Consumer markets and national income inequality: A study of 18 advanced capitalist countries

Abstract

Sociologists have paid scant attention to the possibility that the structure of the macro-economy is an important determinant of income inequality. Although prior research finds negative links between the size of the public sector and income inequality, no study to date considers whether the size of consumer markets has distributional consequences as well. To investigate this possibility, the present study measures the size of national consumer markets with the System of National Accounts used by governments to calculate gross domestic product (GDP). Based on data from 18 advanced capitalist countries over nearly a 40-year period, two-way random effects regression models reveal a strong and positive link between the size of consumer markets and income inequality. This finding is robust to the inclusion of numerous control variables, and to the consideration of endogeneity within the causal relationship. The proposed theoretical explanation centers on ideas developed by Polanyi, and suggests that economic activity in consumer markets creates higher levels of individual differentiation, and hence higher levels of income inequality, than economic activity in other sectors of the economy. The study concludes by highlighting ways future research can advance our theoretical and empirical understanding of this topic.