Europe and America, Before and After Tax and Transfer
Reihan Salam wades into the inequality waters to make the important point that if looked at before taxes and transfers then European inequality has increased by a quite a lot during the same period US inequality increased. The reason actual European gini coefficients haven’t exploded as much is that European voters have elected politicians who engage in a great deal of income redistribution.
As illustrated by the Lane Kenworthy chart I’ve reproduced at the right, low-inequality countries tend to spend large sums of money on transfer payments that reduce the gini coefficient. I would further add that in many of these countries public services are simply of higher quality, which further diminishes the reality of post-tax inequality.
That said Tyler Cowen’s October 2007 post on this subject ended up concluding that Europe and the United States are pretty different after all (Alderson & Doran [PDF] “How Has Income Inequality Grown? The Reshaping of the Income Distribution in LIS Countries” offer a detailed analysis of the point):
One very eminent source emailed me and he wishes to stress that the (relatively) high level of the European Gini stems from higher levels of unemployment, whereas the relatively high level of the American Gini stems from the rich being very rich. He points out that although the final Ginis may be similar, the underlying patterns are very different and it would be misleading to conclude that America and Germany have ended up at the same pre-tax point. This is absolutely correct, my apologies if the post created a misleading impression.
However you slice it, there are fundamental differences in the labor markets. Corporate executives in the United States (and to a lesser though still noteworthy extent) are simply paid much more than non-Anglophone executives.
The labor market for CEOs remains a somewhat odd beast. Nokia has just this week announced the appointment of its first-ever non-Finnish CEO and he immediately hastened to identify himself with Finnish values and clarify that he’s Canadian, not American, despite having attended US universities and worked for a succession of US firms while living in the United States. In general, the trend seems to be toward increased globalization of the CEO market (at least as pertains to North America and Europe) but this is a process that’s been only very imperfectly undertaken at a time when we take for granted the internationalization of other aspects of corporate operations.