From the Economist's Leader (their editorials) this week, which points to the linked article:
- Few ideas are more unshakable than the notion that the rich keep getting richer while ordinary folks fall ever further behind. The belief that capitalism is rigged to benefit the wealthy and punish the workers has shaped how millions view the world, whom they vote for and whom they shake their fists at. It has been a spur to political projects on both left and right, from the interventionism of Joe Biden to the populism of Donald Trump. But is it true?
Even as the suspicion of free markets has hardened, evidence for the argument that inequality is rising in the rich world has become flimsier. Wage gaps are shrinking. Since 2016 real weekly earnings for those at the bottom of America’s pay distribution have grown faster than those at the top. Since the covid-19 pandemic this wage compression has gone into overdrive; according to one estimate, it has been enough to reverse an extraordinary 40% of the pre-tax wage inequality that emerged during the previous 40 years. A blue-collar bonanza is under way.
Across the Atlantic, such trends are more nascent, but still apparent. In Britain wage growth has been healthier at the bottom of the jobs market; in continental Europe wage agreements are building in higher increases for the lower paid. Long-running trends in inequality are being questioned, too. A decade ago Thomas Piketty, a French economist, became a household name by arguing that it had surged. Now increasing weight is being given to research which finds that, after taxes and government transfers, American income inequality has barely increased since the 1960s.
All this can be discombobulating, not least when the prices you pay for food and energy have risen at an unusually fast pace. So ingrained is the idea that workers are suffering in today’s world that claiming otherwise is almost heretical; the dissenting inequality research has sparked an ill-tempered debate among economists.
To understand what is going on, it helps to consider that the blue-collar bonanza is not just an artefact of the statistics: it makes intuitive sense, too. As we explain this week, three forces that shape labour markets—demand, demography and digitisation—have each shifted in ways that benefit workers.