Exceptionally Unequal:

US Income Inequality in Comparative Perspective

Joe Hines

Over the past forty years, the US has seen a steep increase in income inequality, even as many other advanced democracies have seen their income distribution decline or remain steady. A countrys income distribution results from domestic political decisions, as countries have similar levels of inequality before taxes and redistributions but vastly different levels afterwards. Scholars have offered various explanations for why income inequality has risen in the U.S, including the unrepresentative nature of American political institutions, Americans' attitudes toward inequality, declining levels of unionization, and the partisan polarization of elites. This paper explores the merits of these explanations from a comparative perspective. First, I find that the although the American political system has the highest number of anti-majoritarian features among advanced industrial democracies, those features have not changed significantly over time are not sufficient to explain why income inequality has increased in the U.S. Second, although Americans may be somewhat more permissive about economic inequality than Europeans, Americans' attitudes have remained largely unchanged over the past 35 years and so cannot during the increase in inequality during that period. Third, the low percentage of workers covered by collective bargaining agreements in the United States compared to other democracies bolsters the argument that the decline in unions contributes to rising income inequality. Finally, the most striking correlation has been the increase in political polarization in Congress. This polarization has made it inordinately difficult to pass legislation that would lessen inequality.

Table of Contents
Introduction
Its not the economy, stupid
Culture: Mass Attitudes, Misperceptions, and Voter Turnout
The Decline of Unions and Collective Bargaining Coverage
Institutional Explanations: The Number of Veto Players and the Unrepresentative Senate
Elite Politics: Polarization
Conclusion
Bibliography
3 5 12 23 29 35 39 44

Introduction

Originally, it was Europe that was unequal. In 1831, Alexis de Tocqueville visited the United States to report on the progress of democracy, later published as Democracy in America. As a French aristocrat, Tocqueville analyzed American democratic institutions to inform Europes political institutions. Americas love of equality struck Tocqueville as unique, a factor he attributed to the countrys democratic nature. In his opening paragraph, Tocqueville noted that in the United States, nothing struck [him] more forcefully than the general equality of conditions (Tocqueville 1). Although most developed in the United States, in Tocquevilles view of the progress of civilization, we shall scarcely meet with a single great event, in the lapse of seven hundred years, which has not turned to the advantage of equality (Tocqueville 3). The European aristocrat was diminished as the American citizen ascended. A new era of equality, stustained through democratic institutions, would prevail. Tocqueville believed, with some trepidation, that the role of a new political science was to guide the inevitable march towards equality.
Over the past the last forty years, the only inevitability about equality in the US, at least

economically, has been its steady decline. Democracy in America contains many prescient observations, but Tocquevilles theory about an irresistible progress towards greater equality of conditions led by the US has not fared well. Today, Tocquevilles old, aristocratic Europe is significantly more equal than the United States. The income gap narrowed after WWII and remained equitable until the late 1970s. Since then, the difference between the rich and poor in the US has steadily increased. This increase has been more pronounced in the United States than any of its democratic and developed peers.

Were Tocquevilles predictions premature or have the political circumstances changed?

Political scientists have struggled to grapple with the rise in income inequality due to the myriad of contributing factors. Since WWII the United States has undergone many cultural, political and economic changes. Still, those changes were not all relegated to the United States, but the US has seen an anomalous increase in income inequality compared to its peers. If US politics are to blame for its increasing income inequality, understanding the similarities and differences between countries polities helps to illuminate the cause.
A frequent scapegoat for the increase in income inequality is the rise in globalization. A

basic look at the United States compared with its peers undermines this theory. After-tax income inequality has been rising in the US disproportionately to its peers from 1979 until the mid 2000s. An American Political Science task force reported that: the top quintile has enjoyed more than 40 percent of income in the United States since 1947. What stands out over the past three decades is the sharp and unmistakable increase in the concentration of income at the top. (APSA 652) Although its concentration of wealth indicates that the United States was never as equitable as observers like Tocqueville believed, the recent trend towards greater inequality has been extreme. In 1915, Willford I. Kings influential The Wealth and Income of the People of the United States, one of the first systematic surveys of the U.S. economy, noted, with concern, that the richest 1.6 percent of the population controlled 19 percent of the income annually (King 239). Today, the top 1 percent control 23.5 percent annually, the highest proportion since 1928 (Hacker 15). Figure 1 shows the change in after-tax Gini coefficients since 1968 within the United States and comparable democratic and developed countries. The Gini coefficient, a common measure of inequality, represents the ratio between the amount of income earned by

each income bracket compared with the percentage of population.1 Based on their analysis of the Gini coefficient, comparativists Stepan and Linz observe that by 1968, equality had improved greatly, with the Gini index of inequality falling to .388, the best Gini ever recorded in the United States (Stepan 843). Figure 1 demonstrates that income inequality has increased since the 1970s and this upward trend is relegated to English speaking countries. Before the trend began, the United States was in the middle of its peers in terms of income inequality. Afterwards, the US had the highest Gini coefficient of all countries surveyed.
The United States exceptional growth in income disparity calls for a comparative

appraisal. If domestic policy drives income inequality, then certainly comparing the domestic policies of the US and its peers will provide insights into how and why inequality has risen. Has political polarization risen in other democracies? Has union density and bargaining strength declined as well? Are our political institutions, including polarization and the structure of our legislature, truly unique? Finally, are voters in the US just more accommodating of income inequality than voters in other democracies? Analyzing the cross-national differences in several domestic policy trends unravels the puzzle at why our political system has unexpectedly, at least to Tocqueville, failed in achieving greater income equality.

