Leiden Law Blog

How strong are Piketty’s trends?

How strong are Piketty’s trends?

The national and cross-national differences in top income earnings  and income inequality have produced a wide range of opinions lately. Well-known studies from Atkinson and Piketty (2010) and Piketty (2014) have shown that the share of the total income accruing to the top 1% high earners has increased dramatically in a number of OECD countries over the last decades. This blog contributes to the discussion by measuring these changes across 11 affluent countries where data is available for the top 1% income shares in the period 1970-2012. I make use of the data collected by the World Top Income Database (WTID) assembled by Thomas Piketty and others.

Figure 1 shows that the shares of top income recipients in total pre-tax income have increased in many (but not all) countries in the past four decades. The top 1% shares increased most in the United States and to a lesser extent in the United Kingdom, Australia and New Zealand. However, from Figure 1 it is hard to see an upward trend, if any, in other countries, although the mean of all 11 countries is ascending. Let’s analyse this in more detail.

There is wide cross-country variation in the share of the total income going to the top 1% of earners. Table 1 ranks countries to the level of their income share of the top 1% earners from lowest to highest for the latest data available (around 2012). Care is needed when comparing top income share levels across countries, but some clear-cut differences can be observed. Top earners nowadays capture a larger fraction of total pre-tax income in most English-speaking countries than in continental Europe and the Nordic countries. Today, the richest one percent receives between 6 percent of all pre-tax income in the Netherlands and Denmark and up to almost 20 percent in the United States.

In the early 1990s the share of total income accruing to the top 1% of earners was below ten percent in all countries except the United States. This was the result of a long-term trend towards declining inequality during the post-war period. As a result of this worldwide trend, the cross-country variation in top income shares was relatively low in the 1970s and 1980s. 

Table 1: Income shares top 1%

 

 

 

 

Levels

Change

Country

Data availability

1970

1990

2010's

1970-1990

1990-2010's

1970-2010's

Netherlands

1970-2012

8.6

5.6

6.3

-3.1

0.8

-2,3

Denmark

1970-2010

9.2

5.2

6.4

-4.0

1.2

-2,8

Sweden

1970-2012

6.2

4.4

7.1

-1.8

2.8

1,0

France

1970-2009

8.3

8.2

8.1

-0.1

-0.2

-0,3

New Zealand

1970-2011

6.6

8.2

8.1

1.6

-0.1

1,5

Singapore

1970-2012

10.8

8.4

8.2

-2.4

-0.2

-2,6

Australia

1970-2010

5.9

6.3

9.2

0.4

2.8

3,3

Japan

1970-2010

8.2

8.1

9.5

-0.1

1.5

1,3

Switzerland

1971-2009

10.8

8.6

10.5

-2.2

1.9

-0,3

UK

1970-2011

7.1

9.8

12.9

2.8

3.1

5,9

USA

1970-2012

7.8

13.0

19.3

5.2

6.4

11,5

Mean 11 countries

8.1

7.8

9.6

-0.3

1.8

1.5

Source: World Top Incomes Database (last accessed 29-12-2014); own calculations

Note that the evolution in top income shares has been quite diverse across countries. It seems hard to observe an overall trend. In the United States and the United Kingdom top income shares rose sharply, both from 1970 to 1990 and from 1990 to 2010. In some other countries, there is also a tendency for more concentration in income at the top, though less marked, as in Australia, New Zealand and Sweden. However, Table 1 shows that the top percentile group’s share for Denmark, the Netherlands, Singapore, Switzerland and France dropped when data for 1970 and 2012 (or closest year) are compared. In contrast to the United States, the United Kingdom and Australia, there is no clear constant upward trend over both sub-periods (1970-1990 and 1990-2012) in 8 of our 11 countries. This may contradict society’s view on rising top incomes and inequality in all affluent countries – a picture heavily influenced by the bestseller Capital in the 21st century by Thomas Pikkety!

