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Methods Long run wealth Gender Conc Income Inequality in France, 1900-2014: Evidence from Distributional National Accounts Bertrand Garbinti 1 , Jonathan Goupille-Lebret 2 and Thomas Piketty 3 1 Banque de France, Crest 2 PSE, INSEAD, 3 PSE

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Methods Long run wealth Gender Conc

Income Inequality in France, 1900-2014: Evidence from Distributional National Accounts

Bertrand Garbinti1, Jonathan Goupille-Lebret2 and Thomas Piketty 3

1Banque de France, Crest 2PSE, INSEAD, 3PSE

December, 15th 2017

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Methods Long run wealth Gender Conc

Motivation

  • Large disconnect between the study of inequality and macro
  • Macro: national accounts with no distribution information
  • Inequality: surveys and tax data data inconsistent with national

aggregates

  • Multi-country project: Distributional National Accounts (DINA)
  • Provide long-term series on distribution of income and wealth
  • Homogeneous across countries and over time
  • Consistent with National Income and Wealth Accounts
  • Covering all the distribution from bottom to top
  • For France: two papers (Three very soon)
  • Last year: Wealth
  • Today: Pre-tax Income Inequality
  • Spring 2018: Post-tax Post-transfer Income Inequality

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Methods Long run wealth Gender Conc

Research question

What is the evolution of income inequality in France?

1 Methodological contribution:

  • Reconciliation of micro data with national accounts
  • detailed breakdown by age, gender, income categories for 1970-2014

2 Empirical contributions:

  • Long-term evolution of income inequality (1900-2013)
  • Correlations between labor income and wealth
  • Gender inequality

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Methods Long run wealth Gender Conc

Outline

Data and methodology The long-run picture Correlation between labor income and wealth Labor income: the limited decline of gender inequality Conclusion and perspectives

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Methods Long run wealth Gender Conc

Data and methodology

  • Data sources
  • Annual exhaustive tabulations from 1915 to 2014
  • Microfiles of income tax returns: 1970-2014
  • Houshold surveys 1970-2013 (Wealth surveys and Housing surveys)
  • Concept of income
  • Pretax national income: Income before all taxes and transfers, except

pensions and unempl.insurance

  • Equal-split-adults series: income of married couples divided by two
  • Methodology
  • Start from fiscal income reported in tabulations or microfiles
  • Impute missing components such as to match pre-tax national income

social contributions, imputed rents, retained earnings, corporate tax, production taxes, etc.

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Methods Long run wealth Gender Conc

The long-run picture 1/2

  • Our DINA results confirm previous findings based on fiscal income
  • Major long-run transformation: rise of the bottom 50% and the middle

40%, and decline of the top 10%

  • Long-run evolution far from steady: it can be splitted into four time

periods: 1900-1945, 1945-1968, 1968-19833 and 1983-2013

  • huge inequality fall 1914-1945 (capital shocks)
  • rise 1945-1968 (reconstruction of wage hierarchy and capital share)
  • decline 1968-1983 (compression of wage inequality, steep rise of

minimum wage, declining capital shares)

  • rise since 1983

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Methods Long run wealth Gender Conc

10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Income shares in France 1900-2014

Top 10% Middle 40% Bottom 50%

38 810 € Distribution of pretax national income (before all taxes and transfers, except pensions and unempl. insurance) among adults. Equal-split-adults series (income of married couples divided by two). Average national income per adult (2014) : 34 580 € 15 540 € 112 830 €

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Methods Long run wealth Gender Conc

The long-run picture 2/2

  • DINA estimates allow us to better analyze both the long run pattern as

well as the recent trends

  • How has the growth rate varied along the income distribution over time?
  • Recent evolution of very top incomes since 1983?

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Methods Long run wealth Gender Conc

0 € 5 000 € 10 000 € 15 000 € 20 000 € 25 000 € 30 000 € 35 000 € 40 000 € 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 The uneven rise of per adult national income in France, 1900-2014 (€ 2014)

National income divided by adult population. National income = GDP - capital depreciation + net foreign income. Average national income per adult (2014) : 34 580 € 1900-1945 : -0.1% 1945-1980 : +3.7% 1980-2014 : +0.9% Real growth rate 1900-2014 : +1.9%/year

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Methods Long run wealth Gender Conc

  • 2,0%
  • 1,0%

0,0% 1,0% 2,0% 3,0% 4,0% 5,0% P20 P30 P40 P50 P60 P70 P80 P90 P99 P99,9 P99,99 Annual real growth rate by time periods in France

1900-1950 1950-1983 1983-2014

Average annual real growth rates of pre-tax per adult income by percentiles (growth incidence curves). Equal-split-adults series (income of married couples divided by two).

