Wealth Inequality Trends in Industrializing New England: New Evidence and Tests of Competing Hypotheses

Abstract

This paper assembles new data and new methods for studying wealth inequality trends in industrializing America. Records of household heads from the census matched with real and personal property tax records for Massachusetts reveal that the Theil entropy measure of inequality approximately doubled over the period from 1820 to 1910, a gain that was divided about evenly between the antebellum and the postbellum periods. A surge between 1870 and 1900 dominated the growth in inequality following the Civil War. Decompositions of changes in the Theil entropy measure reveal that during both periods, inequality was increasing due to the shift of the population out of rural areas and agriculture into urban areas where wealth was less equally distributed. But the increases in inequality were also due to increasing inequality within population groups. Between 1870 and 1910, inequality was growing within occupations, age groups, and the native-born population. Proposed labor market explanations, including sectoral shift that led to higher wages in non-agricultural relative to agricultural sectors, biased technological change, and immigration are inconsistent with the fact that inequality between occupational groups was declining in the last decades of the century. Wealth accumulation patterns by age are also inconsistent with the hypothesis of child default on responsibilities for old age care, at least during the second half of the nineteenth century. To explain the salient facts, we are led to propose a new explanation based on luck, rents and entrepreneurship.