Trend lines could simply be drawn by eye through a set of data points (see Figure 1 or Table 1), but their position and slope can be better calculated using statistical techniques like linear regression. Linear regression is an approach for modelling the relationship between a scalar dependent variable (e.g. top 1% income share) and one or more explanatory variables (e.g. time). Trend lines are typically straight lines, and indicate whether particular data sets (e.g. top 1% income shares) have increased or decreased over the period of time. So, I tested the claim of the rising shares of the top 1% for each country, just by running simple statistical OLS regressions for the countries under study to measure whether the income shares of the top 1% income earners changed dramatically over time in the period 1970-2012. Dramatically is defined as a significant trend coefficient (p value < 0.05). The results are presented in Table 2.

Table 2: Trend coefficients 1970-2012 from a simple OLS regression

Country

Data availability

# Obs.

Intercept

Coefficient

Adj R2

Rank

Australia

1970-2010

41

-245.6**

0.127**

0.765

3

 

 

 

(0.000)

(0.000)

 

 

Denmark

1970-2010

40

80.5**

-0.038**

0.194

11

 

 

 

(0.0013)

(0.003)

 

 

France

1970-2009

40

-17.9

0.013

0.053

9

 

 

 

(0.226)

(0.082)

 

 

Japan

1970-2010

41

-98.9**

0.054**

0.461

6

 

 

 

(0.000)

(0.0000)

 

 

Netherlands

1970-2012

30

6.9

0.000

-0.036

10

 

 

 

(0.7839)

(0.977)

 

 

New Zealand

1970-2011

42

-143.6**

0.076**

0.296

5

 

 

 

(0.000)

(0.000)

 

 

Singapore

1970-2012

41

-191.7**

0.102**

0.553

4

 

 

 

(0.000)

(0.000)

 

 

Sweden

1970-2012

43

-94.1**

0.050**

0.406

7

 

 

 

(0.000)

(0.000)

 

 

Switzerland

1971-2009

27

-59.8*

0.035*

0.192

8

 

 

 

(0.029)

(0.013)

 

 

UK

1970-2011

40

-457.3**

0.235**

0.878

2

 

 

 

(0.000)

(0.000)

 

 

USA

1970-2012

43

-586.3**

0.301**

0.937

1

 

 

 

(0.000)

(0.000)

 

 

Mean 11 countries

1970-2012

43

-175.2**

0.092**

0.753

 

 

 

 

(0.000)

(0.000)

 

 

Notes:   OLS regression; p values in parentheses.  ** Significant at 0.01 level; * significant at 0.05 level

Source: World Top Incomes Database (last accessed 29-12-2014); own calculations

As expected, in the United States and the United Kingdom top income shares rose sharply. I found significant trend coefficients above 0.23 for both countries, implying that the share of total income earned by the top 1% rose over 0.23 percent each year in the period 1970-2012. In Australia, Singapore and New Zealand there is also a significant positive trend for more concentration in income at the top, although this rise was less pronounced (coefficients below 0.13). The rise in the top income share is significant, but rather modest in Japan and Sweden (coefficients around 0.05). The change is neglectable or insignificant in Switzerland, France and the Netherlands. Finally, a significant decline in the income shares of the top 1% earners was found in Denmark. On average among these 11 countries I find a significant positive trend: the share of the total income earned by the top 1% rose at a rate of 0.09 percent per year in the period 1970-2012. At this rate it will take over 980 years before the total income will be earned by the top 1% of earners!

This gimmick is just to illustrate that it might be wrong to think about a worldwide increase in income concentration among the top 1%. Such a claim cannot be based on the fascinating World Top Income Database assembled by Thomas Pikkety and others.

Futher reading

2 Comments

Koen Caminada
Posted by Koen Caminada on June 25, 2015 at 20:51

Dear Barry Pullen- Thanks - welcome to LLS. Let us arrange an appointment via email. Best wishes, Koen

Barry Pullen
Posted by Barry Pullen on June 23, 2015 at 09:24

Dear Prof. Caminada, I have just read your, discussion paper and found it quite interesting, particularly as I am leading a group discussing Piketty’s Capital. I reside in Melbourne, Australia and the group consists of four economists and four social researchers from the Brotherhood of St. Laurence, a welfare organisation with a commitment to social justice issues and the use of evidence based research. I am currently in Delft and will be in Leiden on Thursday to Saturday. Would you be interested and available for a cup of coffee and a comparison of views on Piketty or failing that we could exchange some points by email. My group is organising a workshop on Piketty in August.
In friendship
Barry Pullen
Honorary Research Fellow at BSL

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