 Reassessing the great compression among top earners: The overlooked role of taxation and self-employmentMiguel Artola Blanco and Victor Manuel Gómez-Blanco Explorations in Economic History, 2025, vol. 96, issue C 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. Keywords: Wage inequality; Great Compression; Self-employment; Corporate tax; Business preferences (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:exehis:v:96:y:2025:i:c:s0014498324000779 DOI: 10.1016/j.eeh.2024.101651 Access Statistics for this article Explorations in Economic History is currently edited by R.H. Steckel More articles in Explorations in Economic History from Elsevier |
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