The Drivers of Income Inequality in Rich Countries

Rising income inequality has recently come centre-stage as a core societal concern for rich countries. The diagnosis of the forces driving inequality upwards and their relative importance remains hotly contested, notably with respect to the roles of globalization versus technology and of market forces versus institutions and policy choices. This survey provides a critical review and synthesis of recent research. The focus is on income inequality across the entire distribution, rather than only on what has been happening at the very top. We pay particular attention to including what has been learned from the analysis of micro-data, to ensuring that the coverage is not unduly US-centric, and to analyses of the interrelations between the different drivers of inequality. The marked differences in inequality trends across countries and time-periods reflect how global economic forces such as globalisation and technological change have interacted with differing national contexts and institutions. Major analytical challenges stand in the way of a consensus emerging on the relative importance of different drivers in how income inequality has evolved in recent decades.