Income inequality in Chile since 1850

This paper is a synthesis of the author’s Ph.D. dissertation. It studies the relationship between income inequality and the development process, understood as the combination of economic, social and political changes produced over time based on the case of Chile between 1850 and 2009. It aims to describe and explain the tendencies in income distribution over time signaling their causes and some of their consequences. In the empirical area, the main contributions of the dissertation are the estimates of historical series of salaries, wages, and different measures of income distribution –Gini index, Theil, labor share and the income of the top 1%. These estimates relied on the methodology of ‘social tables’, which aggregates income earners in categories such as occupation, having estimated the number and earnings for each category every year between 1860 and 1970. In spite of the problems arising from the use of assumptions to obtain an annual estimate, which implies an immeasurable but undoubtedly large margin of error for each year, this methodology allows us to analyze medium-term trends with relative confidence. In the fields of theory and methodology, the paper makes two major contributions. First, it shows the potential of in-depth case studies as a means to analyze the relationship between development and inequality. Second, its focus on the political economy of inequality overcomes the problem of oversimplification. Most studies tend to focus on a single factor –usually either on the market or institutions- and analyze the impact on inequality in a timeless or ahistorical manner. But, as this work shows, trends in inequality are always the consequence of a set of factors -economic, social, political and institutional- which interact, so that each one reinforces or overrides the influence of the other. The combination of these factors, which is an outcome of the historical process, is what determines the trends in inequality over time.