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Ten Facts About Inequality in Advanced Economies (Presentation, October Peterson Institute for International Economics 17 October 2019 Ten facts about inequality in advanced economies Lucas Chancel Co-director and Senior Economist World Inequality Lab, Paris School of Economics This presentation: the inequality landscape in advanced economies Survey paper « Ten key facts about inequality in advanced economies » 1. Inequality data remains scarce in the digital age 2. Income inequality is on the rise after a historical decline 3. Nations became richer but govts. became poorer 4. Capital is back, for a few 5. No sign of a new normal since the Great Recession 2 This presentation: the inequality landscape in advanced economies Survey paper « Ten key facts about inequality in advanced economies » 6. Global inequality is now more about class than nationality 7. Higher inequality is associated with less social mobility 8. Gender and racial inequalities remain high, particularly at the top 9. Predistribution policies drive US/EU growth differentials at the bottom 10. Progressive taXation is key to curb extreme inequality at the top 3 Inequality data remains scarce in the digital age 4 Reconciling national capital income and A significantcapital share of capital income income is reportednot recorded onon taX taxrecords returns Composition of capital income in the US, 1916-2012 From taxable to total capital income 30% 25% Non-filers & Retained earnings other 20% 2/3 not Corporate income tax reported on 15% Income paid to pensions & tax data insurance % of national income 10% Imputed rents + property tax 5% Didivends, interest, rents & profits reported on tax returns 0% 1916 1920 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 Source: Appendix Table I-S.A8. Source: Piketty, Saez, Zucman (2018) 5 Distributional national accounts: systematic combination of survey, taX and national accounts data to distribute 100% of macroeconomic growth Top 10% income share in Germany and France, 1995-2015: Survey vs. tax vs. Distributional National Accounts (DINA) Germany France Top 10% DINA Survey+Tax+Nat. Acc. Top 10% DINA Survey+Tax+Nat. Acc. Top 10% Tax Top 10% Tax Top 10% Top 10% Survey Survey Source: Author based on Blanchet, Chancel and Gethin (2019) 6 Income inequality is on the rise after a historical decline 7 After a historical decline, income inequality rose at different speeds Top 1% income share across the world, 1900-2018 (decennial averages) 2525 2020 1515 1010 % national income % national income 55 00 19001900 1910 1920 1930 1940 1950 1960 1970 1980 1980 1990 1990 2000 2000 2010 2010 India RussiaUSA USA Western Europe China 8 Source: Author based on WID.world (2019) After a historical decline, income inequality rose at different speeds Top 1% income share across the world, 1900-2018 (decennial averages) 2525 2020 1515 % total income 1010 % national income % national income 55 00 19001900 1910 1920 1930 1940 1950 1960 1970 1980 1980 1990 1990 2000 2000 2010 2010 IndiaUSA RussiaWesternUSA EuropeUSA WesternJapan EuropeAU-NZ China 9 Source: Author based on WID.world (2019) 52 How Unequal Is Europe? In the US, the bottom 50% income share collapsed. The fall was much more contained in Europe. Figure 26: Income inequality trends in Europe and the US, 1980-2017 Top 1% and bottom 50%(a) pretax Bottomincome 50%shares vs. Topin Europe 1% income and the EU, shares 1980-2017 United States Europe 25 25 22.5 22.5 20 20 17.5 17.5 15 15 12.5 12.5 Share of national income (%) 10 10 7.5 7.5 5 5 1980 1985 1990 1995 2000 2005 2010 2015 1980 1985 1990 1995 2000 2005 2010 2015 Bottom 50% Top 1% Source: Author based Blanchet, Chancel and Gethin (2019) and Piketty, Saez and Zucman (2018) 10 (b) Growth Incidence Curves 700 600 500 400 300 200 Total income growth (%) Total 100 0 10 20 30 40 50 60 70 80 90 99 99.9 99.99 99.999 Income group (percentile) United States Europe Source: authors’ computations combining surveys, tax data and national accounts for Europe; Piketty, Saez, and Zucman (2018) for the United States. WID.world Working Paper 2019–6 Capital is back, for a few 11 Wealth inequality has been rising at different speeds since the 1980s Top 1% wealth share in the US and Europe, 1910-2014 70% 60% France United Kingdom 50% USA Sweden 40% 30% 20% Top 1% personal wealth share Top 10% 0% 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Source: Author using WID.world data. Distribution of per adult personal wealth. 