In 1920, ‘the 1%’ – the top percentile of the income distribution – accounted for between 15% and 20% of total gross income in developed countries.   Germany was strikingly unequal, while the most egalitarian societies were immigrant countries such as Australia, Canada, and the United States.

In the fifty years that followed,  the share of the 1% fell almost everywhere by around half, to between 7% and 10% of total income.  The relative decline in the standing of  the top 0.1% was even more dramatic 

       Drawing on the comprehensive analysis of Atkinson and Morelli’s Chartbook of Economic Inequality, I will focus on Britain, France, Germany and the United States:  but other economically advanced countries (Australia, Canada, Netherlands, Sweden) tell much the same story.

That data relates to gross income. During these years, public spending on health education and especially social benefits increased, taxation became more burdensome and more progressive. The forces of equalisation were powerful indeed.

      By 1970 Germany (then West Germany) was still a conspicuously unequal outlier, with the top 0.1% receiving more than twice the share of the equivalent group in Britain, France or the United States.  The German Mittelstand, the medium sized family controlled enterprises which are the powerhouse of that country’s export success, has created a cadre of very well remunerated business owners, and continues to do so.

From 1970, the egalitarian trend came to an end everywhere. But experiences now diverged. In France and Germany the share of the top 1% and 0.1% has remained flat.  In the United States it has soared.  The top 1% of Americans now earn relatively more than they did in 1920.  Britain has also seen a sharp rise in the share of top incomes , although this reversal is not as dramatic as in the US, and the UK figures are  still well below those  of 1920.   What has happened in other states seems to  reflect cultural origins:  Canada and Australia look rather like the UK and Holland rather like Germany.

To understand the trends, and their implications, we need more data on who the top 1% are, and tax authorities are coy about telling us.  A  survey in the United States shows that  about one third of the top 1%, and more of the top 0.1%,  are corporate executives.

       Almost a quarter of the 1% are doctors or lawyers, although there are fewer among the very highest paid.  The phalanx of affluent medics and attorneys is probably a distinctively US phenomenon:  in other countries, public health systems and more limited roles for litigation keep these incomes under more control. 

    But the major change since the 1970’s has, of course, been in the representation of finance professionals:  their share in the top 1% of incomes has risen from 8% to 14% and among the top 0.1% from 11% to 18%. Since what it takes to be in the top 1% has increased dramatically, this understates the rise in the significance of finance to income distribution.

The rise in inequality in some western countries is principally the result of two interrelated causes – the growth of the finance sector and the explosion of the remuneration of senior executives.  The people who ran big companies were always relatively well paid, but the meaning of ‘relatively well paid’ is now altogether  different.  Finance employs more people,  recruits more able people, and pays them a lot more.  These effects are greatest in the countries that have seen the most extensive financialisation – Britain and the United States – and have not been seen in countries more resistant to it – France and Germany.  

    Reassuringly, Data confirms anecdote and casual experience.  And, for Piketty readers, the determinants of income inequality have little to do with the relationship of r to g.