The Top 1% in International and Historical Perspective

For three decades, the debate about rising income inequality in the United States has centered on the dispersion of wages and the increased premium for skilled/educated workers, attributed in varying proportions to skill-biased technological change and to globalization (for example, see Katz and Autor 1999 for a survey). In recent years, however, there has been a growing realization that most of the action has been at the very top. This has attracted a great deal of public attention (as witnessed by the number of visits to and press citations of our World Top Incomes Database at http://topincomes.parisschoolofeconomics.eu/) and has represented a challenge to the economics profession. Stories based on the supply and demand for skills are not enough to explain the extreme top tail of the earnings distribution; nor is it enough to look only at earned incomes. Different approaches are necessary to explain what has happened in the United States over the past century and also to explain the differing experience in other high-income countries over recent decades. We begin with the international comparison in the first section and then turn to the causes and implications of the evolution of top income shares.