Its not the economy, stupid

The World Bank defines the scale of the Gini Coefficient as between 0, which reflects complete equality and 1, which indicates complete inequality (World Bank 1). The Gini ratio expresses the ratio of difference between the percentage of income controlled by each income bracket as compared with a line of perfect equality. The line of perfect equality would reflect every part of society controlling an equal percentage of the income.The ratio of the difference between these figures is the Gini coefficient. Small changes in the Gini coefficient can indicate large fluctuations in income inequality.
5

One explanation for the rise of inequality, often championed by conservative commentators, is that it inevitably results from globalization. However, the increase in income inequality has not occurred to the same extent among similarly globalized countries. Since 1978, the only countries to see a consistent increase in income inequality have been the United Kingdom and Canada. In fact, Finland, Sweden, and France have lower income inequality now then they did in 1968.
A change in a countrys Gini coefficient after government steps in does not indicate

whether rising income inequality has been the result of politics or economics. Figure 1 shows the Gini coefficient after taxes and redistribution. Since 1968, almost every country has seen its income inequality increase before government taxation and redistribution. Figure 2 illustrates how this trend has been almost universal among advanced democracies since 1975. The rise in pre-tax income inequality shows how underlying market trends contribute to income inequality. Figure 2 demonstrates that, while the market contributes to income inequality, pre-tax pretaxincome inequality can be corrected through politics. For example, the Netherlands and France have both seen distinct increases in income inequality before taxes, but decreasing income inequality after taxes.

Figure 1

Source: OECD Dataset Figure 2

Source: OECD Dataset

Tax policy profoundly affects the Gini coefficient. The differences between Figure 1 and

Figure 2 show the role that government has in shaping its countrys income distribution. Taxes and redistribution account for almost all the differences between countries Gini coefficients. Germany has an even higher income inequality before taxes than the United States, but after government redistribution it ends up in the middle of the pack. As indicated in Figure 3, the direct redistribution of income dramatically changes the United States position related to other nations. The US goes from being in the middle of income inequality among long-standing democracies to being the most unequal after taxes. Further 3 further indicates that the rise in income inequality is due to differences in how governments choose to redistribute income.

Figure 3:

Source: OECD Data

8

The difference between the tax policies of the United States and comparable democracies

has become more pronounced in the past forty years. In the mid 1970s, US tax policies were in line with that of other advanced democracies. In the 1980s, however, as pre-tax income inequality began to increase, almost all other advanced countries have met growing income inequality with greater government redistribution of income through taxes. This change is particularly evident when one looks at the changing tax rates for the top 1, .1 and .01% of wage earners over the past forty years. Figure 4 shows that, in the United States, tax rates have almost always been lowered since 1978. This impacts income inequality, because the economic growth of the global economy went increasingly to the top 1% of wage-earners during from 1978 onwards.

Figure 4: Changes in Total Federal Tax Rate

Source: Leonhardt 1

Understanding the changes that reduced inequality during the Great Compression helps to

illuminate what has happened since. In Conscience of a Liberal, Paul Krugman shows how the Great Compression, produced by the New Deals economic policy changes, was a defining event in American history (Krugman 39). Krugman argues that there was no trend towards income leveling out until the 1930s when, as a result of domestic policy, it happened quite suddenly. Krugman identifies tax changes as a principal cause of this decline in income inequality, noting that by the mid 1950s: The real after-tax incomes of the richest 1 percent of Americans were probably 20 or 30 percent lower than they had been a generation earlier. And the incomes of the really rich--say those in the top tenth of one percent-- were less than half what they had been in the twenties. (Krugman 42) Figure 5 reinforces Krugmans claim, showing the decrease in the amount of income controlled by the top .1% after the outbreak of WWII.
The diminishing tax rate for the top 1% helps to explain why the change in income

inequality is even more significant when one looks at what is happening with the top 1% of wage-earners in addition to the Gini ratio.2 The seminal study in US income inequality of the top 1% in the US is Thomas Piketty and Emmanuel Saezs work exploring after tax income changes in from 1913 until 2000. Piketty and Saez look at tax returns to construct a clear picture of the trend in changes in the top 1%, .1% and .01% share of national income and how it changed over the 20th century. While other income brackets have kept a largely similar share of the annual

The amount of income given to the top 1% has been demonstrated to correlate to higher rates of economic inequality in other measurements, including the Gini coefficient (Leigh 1).
10

income in the United States,3 the top 1% as a whole has seen its annual income share grow from 10% to nearly 25% in 2007 (Atkinson 6). Even more dramatically, the top .1% has gone from controlling 2% of the income in the 1960s to controlling nearly 6% in 1998 (Atkinson 1). Figure 5 demonstrates how this trend has been exceptional in the United States by comparing income controlled by the top .1% in the United States, United Kingdom and France. After closely following the trajectory of the United Kingdom and France, the .1% in the United States began to control an increasing share of annual income in the late 1970s. Figure 5 demonstrates that the top .1% has only dramatically increased its income share in the United States and the United Kingdom, with its increase being more extreme in the United States.

Figure 5: Top .1% Income Share in the US, UK and France

Source: Atkinson 720

3 33

This trend is reinforced by whats happened in the top 10% as well. Andrew Leigh shows that, in addition to the ratio getting larger in terms of the Gini coefficient, the top 10% has been earning more and more of the United States annual income. Leigh also illustrates that, by this metric, income inequality increased markedly in the past thirty years in the United States and other English speaking countries even as it has diminished among many of its peers (Leigh F595).
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In the late 1970s and 1980s, the market began creating much more significant pre-tax

income inequality everywhere. In Winner-Take-All Politics, Jacob Hacker and an Paul Pierson argue this increased inequality by concerted, active resistance in other countries, but in the United States these trends have preceded with little government interference (Hacker 52). After a careful review of the evidence, it seems that while the global economy did undergo profound shifts over the past forty years, those shifts alone do not account for the rise in income inequality. So, while driven upwards by broader economic trends, the United States exceptional income inequality is a result of domestic policy. Policymakers in the United States responded to growing pre-tax income inequality in an aberrant way, lowering taxes on the richest instead of raising them, and failing to meet increased economic hardship on the poorest Americans with government redistribution of income. Hacker and Pierson place the blame for growing income inequality squarely on the shoulders of the US political system, blaming drift. They define drift as the systematic, prolonged failures of government to respond to the shifting realities of a dynamic economy (Hacker 43). The United States had an anomalously high after tax income inequality because it did not adjust its tax policies and social spending. The question then is why the American political system alone failed to react.

