Recent CEPS policy brief explains why the trend of widening income gaps has not been casued by globalization.
“The process started again in the mid-1970s, and since then real median family income has increased by about 15%, compared to a growth rate of about 100% for the top 1% of the income distribution. The inverted-U is recreating itself and inequality is now at levels similar to pre-war levels – to wit: the share of income flowing to 0.1% of Americans has recently reached 7%, the highest since the 1920s – but with an important difference: the rich in the pre-war period were mostly capitalists, i.e. owners of capital, while the rich of the post-1970 period are mostly high-wage earners.”
Other factors play a role:
“The inflexion point in inequality the mid-1970s seems to coincide with the peak in the share of manufacturing in GDP – as the move towards services allows for wider wage dispersion – and with the beginning of a steady decline in the progressivity of taxation.”
CEPS Ubide also says something that is hard for central bankers to agree.
“The corollary of these suggestions is that fiscal discipline may not be politically feasible and may not be a priority in the years ahead. An increase in the mobility of capital leads to global tax competition and puts a lid on tax increases while the combined spending demands for social networks, education and research, combined with the higher entitlement costs associated with an aging population, will make spending cuts very unpalatable for democratic societies where an increasingly bigger share feels left behind. In a world of ample savings, credible central banks and regional economic arrangements, longterm interest rates are low and have become largely independent from fiscal discipline. As a result, progress in fiscal adjustment will likely be postponed while political systems discuss how to allocate their already-scarce resources,14 and the combination of an aging population and income inequality will exert considerable pressure on central banks to deliver unanticipated inflation as a means to finance the competing social needs. “
Very controvercial, but still interesting.