United States income inequality: The concept of countervailing power revisited

ABSTRACT

This article uses some of the conceptual infrastructure associated with J.K. Galbraith’s “countervailing power” argument to explore the deep history of U.S. income inequality. Two explanatory variables—institutional power and distributive conflict—have played an integral role in the shifting patterns of U.S. income inequality since the late nineteenth century. The “commodified” power of large firms, manifested in aggregate concentration and the markup, exacerbates inequality while the “countervailing” power of organized labor, manifested in union density and strike activity, mitigates inequality. One implication of this research is that U.S. income inequality is unlikely to diminish unless the labor movement (or a comparable social movement) is strengthened.

KEYWORDS:

• Distribution
• distributive conflict
• income inequality
• institutional power
• market structure
• mergers and acquisitions
• union density
• work stoppages

JEL CLASSIFICATIONS:

• B52
• D3
• J5
• L1

Notes

¹Means (1972) retested his hypothesis four decades later and found that it had not been refuted. See Downward and Lee (1999, 2001) for additional confirmation and Means (1983) for a retrospective on the meaning of his findings.

²Eichner (1973, 1976) provided seminal insights on the linkages between organizational structure and market power. See Lee (1990) and Groves et al. (1989) for assessments of both Means and Eichner.

³A detailed explanation of the data sources and estimation techniques for this and subsequent figures can be found on the author’s Web site (www.jordanbrennan.org).

⁴Similar results can are be found for Canada in Brennan (2014, 2015).

⁵To simplify the analysis, the assets and income of the top 100 firms are treated as if they are entirely domestic.

⁶See Searle (2010) for a philosophical analysis of institutional (“deontic”) power.

⁷A more detailed explanation of this strike index can be found in the Appendix on the author’s Web site.

⁸This method of capturing the distributive struggle between workers and capitalists was first brought to my attention in Jonathan Nitzan’s graduate political economy seminar at York University in Toronto, Canada.

⁹Very similar relationships, disclosed in Brennan (2012), are present in Canada.