Culture: Mass Attitudes, Misperceptions, and Voter Turnout

Conventional wisdom indicates that rising income inequality results from the American peoples unique tolerance for income inequality. Differentiating mass attitudes from political institutions is difficult because the nations political structures reflect and shape attitudes. Still, some, albeit weak, evidence suggests that culture and income inequality could be related. In addition to the
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difference between the English speaking countries and everyone else, there is a difference between continental Europe, Nordic countries, and Anglo countries. In an article entitled Inequality and Sociology, Lane Kenworthy examines how differently income inequality has grown in the three different cultural groups. Although separated by geography, the UK, Canada and the US all share a common cultural background. The difference between regions that share cultural similarities, particularly Anglo countries and everyone else, suggests that culture plays a role in income inequality.
The relationship between Nordic countries and low inequality similarly suggests that a

cultural correlation with income inequality. Even compared to continental Europe, Nordic countries have low income inequality. Nordic countries are anomalous in almost every metric related to income inequality: they have the highest levels of unionization, bargaining coverage, left-wing parties, voter turnout, and, as a result, the highest income equality. The confluence of all of these factors among a culturally similar region implies a relationship between culture and inequality. Figure 6 clearly demonstrates that different regions, which share common cultural backgrounds, have seen different trends in income inequality.

13

Figure 64:

Source: Kenworthy 591

One way to assess differences in culture is to assess differences in mass attitudes

regarding redistribution. In a analysis based on International Social Survey Program (ISSP) data, Ursula Dallinger finds that, outside of the United States, inequality tends to increase popular demand for redistribution (Dallinger 333). Why has the US not seen an increase in support for redistributionary policies along with an increase in income inequality? Comparing mass attitudes
4

The p90/p10 ratio is a ratio comparing the top 10% with the bottom 90%. In his analysis of the correlation between Gini coefficient and different measurements of inequality, Andrew Leigh finds there to be a strong correlation between a countrys p90/p10 ratio and Gini coefficient (Leigh F595).
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and behaviors between comparable nations should elucidate how culture influences inequality. US political culture could be at fault for increasing inequality for three reasons. Firstly, Americans could be exceptionally opposed to redistribution, perhaps due to an exceptional faith in economic mobility. Secondly, Americans could be exceptionally ill-informed as to the actual income distribution, and therefore lack the motivation to demand redistribution or a change in tax policy. Finally, declining voter turnout could reduce the demand for inequality reducing measures by distorting the preferences of high-income citizens.
Are Americans particularly opposed to government redistribution? In American

Exceptionalism: A Double-Edged Sword, published in 1997, Seymour Lipset represents the conventional wisdom and argues that Americans are uniquely opposed to government redistribution. Lipset affirms Tocquevilles claim that the United States is culturally exceptional in affirming the individual over the collective. He differentiates between equality of opportunity and equality of outcomes, arguing that Americans, when surveyed, choose the former. In Lipsets analysis, Americans, instead of choosing to help the less affluent by means of state solutions such as welfare, public housing, public employment, and medical care (Lipset 21), place undue importance on individual solutions to societal ills. Lipset argues that this preference results from a culture of anti-statism, the result of American deference to liberty throughout its history.
Similarly, in The American Ethos, Herbert McClosky and John Zaller reinforce Lipsets

differentiation between equality of outcomes and equality of opportunity. McClosky and Zaller argue that American opinion has, from the early days of the Republic, regarded equality of opportunity as a fundamental principal of the Republic (McClosky 88). Based upon contemporary surveys of American opinion, however, they find that this principle applies more to equality of opportunity than outcomes. McClosky and Zaller argue that the American public

15

changes it support for government pursuit of equality depending on whether they perceive that pursuit as a remedy to a political or economic problem. Americans favor political intervention to preserve equality, but oppose egalitarian intervention into the economy.
Some surveys on mass attitudes support the theory that Americans are less likely then

citizens of other countries to favor equality of outcomes. In one such survey, Alberto Alesina, Rafael Di Tella and Robert MacCullough compared voter surveys on happiness and inequality, broken down by levels of income.5 Their results indicate a divergence in American and Europeans perspectives on inequality, at least in terms of how it effects societal wellbeing. They found that, they find that left-wingers in Europe are more hurt by inequality than left-wingers in the US. And the poor in Europe are more concerned with inequality than the poor in America (Alesina 1). This data, measuring happiness, suggests that rising inequality has affected attitudes of the poor in in Europe and the United differently. However, it does not depict attitudes on redistribution. It also does not show whether the American public continues to oppose equality of outcomes during a period of rising inequality.
While interesting, Lipsets conclusions, and Alesinas observations, are undermined by

more recent studies. In her analysis of ISSP data, Leslie McCall undermines Lipsets theory by analyzing Americans understanding of the degree of income inequality over time. She argues data from 1987 to 2000 shows that despite the prevailing image that Americans are tolerant of inequality, well over half of the population thinks that inequality is too high, and more importantly, this share rose significantly over the period of rising inequality (McCall 1) In their study of attitudes towards income inequality, Lars Osberg and Timothy Smeeding also examine

5 Alesina

and his coauthors compare data from the United States Social Survey from 1972-1997, the Euro-barometer survey series from 1975-1992, and the changes in Gini coefficients over the years surveyed. The survey data from both the European and American examples can be compared levels of happiness and Gini coefficients.
16

survey data collected by the ISSP and compare American and European public opinions.6 They find little evidence for American exceptionalism in average attitudes (Osberg 451). Osberg and Smeeding explain that their survey data differs from those of their predecessors because prior comparativists measured attitudes about income inequality by emphasizing a presumed American belief in the ideology of mobility and opportunity (Osberg 450). That presumption led prior authors to conflate different questions on inequality.
Surveying inequality can range from surveying attitudes about the difference between

middle and lower class, redistribution, what people should earn, and the maximum and minimum people should earn. Osberg and Smeedings solution is to separate these questions out and survey each facet of inequality. They argue that the differences that authors like Lipset identified disappear in most measures of inequality. When asked whether income differences are too large, a majority of respondents in all nations agreed, and the United States actually had a higher percentage than the average indicating that they strongly agreed. On the basis of this more refined measurement, they conclude that the the United States is not a clear outlier when mean responses are compared across nations (Osberg 456).
Osberg and Smeeding also surveyed respondents on their perceptions of what people

should earn and what they believe people actually do earn. Osberg and Smeeding translated ISSP responses to the Gini index. The ratio used in Figure 7 gauges the average respondents belief in the fairness of their countrys economic system. Figure 7 shows that, in this measure, the United States is again in the middle with an average level of should learn inequality at about .35, very close to the European and all nations average of .34 (Osberg 461). Figure 7 shows a strong correlation between what respondents perceive people should and do earn, with
6

