Comparative Inequality: Top Income Shares Around the World

As the Occupy Wall Street movement stands up for “the other 99%,” a data source recently cited by Paul Krugman reports the history of top income shares in twenty-six countries including the U.S. The World Top Incomes Database will soon publish data from several more countries. Among leading contributors are Thomas Piketty and Emmanuel Saez, whose collaboration on U.S. inequality is widely acknowledged as authoritative. Saez has a link on his homepage to the latest U.S. data (2008)—the first item under “Income and Wealth Inequality.”

For English-speaking countries the record is fairly consistent (Figures 1 & 2), with Australia, Canada, the U.S., and the U.K. all showing pronounced upswings for the top 1% and 10% during the late 20th century and beyond—although Australia’s generally lower share level is closer to European experience.

English-speaking countries: Top 10% income share

Figure 1

English-speaking countries: Top 1% income share

Figure 2

In Europe (Figures 3 & 4), it’s a different picture. The two strongest economies, Germany and France, show only modest increases and to levels well below top income shares in the U.S. For instance in France, Germany, and Sweden, the top 1% share is actually lower than where it was in 1950—just the opposite of the U.S. whose top 1% collected 11.4% of total income in 1950, 17.7% in 2008. Similarly, Denmark’s top income shares have moved very little from the low level where available data starts in 1980.

EUropean countries: Top 10% income share

Figure 3

European countries: Top 1$ income share

Figure 4

But in Sweden, Europe’s leading welfare state, the share of the top 10% rose noticeably in the two decades from 1989 to 2009. Still, Swedish inequality is mild compared to the U.S. (Figure 5).

U.S. and Sweden: Top 10% income share

Figure 5

The U.S. is the indisputable leader of rising inequality among advanced industrial nations. The 2008 level of  top income shares in the U.S. matches the heights reached just before the 1929 market crash and the Great Depression. Ironically—or maybe not—the experience of the top 1% and 10% today matches what happened to their counterparts in the 1930s. Which is…nothing.

In 1929, the income share of the top 10% peaked at 46.1%, then declined to 43.1% in 1930. But two years later, in 1932, it reached a new high of 46.3% and averaged over 44% through 1940. Of course, this was not difficult—the other 90% were either unemployed or earning only a fraction of what they had earned before. It was during WW2 that the income share of the top 10% plummeted from 44.4% in 1940 to 31.6% in 1944.

So far, as of 2008, top income shares in the U.S. have declined hardly at all. But more up-to-date data for 2009 and 2010 from the Social Security Administration (SSA) shows the top 10% share of wages and salaries actually rising in 2010 (Figure 6), while the economy remained stalled and unemployment was stuck at well over 9%.

U.S. Top 10% wages and salaries (1990-2010)

Figure 6

(SSA data is drawn from reported wage and salary payments on W-2 forms (including tips, bonuses and the like). It is, in effect, the other side of the incomes picture that Saez and Piketty draw from IRS tax-return data. The payment level reported by the SSA is generally lower than the income level reported by the IRS, because the W-2 form reports a subset of what appears on Form 1040. For instance, while the SSA and the Top Incomes Database both exclude capital gains, SSA data does not include interest income, but tax returns do.)

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Data of world top incomes were downloaded November 15, 2011 from: Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, The World Top Incomes Database, http://g-mond.parisschoolofeconomics.eu/topincomes.

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