Full Citation

Title: Reassessing the great compression among top earners: The overlooked role of taxation and self-employment

Citation Type: Journal Article

Publication Year: 2025

ISBN:

ISSN: 0014-4983

DOI: 10.1016/J.EEH.2024.101651

NSFID:

PMCID:

PMID:

Abstract: This paper provides new estimates of wage inequality in the United States from 1918 to 1949, leveraging a novel top-income methodology that integrates both tax records and census data. Our analysis reveals no sustained decline in wage inequality before the Second World War but a marked decrease during the war years. This decline was driven primarily by stagnation among the top 1 % of earners and significant wage growth at the lower end of the income distribution. However, the relative underperformance of the top earners was largely influenced by a major compositional shift triggered by unprecedented increases in corporate and personal income tax rates. These tax changes led to a shift in business preferences toward partnerships, resulting in a substantial transition from salaried employment to self-employment. This shift, previously overlooked in inequality studies, resulted in a 30 % overestimation of wage compression, significantly altering the wage distribution dynamics of the 1940s.

Url: https://www.sciencedirect.com/science/article/pii/S0014498324000779

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Authors: Artola Blanco, Miguel; Gómez-Blanco, Victor Manuel

Periodical (Full): Explorations in Economic History

Issue: 1

Volume: 96

Pages: 1-18

Data Collections: IPUMS USA - Ancestry Full Count Data

Topics: Labor Force and Occupational Structure, Poverty and Welfare

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