This data is also more interesting than that of Alesina and his coauthors because it draws from the same dataset and the same survey questions for Europe and the US.
17

an R^2 = .78. This indicates that 78% of the change in the average respondents perception of what the income distribution should be can be accounted by what they perceive to be the actual income distribution. Further, Figure 7 indicates that the United States is not more tolerant of income inequality than its peers. This seriously undermines Lipset and McClosky and Zallers premise that Americans do not favor equality of outcomes.

Figure 7: Relationship Between Perceptions on Redistribution and Perceptions of the Degree of Income Inequality

Source: Osberg 462

Osberg and Smeeding show that Americans are not less tolerant of government

redistribution, but mass attitudes could still be culpable. A better theory implicating mass

18

behavior is that Americans misperceive the extent of income inequality and therefore do not demand redistribution. Larry Bartels articulates this theory well, arguing that the lack of egalitarian sentiment in the US is due to Americans misperceptions of the actual income distribution in the United States. Bartels finds that when voters accurately perceive the degree of income inequality, they adjust their attitudes on redistribution accordingly, as evident in the section above. After examining survey data in the United States throughout the three decades that income inequality has been increasing, Bartels argues that public perceptions of economic inequality bear so little relationship to actual trends in inequality, that we must temper any overly optimistic assessment of the extent to which ordinary people are aware of changes in the relative fortunes of the rich and poor (Bartels 146).
Bartels demonstrates that, even during periods where income inequality had slowed

substantially, the public would perceive vastly higher income inequality than the year before. This leads Bartels to conclude that although Americans may express genuine allegiance to egalitarian values, they are not sufficiently attuned to the political debate to see how those values are implicated in major policy choices (Bartels 161). Bartels provides a plausible theory for why Americans may have normal attitudes towards redistribution, yet still do not demand a policy response to growing income inequality.
Similarly, the inherent structure of the American political system effects mass attitudes.

Larry Bartels explains that, because there are only two parties, the cost of casting a conservative vote is greater in the United States than systems with more moderate right-wing alternatives (Bartels 95). Based on cross-national evidence from voting patterns in 20 democracies, Bartels finds that, in the United States, the gap in right-wing electoral support between rich and poor voters was considerably larger (Bartels 95), than other countries. This

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strongly suggests that the two-party system in the United States has exacerbated polarization among voters, perhaps distorting their preference for redistribution.
The ISSP surveys apply to all Americans, but since the 1970s declining voter turnout has

changed the makeup of those Americans that vote, in a way that may make these prior studies of mass attitudes irrelevant. That decline has disproportionately been among low-income voters who would favor redistribution. Figure 8 shows that the United States low turnout is strongly related to its high income inequality. Low-income groups traditionally turn out less. This is problematic for supporters of greater redistribution because, as Vincent Mahler notes, if a larger share of the electorate participates in national elections, the preferences of low-income groups will be better reflected in public policies affecting earnings (Mahler 1041). This supports Nolan McCartys case that in the United States it is about who is voting rather than voters attitudes. He argues that while overall inequality has increased, the pressure for redistributive policies has been sharply mitigated by the fact that the income inequality of voters did not increase (McCarty 192). As low-income voters have stopped turning out to vote, support for redistributionary policies has decreased.
Income inequality has also changed mass attitudes towards political parties and the

political process. Pontusson and Rueda find that increased income inequality decreases political mobilization for left-wing parties and therefore empowers right-wing parties. In their estimation, based upon the authors statistical analysis of advanced democracies, low-paid workers are stuck in a vicious cycle in which Increasing inequality makes their preferences for redistribution stronger, but decreasing mobilization makes their demands less relevant to left parties, which in turn makes these parties less redistributive when they get to power and so

20

inequality continues to grow. Decreasing mobilization, moreover, makes right parties more likely to respond to inequality in accordance with the preferences of their core constituencies (that is, by opposing redistribution as inequality rises) (Pontusson 347). Income inequality decreases support for redistributive policies among the right and left alike as mobilization decreases, when poorer voters stop turning out. So, despite increasing demand among the base of left-wing parties for redistributive policies, declining turnout decreases their influence. So, increased income inequality has changed the composition of parties and reduced voter mobilization. This indicates that the conservative American electorate could be explained by decreasing turnout in elections. Even if American policymaking runs contrary to the economic interests of all constituents, it should better reflect the interests of those Americans that actually show up and vote.

Figure 8: Income Inequality by Turnout

Source: Mahler 131

21

The United States has an aberrantly low level of voter turnout and has seen a decrease

since 1960. Figure 9 shows that countries with higher voter turnout tend to be countries with lower income inequality, including Sweden, Germany, the Netherlands and Norway. In their research on the impact of declining voter turnout on leftwing parties, comparativists Jonas Pontusson and David Rueda found that even a very big increase in income inequality has no effect on the position of Left parties when low-income mobilization is limited (Pontusson 695). Further, based on cross-national evidence, they find that declining voter turnout has disproportionately been among low-income voters who would ostensibly favor redistribution. Figure 9 demonstrates that the decline in voter turnout has occurred over the same period as the rise in income inequality. Further, Figure 9 indicates that countries with lower Gini coefficients have not seen the same decrease in turnout as the United States. Turnout then evidences why increasing income inequality has not led to an increase in support for redistributionary policies or the enactment of those policies.

