Economic Inequality in a New Gilded Age

Abstract

There is little debate that economic inequality is on the rise. Over the past six decades, both wealth and income have become more concentrated in fewer hands. According to recent data, the top 10 percent of income earners now possess nearly 40 percent of all available national income. Similarly, the top 10 percent of the wealthiest individuals and families in the United States now hold 50 percent of the nation’s available wealth. Similar trends can be seen in other developed economies across the world.

As income and wealth disparities have increased over the past few decades, another interesting economic development has emerged: an increase in market consolidation across the globe’s most advanced economies. There is increasing evidence that firms today are far less constrained than in decades past. As a result, there has been a significant decrease in the number of competitive firms, as leading companies across industries have merged at an alarming rate. This increase in consolidation has enormous impacts on societies and economies as a whole.

Throughout my thesis, I examine these two trends simultaneously to answer the following question: Does market consolidation have a discernable effect on income and wealth inequality? Using market concentration as a proxy for market power, I dive into the economic effects that such market power has on economies and societies at a macroeconomic level across 32 OECD countries. Throughout my analysis, I find that market concentration does have a demonstrable, negative association with both income and wealth equality. That is, there is sufficient evidence to suggest that an increase in market power plays a critical role in driving economic inequality. Using the Herfindahl-Hirschman Index, I estimate both OLS models and Fixed Effects models to further substantiate my hypothesis that market concentration does, in fact, contribute to income and wealth disparities.