Matthew C Klein, Columnist

The Shocking Truth About Inequality

Economists have identified two basic reasons why income inequality has increased so much since the early 1970s.

March 28, 2013 at 6:59 PM UTC

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange. Before that, Klein was a research associate at the Council on Foreign Relations, where he spent more than two years studying the history of the Federal Reserve and the intellectual history of monetary economics for an upcoming book by Sebastian Mallaby. He also worked at Bridgewater Associates, where he studied the economies of Central and Eastern Europe and advised institutional investors on asset-liability management. Klein has a bachelor's degree in history from Yale University. Originally from Chicago, he lives in New York.

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Economists have identified two basic reasons why income inequality has increased so much since the early 1970s. On the one hand, globalization and technological progress have made certain skills much more valuable and others much less valuable. This has increased the spread between the incomes of high-earners, who are usually better-educated, and the rest.

At the same time, employers have been passing more risk on to workers. Except in the public sector, the promise of lifetime employment is dead. Defined-benefit pension plans have been mostly replaced by defined-contribution plans. Bonuses, stock options and other forms of profit-sharing have become increasingly important forms of compensation compared to traditional fixed salaries, especially for those at the top.