Figure 9: Voter Turnout from 1960-2000

Source: Pontusson 690

22

Why do low income voters abstain from voting? In their study on Inequality, Ideology

and Legitimacy in Europe, Christopher Anderson and Matthew Singer argue that not only does income inequality decrease voting turnout, it does so specifically to left-wing voters. Based on their cross national comparison of opinion polling and turnout data, the authors find that, to leftwing voters, inequality breeds discontent with the political regime (Anderson 583). This discontent is muted among those on the right (Anderson 564). Finally, Anderson and Singer find that discontent, or lack of trust, is highly correlated with declining voter turnout. This indicates that declining voter turnout is related to income inequality, either as a cause or an effect.
Turnout figures indicate that, even if mass attitude would support greater

redistributionary policies, voter turnout would mitigate those demands. Over the same period that income inequality has risen, voter turnout has decreased. Voter turnout has particularly decreased among poorer Americans. This trend has made government more responsive to the policy preferences of richer Americans as they make up an increasing percentage of actual voters. In other words, the lower voter turnout and lack of influence of voters on government is more important than citizens acquiescence to an unequal income distribution. Reduced support for more left-wing parties is the result of declining voter interest rather than a change in voters opinions.

The Decline of Unions and Collective Bargaining Coverage

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Declining levels of unionized workers helps explain diminishing voter turnout among lowincome voters. Reinforcing Hacker and Piersons theory that the decline of unions has led to a loss of a political rival to other special interests, Benjamin Radcliff and Patricia Davis find that declining unions has limited low-income voter turnout. Based on a study comparing rates of unionization among advanced democracies, they conclude that unions indirectly encourage turnout through their role as advocates for the interests of low- and middle-income citizens and serve as the most important political advocate for working people (Radcliffe 133). Looking at the change in union density over time, they find that, after examining numerous other potential causes of declining turnout, that the dramatic post-1960 decline of organized labor may also be an important cause of demobilization (Radcliffe 137). In summary, the loss of unions over the past forty years has made the voices of low-income voters even weaker.
Unions represent the interests of working class Americans. Paul Krugman argues that,

during the Great Compression, unions were the most important force in creating income equality. Unlike Hacker and Pierson, who argue that unions serve as an important counterbalance to business interests in affecting policy, Krugman sees unions as equalizing income between management and workers as well as raising the wages of blue-collar workers. In the 1950s, 40 percent of American private sector workers were unionized and 5 percent of public sector workers (Freeman 16). In the 1970s, Krugman argues that the collapse of the U.S. union movement that took place has no counterpart in any other Western nation (Krugman 151). Union density has reached a historic low in the United States, driven by political hostility to collective bargaining. Their decline along with inequalitys rise implies a relationship.
The evidence of the effect of union density on income inequality is more mixed than

Krugman suggests. Figure 10 shows that unionization rates have gone down gradually among

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most countries in the sample, with the exception of Nordic countries, where theyve continued to rise, and the UK, where they collapsed precipitously. After Margaret Thatcher reduced unionization in the UK, the union density there declined from 50% to 38% almost immediately. Figure 6 illustrates the wildly divergent levels of union density among long-standing democracies. The highly different rates of union density make comparison between countries difficult, though it does indicate that globalization does not necessary lead to collapse of unions. Nations with much higher unionization like Sweden, Finland, Norway and Belgium have high per capita incomes and are thoroughly integrated into the global economy.
Several cases also challenge the concept that union density alone significantly contributes

to income inequality. Although Canada and the United States both have relatively high Gini coefficients, Stepan and Linz note that between 1960 and 2005, the union share of wage and salary workers in the United States went from 30.4% to 12.5%, whereas in Canada, union share remained virtually the same, shifting only from 32.3% to 32.0% (Stepan 849). While these examples do not disprove the impact of unions on income inequality, they challenge a direct causal connection between a changing percentage of unionized workers and income inequality.

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Figure 10: Union Density, 1970-2000

Percent of Workers Belonging to a Union

90%

68%

45%

23%

0% 1970 France United Kingdom 1980 1990 United States Finland Source: Viser 2000 Germany Sweden

However, if one looks at the number of workers allowed to collectively bargain, as

opposed to mere union density, one finds a much stronger relationship with income inequality. This relationship is evident in Figure 11, showing the percentage of workers covered by a collective bargaining agreement. Collective bargaining is a better measure of the strength of unions then union density. For example, economist Richard Freeman demonstrates how France, which has the lowest union density in Europe, still has strong unions because labor law requires that most workplaces have designed union representatives with legal responsibilities (Freeman 18). This facet of union strength is conveyed in the percentage of workers covered by a collective bargaining contract, but not in union density. Lew Daly, a senior fellow at the Demos institute, observes that collective bargaining declined from a high of 29% in 1950 to a low of 15 percent in 1999 while in most European countries there was little or no change (Daly 1). As a result,

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Freeman observes that today the United States represents the decentralized extreme in wage setting (Freeman 19).
Collective bargaining coverage allows us to see how unions influence a countrys income

distribution and politics. The nations in Figure 11 with the highest percentage of workers covered by collective bargaining contracts corresponds with the countries with the lowest Gini coefficients. The correlation between the percentage of workers covered by collective bargaining agreements in a country and a countrys Gini coefficient is .67, indicating that collective bargaining explains 67% of the increase in a countrys Gini coefficient. This relationship is robust and statistically significant. 7 This provides strong evidence that collective bargaining coverage and Gini coefficients are correlated.
Lane Kenworthy goes so far as to argue that were the US to allow as many workers to

collectively bargain, there might well have been little or no rise in earnings inequality to explain (Kenworthy 595). His evidence for the importance of unions contrasts the case of the United States and the United Kingdom. Kenworthy argues that the uptick in income inequality in the UK is due to declining unions because: the United Kingdom was the sole country among these 10 in which collective bargaining coverage changed markedly during the 1980s and 1990s. It declined from 70% in 1978 to 47% in 1990 (Kenworthy 595). Collective bargaining coverage accounts for how unions raise wages for the average worker, even among workers not covered by a union contract. This, in turn, creates a more equal workforce.
A good example of the influence of collective bargaining coverage, rather than union

density, is in Germany. While only 30% of German workers are actually part of a union, the contracts that unions negotiate covers almost 80% of workers. This disparity indicates that
7

