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<span id="openzim-page-title" class="mw-page-title-main"><span class="mw-page-title-main">Great Compression</span></span>

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<p>The <b>Great Compression</b> refers to the period of substantial <a href="Wage_compression" title="Wage compression">wage compression</a> in the United States that began in the early 1940s. During that time, <a href="Economic_inequality" title="Economic inequality">economic inequality</a> as shown by <a href="Wealth_distribution" class="mw-redirect" title="Wealth distribution">wealth distribution</a> and <a href="Income_distribution" title="Income distribution">income distribution</a> between the rich and poor became much smaller than it had been in preceding time periods. The term was reportedly coined by <a href="Claudia_Goldin" title="Claudia Goldin">Claudia Goldin</a> and Robert Margo<sup id="cite_ref-Noah_1-0" class="reference"><a href="#cite_note-Noah-1"><span class="cite-bracket">[</span>1<span class="cite-bracket">]</span></a></sup> in a 1992 paper,<sup id="cite_ref-Goldin_Margo_2-0" class="reference"><a href="#cite_note-Goldin_Margo-2"><span class="cite-bracket">[</span>2<span class="cite-bracket">]</span></a></sup> and is a takeoff on the <a href="Great_Depression" title="Great Depression">Great Depression</a>, an event during which the Great Compression started.

</p><p>According to economists <a href="Thomas_Piketty" title="Thomas Piketty">Thomas Piketty</a> and <a href="Emmanuel_Saez" title="Emmanuel Saez">Emmanuel Saez</a>, analysis of personal income tax data shows that the compression ended in the 1970s and has now reversed in the United States, and to a lesser extent in Canada, and England where there is greater <a href="Income_inequality_metrics" title="Income inequality metrics">income inequality metrics</a> and <a href="Wealth_concentration" class="mw-redirect" title="Wealth concentration">wealth concentration</a>. In France and Japan, who have maintained <a href="Progressive_taxation" class="mw-redirect" title="Progressive taxation">progressive taxation</a> there has not been an increase in inequality. In Switzerland, where progressive taxation was never implemented, compression never occurred.<sup id="cite_ref-3" class="reference"><a href="#cite_note-3"><span class="cite-bracket">[</span>3<span class="cite-bracket">]</span></a></sup>

</p><p>Economist <a href="Paul_Krugman" title="Paul Krugman">Paul Krugman</a> gives credit for the compression not only to progressive income taxation but to other <a href="New_Deal" title="New Deal">New Deal</a> and <a href="World_War_II" title="World War II">World War II</a> policies of President <a href="Franklin_D._Roosevelt" title="Franklin D. Roosevelt">Franklin D. Roosevelt</a>. From about 1937 to 1947 highly progressive taxation, the strengthening of unions of the New Deal, and the wage and price controls of the <a href="National_War_Labor_Board_(1942%E2%80%931945)" title="National War Labor Board (1942–1945)">National War Labor Board</a> during World War II, raised the income of the poor and working class and lowered that of top earners. Krugman argues these explanations are more convincing than the conventional <a href="Kuznets_curve" title="Kuznets curve">Kuznets curve</a> cycle of inequality driven by market forces because a natural change would have been gradual and not sudden as the compression was.<sup id="cite_ref-4" class="reference"><a href="#cite_note-4"><span class="cite-bracket">[</span>4<span class="cite-bracket">]</span></a></sup>

</p><p>Explanations for the length of the compression have been attributed to the lack of immigrant labor in the US during that time (immigrants often not being able to vote and so support their political interests) and the strength of unions, exemplified by <a href="Reuther's_Treaty_of_Detroit" title="Reuther's Treaty of Detroit">Reuther's Treaty of Detroit</a>—a landmark 1949 business-labor bargain struck between the <a href="United_Auto_Workers" title="United Auto Workers">United Auto Workers</a> union and <a href="General_Motors" title="General Motors">General Motors</a>. Under that agreement, UAW members were guaranteed wages that rose with productivity, as well as health and retirement benefits. In return GM had relatively few strikes, slowdowns, etc. Unions helped limit increases in executive pay. Further, members of Congress in both political parties significantly overlapped in their voting records and relatively more politicians advocated centrist positions with a general acceptance of New Deal policies.<sup id="cite_ref-5" class="reference"><a href="#cite_note-5"><span class="cite-bracket">[</span>5<span class="cite-bracket">]</span></a></sup>

</p><p>The end of income compression has been credited to "impersonal forces", such as technological change and globalization, but also to political and policy changes that affected institutions (e.g., unions) and norms (e.g., acceptable executive pay). Krugman argues that the rise of "movement conservatism"—a "highly cohesive set of interlocking institutions that brought Ronald Reagan and <a href="Newt_Gingrich" title="Newt Gingrich">Newt Gingrich</a> to power"—beginning in the late 1970s and early 1980s brought lower taxes on the rich and significant holes in the <a href="Social_safety_net" title="Social safety net">social safety net</a>. The relative power of unions declined significantly along with union membership, and executive pay rose considerably relative to average worker pay.<sup id="cite_ref-Krugman_6-0" class="reference"><a href="#cite_note-Krugman-6"><span class="cite-bracket">[</span>6<span class="cite-bracket">]</span></a></sup> The reversal of the great compression has been called "the <a href="Great_Divergence_(inequality)" class="mw-redirect" title="Great Divergence (inequality)">Great Divergence</a>" by Krugman and is the title of a <i><a href="Slate_(magazine)" title="Slate (magazine)">Slate</a></i> article and book by <a href="Timothy_Noah" title="Timothy Noah">Timothy Noah</a>.<sup id="cite_ref-7" class="reference"><a href="#cite_note-7"><span class="cite-bracket">[</span>7<span class="cite-bracket">]</span></a></sup>

