Rising Inequality and the Politics of Redistribution in Affluent Countries

We use data from the Luxembourg Income Study to examine household market inequality, redistribution, and the relationship between market inequality and redistribution in affluent OECD countries in the 1980s and 1990s. We observe sizeable increases in market household inequality in most countries. This development appears to have been driven largely, though not exclusively, by changes in employment: in countries with better employment performance, low-earning households benefited relative to high-earning ones; in nations with poor employment performance, low-earning households fared worse. In contrast to widespread rhetoric about the decline of the welfare state, redistribution increased in most countries during this period, as existing social-welfare programs compensated for the rise in market inequality. They did so in proportion to the degree of increase in inequality, producing a very strong positive association between changes in market inequality and changes in redistribution. We discuss the relevance of median-voter theory and power resources theory for understanding differences across countries and changes over time in the extent of compensatory redistribution.Lane Kenworthy is an associate professor in the Department of Sociology at the University of Arizona (lane.kenworthy@arizona.edu). Jonas Pontusson is a professor in the Department of Politics at Princeton University (jpontuss@princeton.edu). Earlier versions of this paper were presented at the Conference of Europeanists (March 2002), a workshop on the Comparative Political Economy of Inequality at Cornell University (April 2002), the annual meeting of the Society for the Advancement of Socio-Economics (June 2002), and a seminar at the Center for European Studies, Harvard University (December 2003). For criticisms and suggestions the authors thank Richard Freeman, Janet Gornick, Alex Hicks, Torben Iversen, Larry Kahn, Tomas Larsson, Jim Mosher, Nirmala Ravishankar, David Rueda, Tim Smeeding, John Stephens, Michael Wallerstein, Christopher Way, Erik Wright, and the Perspectives on Politics reviewers.