Institutions and economic inequality

The global rise of economic inequality has become an increasingly prevalent theme in the economics and sociology literatures. Much of the focus of this work has been on the uncovering of statistical evidence that economic inequality exists, and is increasing. A growing body of research including Jencks et al.(1979), Stiglitz (2013), Dorling (2010, 2014) and Piketty (2014) overwhelmingly suggests that overall improvements in aggregate wealth are in fact associated with increases in inequality. For example, the share of wealth in the United States enjoyed by the top 0.1% grew from 7% in 1979 to 22% in 2012 (Saez & Zucman, 2014). In 1965, CEOs of major American companies earned 10 or 18 times more than the typical worker, depending on the compensation measure; by 2012, it had increased to 202-to-1 or 273-to-1 respectively (Mishel & Sabadish, 2013). These figures become even more extreme in the financial sector. In 2004, for example, the combined income of the top 25 hedge fund managers was greater than the combined income of all CEOs of S&P 500 firms (Kaplan & Rauh, 2010). Further, of the top 0.1 percent of income earners, 18.4% worked in finance or were executives, managers and supervisors of financial firms (Bakija, Cole & Heim, 2012).The extreme levels of inequality are starkly borne out in the anti-poverty charity Oxfam’s (2016) report that the proportion of the world’s wealth owned by the top 1% has continued to dramatically increase. In fact, Oxfam reports that the 62 wealthiest people in the world own the same amount as the least well off 3.5 billion, or 50% of the world’s population. Further, the wealth of these 62 …