The purpose of this article is to explain and analyze long-term trends in economic inequality in developed countries since the industrial revolution. This essay focuses on inequalities within countries in order to narrow the scope, but also because of the lack of consensus in the literature regarding global inequality trends, due to different data sources and research methods. Studying economic inequality within the country also allows for a better empirical assessment of the role of markets and country-level shocks. Focusing on high-income countries (with similar technological and productivity developments) helps shed light on the role of institutional and political differences that explain the reasons behind different patterns of income inequality, particularly at the highest levels. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay This essay will use the Kuznets wave concept developed by Milanovic in response to two of the most important analyzes of long-term trends in economic inequality developed by Kuznets and Piketty. The first Kuznets wave occurred from the beginning of the industrial revolution until about the 1980s, and the second from the 1980s onwards. Both waves are characterized by a period of increasing inequality (in the first wave, inequality peaked in the late 19th century and early 20th century), followed by a decrease. This article will first demonstrate that changes in inequality have taken place influenced by wars and subsequent political choices. Then, it will analyze the role of capital and taxation in determining long-term trends in economic inequality. Finally, it will demonstrate that labor market and bargaining power have historically had an impact on economic inequality. Changes in economic inequality have been influenced by wars and subsequent political changes. Historically, war has been recognized as an enabler of economic equality. According to Ricardo, public financing of war, particularly through taxation of the rich, increases employment (e.g., that of soldiers), raises wages, and reduces economic inequality. Piketty argues that there was no structural decrease in inequality before World War I and that economic inequality stabilized at a very high level between 1870 and 1914. Kuznets believes that the sharp decrease in inequality in the United States between 1913 and 1948 (the richest 10% went from according to which 40-45% of annual national income will go to 30-35% during this period) due to shocks related to the Great Depression and World War II. Piketty proposes a political theory to explain the process by which the two world wars reduced economic inequality within rich countries. According to him, wars led to the increase of taxes, the destruction of property and the reduction of large fortunes. For example, he argues that the concentration of capital decreased irreversibly after the wars because the most important properties of the French estate around 2000 were worth even less than before 1914. Furthermore, the endogeneity of the wars is an important aspect to consider . when analyzing the relationship between war and economic inequality. According to Milanovic, the outbreak of the Great War and the reduction of inequalities in the post-war period are not to be analyzed as an exogenous shock that reduces economic inequalities. The First World War broke outin an environment characterized by high internal inequality, high savings among the rich, low aggregate demand, and the search for new sources of profit that required the control of other countries. Therefore, war should be endogenized into the economic conditions preceding it. Furthermore, policies adopted following the shocks of war constitute another inequality-reducing aspect of the first Kuznets wave (from the industrial revolution to the 1980s). Piketty argues that along with the shocks of the war, the shock resulting from the socialist and communist parties that led to pro-labor legislation also contributed to the decrease in inequality. Furthermore, Milanovic considers social pressure through politics (socialism and trade unions), the need for social protection (resulting from an aging population), as well as widespread education, as inimical forces that reduced inequality after World War I . , as argued by Goldin and Katz, was effective in reducing inequality during the first Kuznets wave because the inequality-reducing effect of education was greater than the inequality-increasing effect of skill-oriented technological change (which became the strongest effect after the 1980s). These policy changes then helped reduce economic inequality in rich countries until the 1980s. Thus, the shocks of wars and subsequent political changes played an important role in reducing economic inequality during the first Kuznets wave. Changes in economic inequality in advanced economies have also been shaped by capital accumulation and changes in fiscal policies. Capital plays an important role in explaining long-term inequality trends in advanced economies. The reduction in economic inequality during the first Kuznets wave was characterized by a decrease in the share of capital income: the United States experienced a 17% decline in the share of capital income between 1916–1939 and 1987–2010 ; while in the UK it rose from 60% in 1937 to 20% in 2000. However, according to Bourguignon, since 1980, the share of income from capital has increased more rapidly than that from labor (i.e. wages). This can be partly explained by the fact that new technologies increase the share and return of capital. Furthermore, as capital income is increasingly concentrated, wealth concentration has become a related problem. The change in the shares of top income earners largely reflects changes in capital income flows. Based on pre-tax market income before transfers per household reported on tax returns, the share of total annual income received by the top 1 percent more than doubled, from 9 percent in 1976 to 20 percent in 2011. Increasing the share of the top 1% has had a notable effect on overall income inequality in the United States. Furthermore, according to Piketty, this increase in inequality reflects important information: the return of high capital-income ratios since the 1980s can largely be explained by the return to a relatively slow growth regime that increases the risk of divergence in the distribution of wealth. This is because in a slow growth regime, past wealth takes on disproportionate importance (because a small flow of new savings is enough to increase the stock of wealth) and the rate of return on capital often remains significantly above the growth rate . Fiscal policy plays a crucial role in determining inequality trends. The fact thatthat high-income countries characterized by similar technological and productivity developments have undergone different patterns of income inequality at the top supports the idea that institutional and political differences – particularly differences in fiscal policy – ​​play a key role in these transformations . After 1945, tax rates on the highest incomes were much higher than today (for example, tax rates in the United States in 2010 were half of those in the 1950s), which explains the lower shares of the highest incomes high of the time. Tax reforms in the name of economic liberalization caused the top marginal tax rate to fall from 70% to 40% in the United States during the Reagan administration (1980-1984) and in the United Kingdom from 83% to 60%. % in the United States. first year of Thatcher's government. These reforms have led to an increase in pre-tax income (as well as their share and concentration) and the expansion of financial services. Furthermore, due to globalization and information technology, capital has become increasingly mobile, making it more difficult for the rich to collect taxes accurately – especially by the wealthy – and thus perpetuating inequality. Therefore, the increase in inequality after 1980 can be partly attributed to capital accumulation, particularly among the highest earners, as well as fiscal policies. Finally, changes in the labor market and bargaining power have historically impacted trends in economic inequality. The impact of unionization on income distribution – although heterogeneous across countries and often endogenous to income inequality – is an interesting aspect to consider when studying long-term inequality trends. Since the 1980s (i.e. the beginning of the second Kuznets wave), the development of the service sector has led to a wider physical distribution of employment, making workers' organizations increasingly difficult to organize or less relevant, leading thus to fewer trade unions density. The decline in the popularity of unionization can also be attributed to the Thatcher and Reagan administrations, to increased competition that reduces the practicality and success of unions negotiating with employers, and to disinflation, which leads to individual wage negotiations that ensure greater individual utility versus collective bargaining, which would often rely on changes in inflation. In the case of the United States, Freeman attributes 20% of the increase in wage inequality among men to deunionization and, examining the experience of all workers in 16 OECD countries during the 1980s, shows that the recovery in wage inequality at the sectoral level it was less pronounced in highly unionized countries. Furthermore, the shift to service economies has led to the creation of extremely well-paid jobs, particularly in the financial sector, which benefit from high bargaining power, which exacerbates inequalities. The deregulation and globalization of finance has had a major inequality effect: in France and the UK, the financial sector accounts for 5% of jobs, but accounts for 18% of very high incomes. Financial liberalization has increased the profitability of financial wealth through an outsized expansion of investment opportunities and in part by inflating the compensation of the minority who direct and manage these innovations. Importantly, while the density and bargaining power of unions decreased, the bargaining power of those at the top increased significantly, thus strengthening the.