The p-value, or probability that this relationship is nonexistent, is .016. This is below the threshold for statistical significance.
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unions can have an outsized political result, influencing the labor market well beyond the actual workers in the union. The cross-national evidence strongly suggests that their decline in the United States has contributed to widening income inequality. Figure 11: Collective Bargaining Coverage and Income Inequality
0.40 0.95

0.34
Gini Coefficient, 1995

0.75

0.28

0.55

0.21

0.35

0.15

US

Japan

Canada

UK

Sweden

0.15 Finland

Gini Coefficient, 90s

Bargaining Coverage, 90s

Source: OECD Data on Gini Coefficients and Bargaining Coverage

The example of the UK, as well as the relationship between countries that have high

percentages of workers covered by collective bargaining agreements and low Gini coefficients, supports Krugmans theory that the decline of unions has contributed to income inequality. The relationship between the percentage of workers covered by collective bargaining agreements and income equality supports both Hacker and Pierson and Krugmans theories about why unions are important. Hacker and Pierson see the loss of unions as the loss of the most important lobbying

Percentage Covered by Collective Bargaining Agreement

28

force for the middle-class. Krugman argues that if there was a single reason blue-collar workers did so much better in the fifties than they had in the twenties, it was the rise of unions (Krugman 49). Krugman sees their most important influence in equalizing wages, which is measured by collective bargaining coverage.
The rise of unions accounted for the leveling of incomes after WWII, and the evidence

suggests that their declining influence has contributed to widening income inequality during the Great Divergence. The low percentage of workers covered by collective bargaining agreements shows the limited influence that unions have in the United States. The decline of unions helps to explain, or serve as a proxy for, the diminishing importance of the demands of the working class, including declining voter turnout. The United States may have low levels of unionization, but the decline in unions has been widespread across Europe as well, without an accompanied rise in inequality. The various exceptions and inconclusive statistical evidence prevents them from satisfactorily explaining the United States income inequality.

Institutional Explanations: The Number of Veto Players and the Unrepresentative Senate If mass attitudes and unions cannot fully explain the rise in income inequality, perhaps the system itself has made reducing inequality more difficult. Hacker and Pierson argue that our political system is prone to stasis and the protection of entrenched interests, which, although partly a result of our lack of a parliamentary system, has been exacerbated over the past thirty years by the rise of an astonishingly dynamic capitalism (Hacker 297). In their study of social expenditures and income inequality between several different countries, Jonathan Schwabish and his colleagues dispute this theory. They find that the US is not anomalous in terms of mass attitudes concerning redistribution, but rather in terms of the dissimilarities in institutions that
29

represent social and economic rights in the political arena which determines redistributive government spending (Schwabish 35).
Alfred Stepan and Juan Linz test the hypothesis by proposing that income inequality is

greater in the United States because of the number of its veto players. They rely upon the work of other comparativists in defining each electorally generated veto points as individual or collective actor whose agreement is required for a policy decision (Stepan and Linz 844). So, within the United States, the veto players would be the Senate, House of Representatives, President, and the ability of the public to ratify a constitutional amendment. Finding the relationship between the intrinsic stasis of the US system and comparable states is difficult., Stepan and Linz assess the state of the legislature in the United States, finding that the United States is politically exceptional in the high number of electorally based veto players who potentially can block social change, by blocking key bills or amendments (Stepan and Linz 844). Electorally generated veto players are anti-majoritarian features that constrain the ability of legislatures to enact legislation.
The United States is an outlier in the number of its veto players. Stepan and Linz theorize

that there is a positive correlation between the number of veto players in a political system and income inequality. This relationship is graphed in Figure 12. Stepan and Linz theory that the more veto players there are in a political system the more difficult it is to construct a win-set to alter the political status quo (Stepan and Linz 844). The number of veto players indicate that there are many places in the United States political system where important legislation could be blocked by minority interests. This provides an interesting piece of evidence contextualizing Hacker and Piersons drift theory. With many places in which legislation could be stopped, the structure of our government makes passing redistributionary policies more difficult than in other

30

longstanding democracies. Even if there were a relationship between Gini coefficient and veto players, Stepan and Linzs focus on veto players does not address the puzzle of why income inequalitys rise has been so pronounced over the past thirty years, because the basic structure of the United States political system has not changed.
The United States exceptional number of veto players do not explain its exceptional

income inequality. After running a regression analysis between a countrys Gini index and its number of veto players, shown in Figure 12, there is a correlation of 62%. This correlation barely meets the threshold for statistical significance. 8 In addition, problematically, when the United States is removed from the data set, the correlation between Gini coefficient and veto players is no longer statistically significant. That suggests that the United States is an outlier and that the relationship between Gini coefficient and veto players is not a satisfactory explanation for the United States income inequality. Figure 12: Relationship between Veto Players and Gini Coefficient
0.40 Gini Coefficient 0.34 0.28 0.21 0.15
US Italy Can. Germ. Bel. UK Swe.

4 3 2 1 0

Gini Coefficient, 2005

Veto Players

Source: Stepan and Linz 844

8

The p-Value, which indicates the probability that the regression is the result of random events, of the regression between Gini coefficients and veto players is .042. This indicates that the null hypothesis, or the probability of there being no relationship, is 4.2%. That is not very compelling evidence, but it is below the common threshold of .05. That indicates that the regression .62, while no robust, is statistically significant because we can reject the null hypothesis.
31

Number of Veto Players

The number of veto players alone cannot explain income inequality, but perhaps the

nature of the veto players themselves are to blame. One veto player that has changed since the Great Compression is the Senate. Examining the United States exceptionally unequal upper body better shows the substantial institutional barriers to dramatic legislation than the veto players. In Figure 13, the Senates uniquely unrepresentative structure is contrasted with that of eight other long-standing federal democracies. Figure 13 shows the difference between the best represented federal unit with the worst in and its relationship with inequality. Not only is the Senate the least representative legislature surveyed, higher Gini coefficients are correlated to low levels of representation in legislative bodies. A linear regression analysis of a nations Gini coefficient and its ratio of best to worst represented federal unit, suggests that there is a robust relationship between a lack of representation and income inequality. The r-value for the correlation between a nations lack of representation in its upper body and Gini coefficient is .72, indicating that a countrys lack of representation explains 72% of the increase in its Gini coefficient.9
Although the Senates lack of representation is not entirely new, it has escalated along

with population growth. In addition, Stepan and Linz argue that the Senate in addition to being the least representative, has the most power to induce inequality because of its ability to stop constitutional amendments that would make the political structures more representative and its ability to make federal appointments.

