Capital in the Twenty-First Century (107 page)

6
. As a reminder, the top centile in France in 2010 consists of 500,000 adults out
of an adult population of 50 million.

7
. As is also the case for the nine-tenths of the population below the ninetieth percentile,
but here compensation in the form of wages (or replacement pay in the form of retirement
income or unemployment insurance) is lower.

8
. The pay scales for civil servants are among the pay hierarchies about which we have
the most long-term data. In France in particular, we have detailed information from
state budgets and legislative reports going back to the beginning of the nineteenth
century. Private sector pay has to be divined from tax records, hence is little is
known about the period prior to the creation of the income tax in 1914–1917. The data
we have about civil service pay suggest that the wage hierarchy in the nineteenth
century was roughly similar to what we see in the period 1910–2010 for both the top
decile and the bottom half, although the top centile may have been slightly higher
(without reliable private sector data we cannot be more precise). See the online technical
appendix.

9
. In 2000–2010, the share of wages in the P99–99.5 and P99.5–99.9 fractiles (which
constitute nine-tenths of the top centile) was 50–60 percent, compared with 20–30
percent for mixed incomes (see
Figure 8.4
). High salaried incomes dominated high mixed incomes to almost the same degree as
in the interwar years (see
Figure 8.3
).

10
. As in
Chapter 7
, the euro figures cited here are deliberately rounded off and approximate, so they
are no more than indications of orders of magnitude. The exact thresholds of each
centile and thousandth are available in the online technical appendix, year by year.

11
. Note, however, that the data on which these boundaries are based are imperfect.
As noted in
Chapter 6
, some entrepreneurial income may be disguised as dividends and therefore classed
as income from capital. For a detailed, year-by-year analysis of the composition of
the top centiles and thousandths of income in France since 1914, see Piketty,
Les hauts revenus en France
, 93–168.

12
. Income from capital seems to represent less than 10 percent of the income of “the
9 percent” in
Figure 8.4
, but that is solely a result of the fact that these figures, like the series on the
shares of the top decile and centile, are based exclusively on self-declared income
statements, which since 1960 have excluded so-called fictive rents (that is, the rental
value of owner-occupied housing, which was previously part of taxable income). If
we included nontaxable capital income (such as fictive rents), the share of income
from capital among “the 9 percent” would reach and even slightly exceed 20 percent
in 2000–2010. See the online technical appendix.

13
. See the online technical appendix.

14
. In particular, I always include all rents, interest, and dividends in income declarations,
even when some of these types of income are not subject to the same tax schedule and
may be covered by specific exemptions or reduced rates.

15
. See the online technical appendix.

16
. Note that throughout World War II, the French tax authorities carried on with their
work of collecting income statements, recording them, and compiling statistics based
on them as if nothing had changed. Indeed, it was a golden age of mechanical data
processing: new technologies allowed for automated sorting of punched cards, which
made it possible to do rapid cross-tabulations, a great advance over previous manual
methods. Hence the statistical publications of the Ministry of Finance during the
war years were richer than ever before.

17
. The share of the upper decile decreased from 47 to 29 percent of national income,
and that of the upper centile from 21 to 7 percent. Details are available in the online
technical appendix.

18
. For a detailed analysis of all these evolutions, year by year, see
Les hauts revenus en France,
esp. chaps. 2 and 3, pp. 93–229.

19
. In World War II, the compression of the wage hierarchy actually began before the
war, in 1936, with the Matignon Accords.

20
. See
Les hauts revenus en France
, 201–2. The very sharp break in wage inequality that occurred in 1968 was recognized
at the time. See in particular the meticulous work of Christian Baudelot and A. Lebeaupin,
Les salaires de 1950 à 1975
(Paris: INSEE, 1979).

21
. See
Figure 6.6
.

22
. See esp. the work of Camille Landais, “Les hauts revenus en France (1998–2006):
Une explosion des inégalités?” (Paris: Paris School of Economics, 2007), and Olivier
Godechot, “Is Finance Responsible for the Rise in Wage Inequality in France?”
Socio-Economic Review
10, no. 3 (2012): 447–70.

23
. For the years 1910–1912 I completed the series by using various available data sources,
and in particular various estimates carried out by the US government in anticipation
of the creation of a federal income tax (just as I did in the case of France). See
the online technical appendix.

24
. For the years 1913–1926, I used data on income level and categories of income to
estimate the evolution of wage inequality. See the online technical appendix.

25
. Two recent books about the rise of inequality in the United States by well-known
economists demonstrate the strength of the attachment to this relatively egalitarian
period of US history: Paul Krugman,
The Conscience of a Liberal
(New York: Norton, 2007), and Joseph Stiglitz,
The Price of Inequality
(New York: Norton, 2012).

26
. The available data, though imperfect, suggest that the correction for understatement
of capital income might add two to three points of national income. The uncorrected
share of the upper decile was 49.7 percent in 1007 and 47.9 percent in 2010 (with
a clear upward trend). See the online technical appendix.

27
. The series “with capital gains” naturally include capital gains in both the numerator
(for the top income deciles and centiles) and the denominator (for total national
income); the series “without capital gains” exclude them in both cases. See the online
technical appendix.

28
. The only suspicious jump takes place around the time of the major Reagan tax reform
of 1986, when a number of important firms changed their legal form in order to have
their profits taxed as personal rather than corporate income. This transfer between
fiscal bases had purely short-term effects (income that should have been realized
a little later as capital gains was realized somewhat earlier) and played a secondary
role in shaping the long-term trend. See the online technical appendix.

29
. The annual pretax incomes mentioned here correspond to household incomes (married
income or single individual). Income inequality at the individual level increased
by approximately the same proportion as inequality in terms of household income. See
the online technical appendix.

