You have almost certainly never heard of the Treaty of Detroit, which you may connect with the French and Indian War (1756-1763). Guess again.

The Treaty of Detroit is a long-lost label describing a series of landmark labor agreements between the United Auto Workers and the Big Three American automakers.

Starting with a 1948 contract at General Motors, the agreements guaranteed annual wage increases, job security, and generous fringe benefits. As Detroit’s present turmoil attests, the treaty is in tatters.

Now come economists of the Massachusetts Institute of Technology, Frank Levy and Peter Temin, who resurrect the label and say it explains something much greater: the rise of economic inequality. This promises to be a hot issue in the 2008 election.

Until now, most economists have blamed the growing pay gap on skill differences caused by the explosion of computer technologies. Messrs. Levy and Temin contend, correctly, that this is too simple. They also blame a shift in social norms and business practices.

First, some historical background. In late 1945, President Truman summoned 36 business, union, and government leaders to a conference. The aim: to forge an understanding between labor and capital more akin to World War II’s cooperation than to the Great Depression’s strife. It failed; the postwar era began badly. In 1946, there were 4,985 strikes, involving 4.6 million workers, 11% of all workers. Auto-workers, railroad workers, steel-workers all struck.

The Treaty of Detroit fashioned a crude truce that spread elsewhere. Between major contracts, the automakers got labor peace. In return, workers got higher incomes and job security. Reminder: in the 1930s, unemployment averaged 18%.

The treaty influenced other unionized industries, where pattern bargaining — companies signing similar contracts — became common. Many nonunion companies embraced comparable norms: Workers should receive wage gains beyond inflation, job security, and good fringe benefits.

The result, say Messrs. Levy and Temin, was that “market outcomes” in pay were “strongly moderated by institutional factors” — business practices shaped by social values and government policies. After World War II, many executives strove to refurbish the image of Big Business, badly battered in the Depression. Managers and professionals received more than enough production workers, but legal and bureaucratic filters narrowed the gaps.

By the 1980s, this generation of business leaders had mostly retired. Companies increasingly paid what the market would bear or they could afford.

Pay gains diverged. In early postwar decades, compensation increases crudely paralleled productivity gains — improvements in efficiency.

From 1950 to 1973, productivity rose 97%. Over the same period, median compensation of high school male graduates aged between 35 and 44 rose 95%, after inflation; for college graduates between 35 and 44, the increase was 106%. Those in the top one half of 1% received only a 37% gain. Between 1980 and 2005, productivity increased 71%.

Median compensation for high school graduates dropped 4%, and compensation for college graduates rose only 24%. For those in the top one half of 1%, it jumped 89%.

Comparisons like these evoke images of greedy CEOs and hedge-fund managers. But the story is more complicated. On the whole, the economy that produces these growing inequalities outperforms the one that created more statistical equality. The norms and practices highlighted by Messrs. Levy and Temin collapsed mainly because they no longer worked.

The idea that everyone’s wages should reflect inflation plus a few percentage points worsened both inflation and stability. There were four recessions between 1969 and 1981; by then, inflation was 10% and mortgage rates 15%. Productivity growth had plunged.

Greater competition — from imports, deregulation, new technologies — also doomed pattern wage-setting. Companies with lax pay practices lost sales and profits. Consider GM, Ford, and Chrysler as exhibit A.

Economic inequality is an intellectual quagmire, because its origins and consequences are so murky. Contrary to popular belief, for example, it has not prevented most Americans from getting ahead.

Consider families with children. A study by the Congressional Budget Office finds that between 1991 and 2005 income gains averaged 35% for the poorest fifth of these households, 19% for the middle three-fifths, and 53% for the richest fifth. But all these gains were down slightly from 2000.

Here’s another twist to the discussion: Today’s immigration aggravates inequality, because so many new immigrants are poor and unskilled.

In 2008, economic inequality could become a political flash point, because the income gains at the top seem so outsized and gains elsewhere are so choppy. The very uncertainty means that, even amid great prosperity, Americans feel anxious.

Whether the debate becomes an empty exercise in class warfare or a genuine search for ways to reconcile economic justice and economic growth is an open question.