America: As Egalitarian as Germany, Sort of

I was surprised to discover that U.S. market income (i.e., pre-tax) inequality is lower than the U.K.’s, the same as Germany’s, and only slightly higher than Sweden’s, as can be seen in this chart (click for full size):

Pre-Tax and Disposable Income Inequality

This is from Brandolini and Smeeding’s 2007 “Inequality Patterns in Western-Type Democracies: Cross-Country Differences and Time Changes” [pdf]. While the U.S. pre-tax Gini is still on the high side of the median of these 16 OECD countries, it is remarkable how much differences in tax and transfer policies push the U.S. to the top in inequality in disposable income. This is striking to me because, at a glance, it suggests that the U.S. is not all that distinctive in the way the basic structure of the economy affects the distribution of market income. Unions in Germany and the U.K. are rather more powerful than in the U.S., but (again, at a glance) appear to do nothing to reduce inequality relative to the U.S. Of course, eyeball empiricism isn’t dispositive. But it seems to me to fit pretty well with the weak effect of the relationship between declining unions and rising inequality found in other research, and suggests that the structure of basic American political-economic institutions is not especially conducive to inegalitarian outcomes.

After reading David Sirota’s response to Alan Greenspan’s suggestion for reducing inequality discussed in this Free Exchange post, it occurred to me that unions may play the same special role for some folks on the left that tax cuts play for some folks on the right: whatever is good, more unions (or tax cuts) will bring it about.

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