Given the low number of nations in this sample, 8, it is surprising that this regression model has a p-value of .007, well below the .05 needed for statistical significance. This indicates that there is a strong correlation that is not the result of a random distribution.
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Figure 13: Relationship Between Represenation and Inequality

Ratio of Best Represented to Worst District
33

0.4

70

0.3

53

Gini Coefficient

0.2

36

0.1

19

US

Switz.

Can

Aus.

Germ.

Spain

Bel.

Gini Index

Ratio of Representation

Source: Stepan and Linz 845

The Senate, perhaps the most influential veto player, has gotten more powerful due to the

rise of the filibuster. Stepan and Linz argue that in the latter half of the 20th century, the United States has undergone a process of de-democratization. Like Hacker and Pierson, they write that the rise of the filibuster has given the Senate the ability to stall legislation desired by even the majority of Senators, by making it difficult to pass legislation without the necessary 60 votes to break invoke cloture. This change makes the United States unique among its peers as no other democratic upper house in the world allows such unconstitutionally entrenched, minorityinduced vetos (Stepan 847). Figure 14 documents the number of times that cloture has been invoked to formally end a filibuster (Klein 1). From Figure 14, it is evident that cloture invocations have risen precipitously since 1990. Although this is an effective measure of the increasing usage of the filibuster, Figure 14 also underestimates its effects, because it only documents cloture votes. In so doing, it only accounts for the times in which a majority attempts

to break a filibuster by filing for cloture. The filibuster's normalization has made the lack of representation in the Senate even more severe over the past forty years. Since the 1980s, Senators have gained an powerful tool to prevent the passage of legislation.
Still, the United States has had its four electorally generated veto players since its

inception and the Senate has had distinctly undemocratic features throughout the 20th century, yet during the Great Compression its income inequality was comparable or even better than other advanced industrial democracies. This indicates that, after a careful examination of various institutional explanations, American institutions alone do not explain the growth in income inequality. The increasing usage of the filibuster is a problem, but it is not the primary culprit.

Figure 14

34

Source: Klein 1

Elite Politics: Polarization

Despite the filibusters impact in making the Senate even less representative, it alone could not create the growing income disparity in the United. Indeed, mass attitudes, unions, and institutions do not seem to account for the extremity of the United States rise in income inequality. The most compelling explanation, the unrepresentative Senate and the filibuster, points to another cause. The United States unequal political institutions empower the preferences of elites, whether political interest groups or politicians. In Elites and the Idea of Equality (1987), Sidney Verba and his coauthors analyze the difference between political elites in the US, Sweden and Japan. They find that almost all political groups oppose government redistribution, finding that no American group occupies the position of left groups in Japan or Sweden (Verba 85). Although Verba and his coauthors find that some American elites favor

35

equality of opportunity, they find that all American leadership groups-- including those farthest to the left-- [reject] radical redistribution and any policy directed toward equality of results (Verba 82). Over the past forty years the influence of political elites have been magnified by the more frequent use of the filibuster, decreasing voter turnout and confused mass attitudes on the degree of inequality. Verba and his coauthors research suggests that elite preferences are to blame for the United States exceptional income inequality.
Although there is limited evidence that polarization has increased in the American

populace, there is much stronger evidence for it being an elite phenomenon. In an article entitled Inequality as the Source of Political Polarization, Jonas Pontusson and David Rueda analyzed the ideological makeup of ruling parties from 1980 to 2000 and how that ideology is associated with wage inequality. Most importantly, they indicate that, even absent other variables like unionization and turnout more inequality is strongly associated with more partisan polarization (Pontusson 4) in the ruling party. Further, also they find that although wage inequality tends to be associated with left-skewed polarization (Pontusson 346) among political elites, it also diminishes the likelihood that constituents will actually vote. The increase in political polarization then worsens inequality because even as it should make the demand for redistribution stronger among the populace, it makes those preferences felt less by political parties.
In Unequal Democracy, Larry Bartels argues that once elected political elites in the

United States have considerable ideological latitude. Bartels finds that massive differences in the preferences of middle- and upper income constituents had less effect on senators policy choices than their own partisan ideologies (Bartels 287). Bartels finds this influence particularly strong in areas where voters have difficulty understanding, like tax policy. Even if the electorate

36

is getting more polarized on its own, political elites have dictated the actual policymaking. Morris Fiorina, in an article surveying the state of literature on mass polarization, finds that the most direct evidence-- citizens positions on public policy issues-- show little or no indication of mass polarization over the past two to three decades (Fiorina 20).
Figure 15 also shows that the rise of income inequality has directly coincided with an

increase in elite polarization, with both increasing dramatically after 1978. Nolan McCarty, Keith Poole and Howard Rosenthal effectively explain why elites, rather than voters, have been to blame. McCarty, Poole and Rosenthal find, like Fiorina, that voters have not shown any demonstrable increase in polarization. Instead, parties in the United States are particularly undisciplined, they argue, so politicians have had increasing motivation to defect from a party platform at the national median toward the position of the district median. (McCarty 192). This produces parties that are increasingly polarized from each other, as they do not reflect a national consensus. Similarly, politicians respond to moderate voters by asserting their own ideologies. McCarty and his coauthors summarize that if there is sufficient uncertainty about voter preferences, the distinct ideological preferences of politicians and the activist basses of each party will produce divergence in platforms (McCarty 192). Figure 15 shows the correspondence between the rise in income inequality and an increasingly polarized American political elite.

Figure 15

37

Source: McCarty 2

Polarization is among Hacker and Piersons chief culprits for drift as well. Over the past

forty years the House and Senates polarization has risen dramatically and for the past thirty that increase has been accompanied by corresponding increase in income inequality. The increasingly polarization of political elites effects our system more profoundly then others. They find that an increase in distortions of the other partys proposals and an increased recalcitrance in negotiation (McCarty 194). Such recalcitrance is particularly damaging in the American case due to its particular institutional structure. Compounding the problem, minorities in the Senate have slowly replaced the need for a simple majority to pass bills to requiring sixty votes by exploiting the threat of a filibuster. Hacker and Pierson concludes that, as a result, in a highly polarized political system, the rule of sixty is a recipe for frozen coffee (Hacker and Pierson 270).

