Inequality: traditional drivers and the role of union power

We examine the factors explaining the increase in gross and net income inequality in advanced economies since the 1980s. Our results support the view that globalization, technological progress, financial deregulation and lower top marginal tax rates are associated with higher inequality, and we find that the relation between the decline in union density and the rise in top decile income shares—a phenomenon which labour economists have long been discussing—is widespread across advanced economies. The influence of union density on top income shares appears to be causal, as evidenced by our instrumental variable estimates and the inclusion of potentially omitted variables.