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Methods Long run wealth Gender Conc

90 100 110 120 130 140 150 160 170 180 190 200 210 220 1983 1988 1993 1998 2003 2008 2013 Rising top income inequality in France, 1983-2014

Distribution of pretax national income (before all taxes and transfers, except pensions and unempl.insurance) among adults. Equal-split-adults series (income of married couples divided by two). Top 0.1% Top 10% Income shares 1983 = 100 Top 1% Bottom 90%

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Methods Long run wealth Gender Conc

Correlation between labor income rank and wealth rank

  • positive correlation between labor income and wealth, particularly for

top percentile ranks

  • But the probability for top labor earners to belong to top wealth groups

has declined regularly since the 1970s

  • Two contradictory effects:
  • Rise of top labor income shares make it easier for top labor earners to

accumulate large wealth holdings

  • Very large rise in the aggregate wealth-income ratio and the aggregate

inheritance flow makes it more difficult for top labor earners with no family wealth to access top wealth groups

  • Our results suggest that the second effect tends to dominate

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Methods Long run wealth Gender Conc

10 20 30 40 50 60 70 80 90 100 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Average fractiles of wealth Fractiles of labor income

Labor income rank vs mean wealth rank

1970 1990 2010

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Methods Long run wealth Gender Conc

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 1970 1975 1980 1985 1990 1995 2000 2005 2010

Fractiles of labor income Probability for top labor earners to belong to the top 1% wealth group Top 0.5% Top 1% Top 10-1% Middle 40%

Top 0,5% labor earners have a 23% probability to belong to top 1% wealth group Top 0,5% labor earners have a 39% probability to belong to top 1% wealth group

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Methods Long run wealth Gender Conc

Labor income: the limited decline of gender inequality

  • Gender gap: take into account all men and women in a given age

group, whether they work or not

  • French labor model around 1970 appears clearly as a “patriarchal”

model, with men earning 3.5 to 4 times more labor income than women

  • Main change over the period: large rise of female labor market

participation ⇒ decline of gender inequality

  • But gender inequality still very high at the top: women still do not

access higher-paying jobs

  • If we extrapolate from the recent trends, one would need to wait 2102

for women to reach 50% of top 1% labor earners, 2144 to reach 50%

  • f top 0.1%

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Methods Long run wealth Gender Conc

1,0 1,5 2,0 2,5 3,0 3,5 4,0 25 30 35 40 45 50 55 60 65

Gender gap by age, France 1970-2012

1970 1984 2000 2012 Ratio between average labor income of men and women by age (incl. non participants). Labor income includes wages, pensions, unemploy. insurance and 70% of mixed income.

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Methods Long run wealth Gender Conc

40% 50% 60% 70% 80% 90% 100% 1970 1975 1980 1985 1990 1995 2000 2005 2010

Labor market participation by gender, France 1970-2012

men Women Fraction of men and women 25-to-65-year-old with positive labor income. Labor income includes wages, pensions, unemploy. insurance and 70% of mixed income.

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Methods Long run wealth Gender Conc

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Share of women in fractiles of top labor incomes in France, 1970-2012

Top 50% Top 10% Top 1% Top 0.1% Share of women in top 1%: 10% in 1994, 16% in 2012, 50% by 2102 ? Top 0.1%: 50% by 2144?

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Methods Long run wealth Gender Conc

Conclusion and perspectives

  • Reconciliation of data sources to build consistent income inequality

series over the 1900-2014 period

  • 100% consistent with National Accounts
  • Covering all the wealth distribution
  • Main findings:

1 Large changes in income inequalities: product of changes in institutions

and public policies rather than natural economic “laws”

2 Rise of very top incomes since 1980s 3 It has become inreasingly difficult in recent decades to access top wealth

groups with labor income only

4 Declining gender inequality. . . but not so much for high wages

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Appendix

Appendix

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Appendix

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Figure C3. Income shares: tabulations vs micro-files (equal-split individuals, fiscal income excl. cap.gains)

Top 10% (micro-files) Top 10% (tabulations) Middle 40% (micro-files) Middle 40% (tabulations) Bottom 50% (micro-files) Bottom 50% (tabulations)

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