Income inequality: a turning point, 1880–1930

The free-market model was in 1880 well suited to the analysis of income distributions in European or American countries dominated by laissez-faire policies. State intervention was minimal and the percentage of public expenditure in GDP very low. Kuznets explained the successive narrowing and widening of inequality in this period by the massive migration of people from the countryside (with low wages) to urban areas (with higher wages). Here this model is discussed using data for six European countries. The 1880s–1930s experienced a radical shift in public policy where social expenditure dramatically increased, reaching more than 1% of GDP in several European countries. During the First World War, wages remained frozen; likewise, in France property rents were stable for a long period. New sources of income mainly acquired by rich households were redistributed to poorer ones. All these liberal changes had a decisive impact on income distribution, which cannot, however, be easily explained by the Kuznets model. GDP per capita is not the whole story. While global inequalities in income began to improve only around 1990, inequalities in well-being had already done so throughout the whole of the twentieth century, indeed to the extent that they led to ameliorations in citizens’ welfare.