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New data reveal unprecedented income inequality

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Snapshot for January 17, 2007.

New data reveal unprecedented income inequality

by Lawrence Mishel and Jared Bernstein
with research assistance provided by James Lin

Newly released data from two separate sources reveal just how skewed the distribution of economic growth has been over the current recovery.  Data from the Bureau of Economic Analysis through the third quarter of 2006 show that a historically high share of corporate income is going into profits and interest (i.e., capital income) rather than employee compensation.  And a newly released Congressional Budget Office (CBO) analysis of household incomes shows that a greater share of this capital income goes to the richest households than at any time since the CBO began tracking such trends.  In other words, our economy is producing more capital income and that type of income is more likely to go to those at the very top of the income scale.  Together, these dynamics are contributing to a uniquely skewed recovery.

Figure A shows what share of corporate-sector income went to owners of capital (in the form of profits and interest) since 1979; the remaining share of corporate-sector income went to compensation for employees.1 The most recent data (third quarter of 2006) reveal that owners of capital received 23.0% of all corporate income, the highest share since 1966.2 That means that the compensation of employees was at the lowest share in over 25 years.

Figure A

Since the upper 1% owns a disproportionate share of capital assets, this growth of capital income necessarily improves their income growth relative to the rest of the population, thereby fueling income inequality. But as shown in Figure B, it’s not just that capital income is concentrated, but that it has been growing increasingly more so in recent years (capital income here includes interest, dividends, rental income, and realized capital gains). Figure B shows that those in the top 1% of the income scale received 59.4 % of all the capital income in 2004 (CBO’s latest data), up from 49.1% in 2000, 39.1% in 1989 and just 37.8% in 1979. The increase in the concentration of capital income to the upper 1% grew as quickly over the four-year period from 2000 to 2004 as over the preceding 11 years (1989-2000). 

Figure B

Notes
1. This overstates income to ‘Labor’ since compensation includes the pay of top corporate officers and all the bonuses and stock options they receive.

2. Note that the chart only displays data from 1979 onward in order to keep it comparable to the earliest available CBO data in Figure B.


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