Examining the Great Leveling: New Evidence on Midcentury American Inequality

The mid-20th century American decline in income inequality has beencalled "the greatest leveling of all time," despite a similarly unmatchedrate of economic growth. To establish this insight, pioneering researchhas tracked a century of top income shares. However, limitations inthe historical data had meant that we still do not fully understand thedynamics of change within the bottom 90% of the income distribution(prior to the 1960s). This paper sheds light on changes within the mid-dle class—to study early and midcentury trends in income and wage in-equality, by applying a powerful statistical model to archival tax recordsand survey data. We find that: (i) pre-war economic growth (and reduc-tion in inequality) reached the upper middle class sooner than it (andthey) reached the poorest households; and (ii) wartime relative incomegains for the poorest were short-lived, while they proved durable forthe upper middle class. In short, the relative gains from the New Deal,World War II and postwar eras were both more pronounced and moredurable for the upper middle class than for the poorest. However, post-warwagecompression lasted 30 years, to the particular benefit of theworking poor.