12 The return of wealth inequality in the US is mainly driven by the very top of the distribution. Dynamic of savings rate played a huge role in driving these trends. Wealth inequality in the US, 1913-2012 30% 25% Top 1-0.1% 20% 15% 10% Top 0.1% Share of household wealth (%) 5% 0% 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Source: Saez and Zucman (2016) 13 Wealth at the top grew 3x faster than avg. wealth, 9X faster than avg. income Annual real wealth growth per adult, 1987-2017 Wealth group US + EU Top 1/100 million (Forbes) 8.9% Top 1/20 million (Forbes) 8.8% Top 0.01% (WID.world) 6.1% Top 0.1% (WID.world) 4.9% Top 1% (WID.world) 4.0% Average wealth 2.7% Average income 1.0% Source: Author based on WID.world (2019) and Blanchet (2018) 14 Nations have become richer but governments have become poor 15 exeCutIve summary iii. why does the eVolution of PriVate and PubliC CaPital ownershiP matter for inequality? Economic inequality is largely driven by the unequal ownership of capital, which can be either privately or public owned. We show that since 1980, very large transfers of public to private wealth occurred in nearly all countries, whether rich or emerging. While national wealth has substantially increased, public wealth is now negative or close to zero in rich countries. Arguably this limits the ability of governments to tackle inequality; certainly, it has important implica- tions for wealth inequality among individuals. over the past decades, countries have ▶ the ratio of net private wealth to net become richer but governments have national income gives insight into the total become poor. value of wealth commanded by individuals in Net private wealth has risen since the 1970s while public wealth collapsed Figure e6 thePrivate rise of privateand public capital andcapital the fall in of rich publiccountries, capital in rich 1970 countries,-2015 1970–2016 800% 700% Private capital 600% Spain UK 500% Japan France 400% US Germany 300% 200% Public capital 100% 0% Value of net public and private wealth (% of national income) -100% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 16 Source: Alvaredo, Chancel, Piketty, Saez and Zucman (2018) Source: WID.world (2017). See wir2018.wid.world for data series and notes. In 2015, the value of net public wealth (or public capital) in the US was negative (-17% of net national income) while the value of net private wealth or private capital as o national income In , net public ealth amounted to o national income hile the fgure as or net private wealth. Net private wealth is equal to new private assets minus net private debt. Net public wealth is equal to public assets minus public debt. 14 World inequAlity report 2018 Higher inequality is associated with lower social mobility Absolute mobility (% children earning more than their parents) declined in the US since the 1970s while relative mobility (% low income individuals making it to the top) was broadly stable. Absolute income mobility in the US, 1970-2014 In 1970, 92% of 100% Americans aged 30 earned more than 90% their parents. 80% 70% 60% In 2014, 50% of Percentage of children earning more than their parents at age 30 Americans aged 50% 30 earned more than their parents. 40% 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 Birth cohort Source: based on data from Chetty et al., 2017. 18 Gender and racial inequalities remain high after a historical decline 19 Gender inequality declined since the 1960s thanks to the rise of female participation & reduction of gender pay gap, but the gap remains high. Gender inequality in the US, 1962-2014 (average pretax labor income of men aged 20-64 / of women aged 20-64) In 2014, men earned 75% more than women Source: Piketty, Saez and Zucman, 2018. Men and women aged 20-64. 20 Gender inequality remains particularly high at the top of the distribution in rich countries Share of women by income group in France, 1970-2012 Source: Garbinti, Goupille and Piketty, 2018 21 Equal access to education, health and well-paid jobs are key to lift pretax income at the bottom of the distribution 22 Growth divergence at the bottom in EU and US is pretaX not posttaX: key role of « predistribution » Bottom 50% pretax income growth in Europe and the EU, 1980-2017 Source: Blanchet, Chancel and Gethin (2019). US data from Piketty et al. (2018). 23 Part v taCklinG eConomiC inequality Inequality in access to higher education is particularly strong in the US Figure 5.4.1 CollegeCollege attendance attendance rates and rate parent and incomeparent rankincome in the rank us infor the children US for born children in 1980–1982 born in 1980-1982 100% ~90% of children 80% from the top 10% US attend college 60% between age 18-21 (%) 18-21 age between 40% ~30% of children Share of children who attend college college attend who children of Share from the bot. 20% US attend college 20% 0 10 20 30 40 50 60 70 80 90 100 Parent income rank Source: Chetty, Hendren, Kline and Saez (2014).
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