 2015)
N°28 Euro zone: in the ‘grip of secular stagnation’?
Marie-Hélène DUPRAT (March 2015)
N°27 Emerging oil producing countries: Which are the most vulnerable to the decline in oil prices?
Régis GALLAND (February 2015)
N°26 Germany: Not a “bazaar” but a factory!
Benoît HEITZ (January 2015)
N°25 Eurozone: is the crisis over?
Marie-Hélène DUPRAT (September 2014)
N°24 Eurozone: corporate financing via market: an uneven development within the eurozone
Clémentine GALLÈS, Antoine VALLAS (May 2014)
N°23 Ireland: The aid plan is ending - Now what?
Benoît HEITZ (January 2014)
N°22 The euro zone: Falling into a liquidity trap?
Marie-Hélène DUPRAT (November 2013)
N°21 Rising public debt in Japan: how far is too far?
Audrey GASTEUIL (November 2013)
N°20 Netherlands: at the periphery of core countries
Benoît HEITZ (September 2013)

16
 ECONOTE | N°42 – DECEMBER 2018

ECONOMIC STUDIES
CONTACTS

Michala MARCUSSEN
Group Chief Economist
+33 1 42 13 00 34
[email protected]
Aurélien DUTHOIT
Olivier de BOYSSON Macro-sectoral analysis
Emerging Markets Chief Economist +33 1 58 98 82 18
+33 1 42 14 41 46 [email protected]
[email protected]
Clément GILLET
Marie-Hélène DUPRAT Africa
Senior Advisor to the Chief Economist +33 1 42 14 31 43
+33 1 42 14 16 04 [email protected]
[email protected]
Alan LEMANGNEN
Ariel EMIRIAN Euro Area, France, Germany
Macroeconomic analysis / CIS Countries +33 1 42 14 72 88
+33 1 42 13 08 49 [email protected]
[email protected]
Nikolina NOPHAL BANKOVA
François LETONDU Macro-sectoral analysis
Macro-sectoral analysis / France +33 1 58 98 89 09
+33 1 57 29 18 43 [email protected]
[email protected]
Danielle SCHWEISGUTH
Constance BOUBLIL-GROH Euro Zone, Italy, Spain
Central and Eastern Europe +33 1 57 29 63 99
+33 1 58 98 98 69 [email protected]
[email protected] Yolande NARJOU
Edgardo TORIJA ZANE Assistant
Salma DAHIR Middle East, Turkey and Central Asia +33 1 42 14 83 29
Economist assistant, Editing +33 1 42 14 92 87 [email protected]
+33 1 57 29 07 15 [email protected]
[email protected] Sigrid MILLEREUX-BEZIAUD
Bei XU Information specialist
Juan Carlos DIAZ MENDOZA Asia +33 1 42 14 46 45
Latin America, United States +33 1 58 98 23 14 [email protected]
+33 1 57 29 61 77 [email protected]
[email protected]

Société Générale | SG Economics and Sector Research | 75886 PARIS CEDEX 18

https://www.societegenerale.com/en/news-and-media/economic-studies

17
ECONOTE | N°42 – DECEMBER 2018

DISCLAIMER
This publication reflects the opinion of Societe Generale S. A.'s Economic and Sector Research department at the date of publication. This opinion
is subject to change at any time without notice. It is provided for information purposes only, and does not constitute an investment recommendation
or an investment advice within the meaning of current regulations. This publication has no contractual value.

Neither the information contained in, nor the analyses expressed therein constitute in any way an offer to sell or a solicitation to offer to subscribe,
purchase, sell a product or execute a transaction and shall not engage the liability of Société Générale S. A. or any of its entities, in compliance
with current regulations. Then, should a retail or a professional client, or eligible counterparty obtain this publication, they should not base any
investment decisions solely on the basis of this publication, and must seek independent financial advice.

The accuracy, completeness or relevance of information derived from external sources is not warranted, even if it comes from sources reasonably
believed to be reliable. Subject to the current regulations, Societe Generale S. A. does not accept any liability in this respect. The economic
information mentioned in this document is based on data valid at a given time, and may therefore change at any time.

Societe Generale S. A. is a French credit institution authorized and supervised by the Autorité de Contrôle Prudentiel et de Resolution ("ACPR"),
regulated by the Autorité des Marchés Financiers ("AMF") and under the prudential supervision of the European Central Bank ("ECB").

Societe Generale S.A. is also authorized by the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority
and Prudential Regulation Authority. Details about the extent of our authorization and regulation by the Prudential Regulation Authority, and
regulation by the Financial Conduct Authority are available from us on request.

Notice to US Investors: this document is issued by non-US SG economic analysts or affiliates on economic studies are issued solely to major US
institutional investors pursuant to SEC Rule 15a-6. Any US person wishing to discuss this report or effect transactions should do so with or through
SG Americas Securities, LLC. SG Americas Securities LLC has its registered office at 1221 Avenue of the Americas, New York, NY, 10020. (212)
278-6000.

Notice to Asian investors: this document is prepared for and intended to be distributed in Asia solely to sophisticated and professional clients. You
should therefore be appropriately qualified as a professional, accredited, wholesale, expert or institutional investor (however defined in your local
jurisdiction).

This publication may not in any way be reproduced (in whole or in part) or transmitted to any other person or entity without the prior written consent
of Societe Generale SA.

© 2018

18