30
. This visceral appreciation of the economy is sometimes particularly noticeable among
economists teaching in US universities but born in foreign countries (generally poorer
than the United States), an appreciation that is again quite comprehensible.

31
. All detailed series are available in the online technical appendix.

32
. This argument is more and more widely accepted. It is defended, for example, by
Michael Kumhof and Romain Rancière, “Inequality, Leverage, and Crises,” International
Monetary Fund Working Paper (November 2010). See also Raghuram G. Rajan,
Fault Lines
(Princeton, NJ: Princeton University Press, 2010), which nevertheless underestimates
the importance of the growing share of US national income claimed by the top of the
income hierarchy.

33
. See Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez, “Top Incomes in the
Long Run of History,”
Journal of Economic Literature
49, no. 1(2011): Table 1, p. 9.

34
. Remember that these figures all concern the distribution of primary income (before
taxes and transfers). I examine the effects of taxes and transfers in
Part Four
. To put it in a nutshell, the progressivity of the tax system was significantly reduced
in this period, which makes the numbers worse, while increases in some transfers to
the poorest individuals slightly alleviate them.

35
. See
Chapter 5
, where the Japanese and Spanish bubbles are discussed.

36
. See Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913–1998,”
Quarterly Journal of Economics
118, no. 1 (February 2003): 29–30. See also Claudia Goldin and R. Margo, “The Great
Compression: The Wage Structure in the United States at Mid-Century,”
Quarterly Journal of Economics
107, no. 1 (February 1992): 1–34.

37
. Nor was it compensated by greater intergenerational mobility; quite the contrary.
I come back to this point in
Chapter 13
.

38
. See Wojciech Kopczuk, Emmanuel Saez, and Jae Song, “Earnings Inequality and Mobility
in the United States: Evidence from Social Security Data since 1937,”
Quarterly Journal of Economics
125, no. 1 (2010): 91–128.

39
. See Edward N. Wolff and Ajit Zacharias, “Household Wealth and the Measurement of
Economic Well-Being in the U.S.,”
Journal of Economic Inequality
7, no. 2 (June 2009): 83–115. Wolff and Zacharias correctly remark that my initial
article with Emmanuel Saez in 2003 overstated the degree to which the evolutions we
observed could be explained by the substitution of “working rich” for “coupon-clipping
rentiers,” when in fact what one finds is rather a “cohabitation” of the two.

40
. See Supplemental Figures S8.1 and S8.2, available online.

41
. See Steven N. Kaplan and Joshua Rauh, “Wall Street and Main Street: What Contributes
to the Rise of the Highest Incomes?”
Review of Financial Studies
23, no. 3 (March 2009): 1004–1050.

42
. See Jon Bakija, Adam Cole, and Bradley T. Heim, “Jobs and Income Growth of Top Earners
and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data,”
Department of Economics Working Papers 2010–24, Department of Economics, Williams
College, Table 1. Other important professional groups include doctors and lawyers
(about 10 percent of the total) and real estate promoters (around 5 percent). These
data should be used with caution, however: we do not know the origin of the fortunes
involved (whether inherited or not), but income from capital accounts for more than
half of all income at the level of the top thousandth if capital gains are included
(see
Figure 8.10
) and about a quarter if they are excluded (see Supplemental Figure S8.2, available
online).

43
. “Superentrepreneurs” of the Bill Gates type are so few in number that they are not
relevant for the analysis of income and are best studied in the context of an analysis
of fortunes and in particular the evolution of different classes of fortune. See
Chapter 12
.

44
. Concretely, if a manager is granted options that allow him to buy for
$
100 stock in the company valued at
$
200 when he exercises the option, then the difference between the two prices—in this
case
$
100—is treated as a component of the manager’s wage in the year in which the option
is exercised. If he later sells the shares of stock for an even higher price, say
$
250, then the difference,
$
50, is recorded as a capital gain.

1
. Claudia Dale Goldin and Lawrence F. Katz,
The Race between Education and Technology: The Evolution of U.S. Educational Wage
Differentials, 1890–2005
(Cambridge, MA: Belknap Press, 2010).

2
. See
Table 7.2
.

3
. In the language of national accounting, expenditures on health and education are
counted as consumption (a source of intrinsic well-being) and not investment. This
is yet another reason why the expression “human capital” is problematic.

4
. There were of course multiple subepisodes within each phase: for instance, the minimum
wage increased by about 10 percent between 1998 and 2002 in order to compensate for
the reduction of the legal work week from 39 hours to 35 hours while preserving the
same monthly wage.

5
. As in the case of the federal income tax, the minimum wage legislation resulted
in a fierce battle between the executive branch and the Supreme Court, which overturned
the first minimum wage law in 1935, but Roosevelt reintroduced it in 1938 and ultimately
prevailed.

6
. In
Figure 9.1
, I have converted nominal minimum wages into 2013 euros and dollars. See Supplemental
Figures S9.1–2, available online, for the nominal minimum wages.

7
. Some states have a higher minimum wage than the federal minimum in 2013: in California
and Massachusetts, the minimum is
$
8 an hour; in Washington state it is
$
9.19.

8
. At an exchange rate of 1.30 euros per pound. In practice, the gap between the British
and French minimum wages is larger because of the difference in employer social security
payments (which are added to the gross wage). I come back to this point in
Part Four
.

9
. Important differences persist between countries: in Britain, for example, many prices
and incomes (including rents, allowances, and some wages) are set by the week and
not the month. On these questions, see Robert Castel,
Les Métamorphoses de la question sociale: Une chronique du salariat
(Paris: Fayard, 1995).