A growing gap between middle and high income earners has for three decades been a pretty consistent feature in the US. But evidence from other advanced countries suggests this is by no means an inevitable outcome.
Research by Andrea Brandolini of the Bank of Italy and Timothy Smeeding of Syracuse University and the Luxembourg Income Study shows the US alone has had high and rising inequality consistently from the mid-1970s. While the UK matched the US rise in inequality in the 1980s, the trend stopped in the early 1990s, well before the Labour government came to power.
Nordic countries have experienced a modest rise in inequality, while in France and Italy it has been falling.
The authors say the US "is an outlier among rich nations, and only Russia and Mexico, two middle-income economies, have higher levels of inequality". That stems not so much from the US labour market, they add, but rather that its government redistributes far less through the tax and social security system than other countries do.
Definitive statements on international comparisons are hampered by a lack of directly comparable data. Most of the internationally comparative figures relate to measures of inequality of incomes rather than the growth of median earnings. But given America's greater than average prosperity, other countries might not have enjoyed rising median wages or incomes if they had started at the same high level.
Direct evidence on wage levels is rarer still. However, Emmanuel Saez of Berkeley along with others has used tax return data to study the shares of income earned by the rich in different countries. His findings are stark.
If 1,000 people were chosen at random in the US, the UK and France in 1963, the richest person would have commanded 2 per cent of the combined income - 20 times more than if wages were equal. At the end of the 1990s, the share of the richest person had grown to 6 per cent of total income in the US and 3 per cent in the UK but was still 2 per cent in France. This suggests strongly that other countries have by no means shared the US experience in the richest appropriating the bulk of rising prosperity.
These estimates are just snapshots of incomes. So perhaps a better barometer of a society's earnings is whether people on lower incomes have a decent chance of becoming rich. Mark Pearson of the Organisation for Economic Co-operation and Development suggests the answer is not encouraging for the US. In studies of intergenerational income and earnings, countries such as the US with high income inequality tend to have less social mobility than countries with greater equality. The son of a rich US man is much more likely to be rich than the son of a rich Swede. The same is true for a poor American versus a poor Swede.
In a Warwick University paper, Bernt Bratsberg and others show important nuances in this view of intergenerational earnings mobility. While they still find the "American dream" to be a more common reality in Nordic countries than in the US, they show big differences for different types of families in different countries.
High-earning parents in the US, the UK and Nordic countries are all fairly good at ensuring their children also become rich. Rich US parents are particularly skilled in this feat. In the US and to a lesser degree the UK, sons of poor fathers are disproportionately likely to be poor. But in Nordic countries this is not true. The sons of the poor are no less likely to succeed than those of middle-income fathers.
So while the poor have a very realistic expectation of becoming middle class in Scandinavia, it is an exception to the rule in the US. Median wage stagnation in the US threatens to expose this truth.
If US citizens think this lack of mobility is a fair and meritocratic outcome, reflecting the value of different families, the lack of social mobility is no great problem. But to the extent that Americans believe rigidities in their society impede success, unhappiness is likely to mount.
