Economic Inequality

What are the consequences of the rise of income inequality in the United States – for the economy, society, and democracy?

After decades of rising inequality, in 2007 the wealthiest 1% of Americans received more than 23% of total income for the first time since 1928 [1]. Yet, unlike in the 1930s, the current trend seems unlikely to reverse itself amidst ongoing economic stagnation. All told, the nation has seen a sea-change in the distribution of income and wealth over the past three decades, and yet we know remarkably little about the consequences.

In exploring the potential consequences of rising inequality, the Tobin Project’s Economic Inequality initiative starts by recognizing several worrisome correlations. For example, the share of income controlled by the top 1% of earners has peaked twice this century, followed both times by major financial crises, yet there is little understanding of possible connections between the two phenomena, or even whether any such connections exist. Nor do we yet know if there is a causal link between income concentration at the top of the distribution and sluggish wages and household insecurity lower down the income ladder. Scholars are similarly unsure of how the growing economic strength of the richest Americans (including the most successful players in the financial sector) translates into political power in our democracy. Through interdisciplinary research and collaboration with policymakers, the Tobin Project research initiative on Economic Inequality aims to shed new light on these critical questions relating to the potential consequences of economic inequality. 

Questions within the broader initiative include:

Inequality & Decision-Making: How does the presence of inequality (or changes in inequality) influence individuals’ decision-making, and how might such effects impact the broader society?

Inequality & Democracies: How does the American democracy, and other democracies, respond to increases in inequality?

Inequality & the Firm: What effect, if any, does inequality within the business firm have on firm performance?

 

[1] Atkinson, A. B., Piketty, T., & Saez, E. (2011). Top Incomes in the Long Run of History.Journal of Economic Literature, 49(1), 3-71.

See also: The World Top Incomes Database