Piketty & Saez: Income Inequality in the U.S. 1913-1998 (2003)
The Point: Nearly half a century later, this paper responds to Simon Kuznets' findings. Saez and Piketty find that over the course of the twentieth century, top income and wage shares in the United States display a U-shaped (not an inverse U-shaped) trend. Their reasoning is that shocks to capital owners during the Great Depression and World War II lowered inequality for a period, but top wage shares began to rise again beginning in the late nineteen sixties.
The Quote: "We have constructed annual series of shares of total income accruing to various upper income groups fractiles within the top decile of the distribution. For each of these fractiles we also represent the shares of each source of income such as wages, business income, and capital incomes. Kuznets did produce a number of top income shares series covering the 1913-1948 period, but tended to underestimate top income shares and the highest group analyzed by Kuznets is the top percentile. Most importantly, nobody has attempted to estimate, as we do here, homogeneous series covering the entire century. Second, we have constructed annual 1927-1998 series of top shares of salaries for the top fractiles of the wage income distribution based on tax returns tabulations by size of salaries compiled by the IRS since 1927...Finally, in order to complete our analysis of top capital income earners, we have also used estate tax returns tabulations to construct quasi-annual series (1916-1997) of top estates" (2).
The Data: Saez and Piketty built a new homogenous data series looking at top shares of before tax incomes and wages in the United States over the period 1913 -1998. The series is largely based on tax return data from the Internal Revenue Service (IRS).
You can find a copy of the paper here.
Citation: Piketty, Thomas, and Emmanuel Saez. "Income Inequality In The United States, 1913–1998*." Quarterly Journal of Economics 188, no.1 (2003): 1-39.