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Cross-national evidence also suggests that polarization mitigates the the political

response to inequality. Henning Finseraas, analyzing 13 countries, examines whether rising income inequality increases the demand for redistribution after considering political polarization. To account influence of unions, Finseraas controls for union density in his statistical analysis.10 Finseraas uses survey data collected by World Values Survey, he finds that the interaction between inequality and polarization is negative in all models (Finseraas 288). In other words, he finds that an increase in political polarization decreases the degree to which voters demand redistributionary policies. Finseraas finds that, although the electoral system is important in determining the demand for redistribution, that polarization has an independent and robust effect. In addition, Finseraas evidence suggests that an increase in voter turnout does not increase the redistribution (Finseraas 300) when coupled with this level of polarization. 11 That is because party polarization, in and of itself, is so strongly correlated with a weaker relationship between income and leftism (Finseraas 283). Party politics, in other words, determine a governments level of redistribution.

Conclusion

10

Finseraas cites the superiority of union density over collective bargaining coverage because it varies over time, so that its effect can be estimated in a model with country-fixed effects (Finseraas 295).
11

Finseraas attributes this difference to his observance, unlike Kenworthy and Mahler, of country-fixed effects. This means that Finseraas, in his statistical analysis, assumes that there will be a connection between polarization and inequality, and so only considers the effects variables that have a demonstrable, fixed effect on the trend.

39

Tocqueville feared the emergence of a perfectly equal, democratic society in which all men would remain paralysed by a state of common ignorance and equal servitude (Tocqueville 37). Tocqueville predicted that the naturally unequal faculties of men would be equalized by government. The concept of American exceptionalism originated from Tocquevilles description of the unique American character. Thankfully, he wrote, the United States has the exceptional belief in liberty to temper this democratic impulse. Today, surveys indicate that American mass attitudes are unexceptional. As outcomes have become tremendously unequal and income inequality has risen precipitously, American mass attitude has naturally favored increasing distribution. Americans have not chosen to be exceptional unequal. It is the result of a myriad political trends.
What has changed since the late 1970s? Compared with other long-standing democracies,

in terms of its political institutions, the United States has a unique structure. It has the most of electorally generated veto players and the most unrepresentative upper body in its legislature (the Senate). This alone does not explain why income inequalitys rise. Although American institutions have become less democratic through the increased use of the filibuster and decreasingly representative senate, they have not fundamentally changed since Tocqueville visited in 1831. The filibuster may contribute to other causes, but reforming the filibuster would be insufficient to make the income distribution more equitable.
The declining strength of unions provides a better explanation. Unions have

fundamentally changed since over the course of the 20th century. Since the rise of unions under President Roosevelt significantly contributed to the narrowing of incomes after WWII, one would expect their decline to be connected to the widening income distribution. Today, the US has the lowest union density, other than France, and the lowest percentage of workers covered by

40

collective bargaining agreements, a good proxy for the unions political strength. The robust correlation between the amount of workers covered by collective bargaining agreements and the Gini coefficient strongly suggests that the decline of unions has played a significant role. Finally, the striking increase in political polarization among the elites and parties in the United States has made wide-reaching national legislation more difficult to pass.
The progress of equality may not be inevitable, but the rise of pre-tax income inequality

should have prompted a change in US tax policy. The dramatic rise in income inequality over the past forty years suggests that Tocquevilles fears about the demise of the aristocracy were exaggerated. A new aristocracy of decreasingly representative political elites and parties dominate the American political system. The checks and balances built into the American Republic, which Tocqueville lauded as ensurers of liberty, have enabled these elites to stymy any broad redistributionary measures. Among Tocquevilles most profound fears was that democratic institutions would enable a tyranny of the majority. Today, the tyranny of the majority is far from the problem in the United States today. Instead, a tyranny of minority, of political elites, empowered by the anti-majoritarian features of American institutions, have mitigated those demands. The divergence in political parties and elites has enabled the rise of income inequality by making redistribution, or indeed any broad policy initiatives, more difficult to accomplish. Hacker and Pierson aptly title this stasis drift. Their analysis of drift as the culprit for American inequality is born out by cross-national evidence. In addition to making the passage redistributionary policies less likely, elite polarization reduces turnout, which disproportionately effects low-income voters.
American policymakers have begun to recognize the problem. In his most recent State of

the Union address, President Obama identified economic inequality as the defining issue for our

41

time, and argued we can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by (Wallsten 1). To reintroduce fairness into the American economic system, Obama called for an increase of taxes on the very wealthy.
This is a start, as mass attitudes opposition to redistribution hinges on the average

constituents misapprehension of the extent of income inequality. Any campaign to reintroduce income inequality into the national conversation is progress, because income inequality is a political issue and it must be addressed with political reform. There is much we can learn from the experiences and policies of comparable nations, such as the importance of unions, unrepresentative institutions and polarization in contributing to inequalitys rise. The United States peers have avoided a divergence, with most showing little to no increase in income inequality over the past forty years. Increased income inequality should make the US government increase its income redistribution, but its uniquely unrepresentative Senate, coupled with the wide latitude afforded legislators, declining voter turnout, and declining unionization has mitigated those egalitarian demands.
As long as the United States remains so tremendously unequal, its motto E pluribus

unum, will not be fulfilled. Income inequality has profound societal ramifications. In The Spirit Level: Why equal societies almost always do better, Richard Wilkinson and Kate Pickett provide evidence that unequal societies have worse outcomes in health, social trust, and quality of life. They argue that, based on their statistical analysis, reducing inequality is the best way of improving the quality of the social environment, and so the real quality of life, for all of us (Wilkinson and Pickett 29). Even if their claim is too extreme, the correlations between

42

income inequality and a whole host of societal ills is difficult to ignore. A successful society is predicated upon an equitable division of income.

43

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