No. 2018-15 - The Drivers of Inequality in Rich Countries

Abstract:

Rising income inequality has recently come centre-stage as a core societal concern for rich countries. The diagnosis of the forces driving inequality upwards and their relative importance remains hotly contested, notably with respect to the roles of globalization versus technology and of market forces versus institutions and policy choices. This survey provides a critical review and synthesis of recent research. The focus is on income inequality across the entire distribution, rather than only on what has been happening at the very top. We pay particular attention to including what has been learned from the analysis of micro-data, to ensuring that the coverage is not unduly US-centric, and to analyses of the interrelations between the di erent drivers of inequality. We conclude by highlighting key gaps in knowledge and clarifying what stands in the way of a consensus emerging about the contribution of the various forces a ecting how income inequality has evolved in recent decades.