Why American Families' Incomes Rise When Dems are in Office and Fall with the GOP

Last week I posted Larry Bartels' instantly famous graph -- you know, the one that showed when Democrat presidents are in power, people on the bottom of the income scale experience larger real income gains than those on the top, while when Republicans are in power, the situation is reversed. It also showed that Democrat presidents are associated with higher income gains for all income groups.

Several observers questioned what causal mechanism could be behind these results. Today at Dani Rodrik's place, Bartels himself elaborates on what factors are driving these outcomes. The short answer? The parties' different approaches to macroeconomic policy, tax policy, social spending, business regulation, and the minimum wage:

Douglas Hibbs did important work along these lines in the 1980s, documenting significant partisan differences in post-war macroeconomic policies. He found that Democrats favored expansionary policies producing substantially higher employment and growth rates, while Republicans endured and sometimes prolonged recessions in order to keep inflation in check. (Not coincidentally, unemployment mostly affects income growth among relatively poor people, while inflation mostly affects income growth among relatively affluent people.) In recent decades taxes and transfers have probably been more important. Social spending. Business regulation or lack thereof. And don't forget the minimum wage. Over the past 60 years, the real value of the minimum wage has increased by 16 cents per year under Democratic presidents and declined by 6 cents per year under Republican presidents; that's a 3% difference in average income growth for minimum wage workers, with ramifications for many more workers higher up the wage scale.