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<ul><li><a href="Income_inequality_in_the_United_States" title="Income inequality in the United States">Income inequality in the United States</a></li>

<li><a href="Economic_history_of_the_United_States" title="Economic history of the United States">Economic history of the United States</a></li></ul>

<div class="mw-heading mw-heading2"><h2 id="References">References</h2></div>

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<li id="cite_note-Noah-1"><span class="mw-cite-backlink"><b><a href="#cite_ref-Noah_1-0">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://img.slate.com/media/3/100914_NoahT_GreatDivergence.pdf">The Great Divergence. By Timothy Noah</a>| slate.com</span>

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<li id="cite_note-Goldin_Margo-2"><span class="mw-cite-backlink"><b><a href="#cite_ref-Goldin_Margo_2-0">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://ideas.repec.org/a/tpr/qjecon/v107y1992i1p1-34.html">The Great Compression: The Wage Structure in the United States at Mid-century</a>, Goldin & Margo, <i>Quarterly Journal of Economics</i>. Volume (Year): 107 (1992)

Issue (Month): 1 (February). pp. 1–34</span>

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<li id="cite_note-3"><span class="mw-cite-backlink"><b><a href="#cite_ref-3">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://elsa.berkeley.edu/~saez/piketty-saezAEAPP06.pdf">Piketty and Saez. The evolution of top incomes: An international comparison.</a></span>

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<li id="cite_note-4"><span class="mw-cite-backlink"><b><a href="#cite_ref-4">^</a></b></span> <span class="reference-text"><a href="Paul_Krugman" title="Paul Krugman">Krugman, Paul</a>, <i><a href="The_Conscience_of_a_Liberal" title="The Conscience of a Liberal">The Conscience of a Liberal</a></i>, pp. 7–8, 47–52</span>

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<li id="cite_note-5"><span class="mw-cite-backlink"><b><a href="#cite_ref-5">^</a></b></span> <span class="reference-text"><a href="Paul_Krugman" title="Paul Krugman">Paul Krugman</a>, <i>The Conscience of a Liberal</i>, pp. 134, 138</span>

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<li id="cite_note-Krugman-6"><span class="mw-cite-backlink"><b><a href="#cite_ref-Krugman_6-0">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="https://krugman.blogs.nytimes.com/2007/09/18/introducing-this-blog/">introducing this blog</a> (see graph), Paul Krugman</span>

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<li id="cite_note-7"><span class="mw-cite-backlink"><b><a href="#cite_ref-7">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://img.slate.com/media/3/100914_NoahT_GreatDivergence.pdf">The Great Divergence By Timothy Noah</a></span>

</li>

</ol></div></div>

<div class="mw-heading mw-heading2"><h2 id="Further_reading">Further reading</h2></div>

<ul><li><a href="Evan_Osnos" title="Evan Osnos">Osnos, Evan</a>, "Ruling-Class Rules: How to thrive in the power elite – while declaring it your enemy", <i><a href="The_New_Yorker" title="The New Yorker">The New Yorker</a></i>, 29 January 2024, pp. 18–23. "In the nineteen-twenties... American elites, some of whom feared a <a href="Bolshevik_revolution" class="mw-redirect" title="Bolshevik revolution">Bolshevik revolution</a>, consented to reform... Under <a href="Franklin_D._Roosevelt" title="Franklin D. Roosevelt">Franklin D. Roosevelt</a>... the U.S. raised taxes, took steps to protect <a href="Labor_union" class="mw-redirect" title="Labor union">unions</a>, and established a <a href="Minimum_wage" title="Minimum wage">minimum wage</a>. The costs, <a href="Peter_Turchin" title="Peter Turchin">[Peter] Turchin</a> writes, 'were borne by the American <a href="Ruling_class" title="Ruling class">ruling class</a>.'... Between the nineteen-thirties and the nineteen-seventies, a period that scholars call the Great Compression, economic equality narrowed, except among Black Americans... But by the nineteen-eighties the Great Compression was over." (p. 22.)</li></ul></div><div><div class="zim-footer">

This article is issued from <a class="external text" title="Last edited on 2025-05-04" href="https://en.wikipedia.org/wiki/?title=Great_Compression&oldid=1288790755">Wikipedia</a>. The text is available under <a class="external text" href="https://creativecommons.org/licenses/by-sa/4.0/deed.en">Creative Commons Attribution-Share Alike 4.0</a> unless otherwise noted. Additional terms may apply for the media files.

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