FacebookTwitterGoogle+RedditEmail

What’s Really Driving Income Inequality?

by DAVID ROSNICK

Over the last several decades, inequalities in both incomes and wealth have grown substantially within the United States and in other high-income nations. In the United States, for example, the income share of just the top one half of the top 1 percent grew from 5.39 percent of the nation’s income in 1979 to 13.37 percent in 2010. By contrast, over this same period the share of the bottom 90 fell from 67.65 percent to 53.74 percent.

With the aim of examining the causes of this shift in earning, the Organisation for Economic Co-operation and Development, known as the OECD, recently published a lengthy book on the subject, titled Divided We Stand: Why Inequality Keeps Rising. Despite a wealth of data presented in the tome, the authors of the study largely failed to explain why, in fact, inequality keeps rising.

First, they focus largely on the relatively high wages of the 90th percentile of earners to that of the 10th percentile, which misses the fact that much of the increase in inequality was well above the 90th percentile. Again, with the United States as an example, growth in wages at the 90th percentile of wages only just kept pace with the overall average. Ninety percent of the distribution failed to keep up.

Though the OECD study does devote some time to discussion of inequality at the very top—including compensation in the financial sector—they do not draw any connection between what happened at the very top to what they observed in the broader economy. To some extent, increasing inequality between the 90th and 10th percentiles reflects the former shielding itself more effectively from the redistribution to the 99th percentile.

On the other hand, they do find that increased post-secondary education was a significant equalizing factor. This is the flip side of the top-income effect, as a more educated workforce created increased competition for higher (but not necessarily very high) paying work.

So if not the incomes of the very top, to what does the OECD attribute the increase in inequality? In large part, the authors find that the deterioration of certain institutions and policies are to blame. They report that falling union coverage, weakened product market and employment protection regulation, and shrinking tax wedges have all contributed to increased inequality.

The authors then attribute much of the increase in inequality to technology. Unfortunately, their chosen measure is the cyclical component of business spending on research and development. Though their analysis points to their measure as a statistically significant factor, it is difficult to explain a decades-long trend with a variable that by construction should be unchanged over the business cycle. In fact, working from the OECDs’ data, we found that the trend in research and development spending over this period explained none of the rise in inequality.

If increased post-secondary education is not offsetting technology, as the authors suggest, but only weakened institutions, then we still require an explanation for the increase in inequality in recent decades. Our reproduction of the OECD analysis shows that the combination of all explained effects in the model is likely equalizing on balance, leaving the trend of increased inequality entirely unexplained. In other words, while the OECD finds there are some factors that contribute to inequality and other factors that equalize wages, they failed to explain the shift in incomes toward the top.

Our analysis suggests alternatively that increased financial sector compensation has been an important driver of inequality. Quite apart from this finding, it is unfortunate that the authors of the OECD study appear to have missed their own story. Perhaps in the future we will see less blame on “technology” and greater attention paid to other factors that may contribute to inequality—such as the large rents that are earned by bankers operated in a bloated financial system.

David Rosnick is an economist at the Center for Economic and Policy Research in Washington, D.C.

This article originally appeared on Economic Intelligence.

Stonewall and the Battle for Gay Rights 

Director John Scagliotti has donated copies of his acclaimed films Before Stonewall and After Stonewall for the CounterPunch Online Auction. Bid now to own a copy these ground-breaking documentaries on a radical struggle for equal rights.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

February 20, 2017
Bruce E. Levine
Humiliation Porn: Trump’s Gift to His Faithful…and Now the Blowback
Melvin Goodman
“Wag the Dog,” Revisited
Robert Hunziker
Fukushima: a Lurking Global Catastrophe?
David Smith-Ferri
Resistance and Resolve in Russia: Memorial HRC
Kenneth Surin
Global India?
Norman Pollack
Fascistization Crashing Down: Driving the Cleaver into Social Welfare
Patrick Cockburn
Trump v. the Media: a Fight to the Death
Susan Babbitt
Shooting Arrows at Heaven: Why is There Debate About Battle Imagery in Health?
Matt Peppe
New York Times Openly Promotes Formal Apartheid Regime By Israel
David Swanson
Understanding Robert E. Lee Supporters
Michael Brenner
The Narcissism of Donald Trump
Martin Billheimer
Capital of Pain
Thomas Knapp
Florida’s Shenanigans Make a Great Case for (Re-)Separation of Ballot and State
Jordan Flaherty
Best Films of 2016: Black Excellence Versus White Mediocrity
Weekend Edition
February 17, 2017
Friday - Sunday
David Price
Rogue Elephant Rising: The CIA as Kingslayer
Matthew Stevenson
Is Trump the Worst President Ever?
Jeffrey St. Clair
Roaming Charges: Tinker, Tailor, Soldier, Flynn?
John Wight
Brexit and Trump: Why Right is Not the New Left
Diana Johnstone
France: Another Ghastly Presidential Election Campaign; the Deep State Rises to the Surface
Neve Gordon
Trump’s One-State Option
Roger Harris
Emperor Trump Has No Clothes: Time to Organize!
Joan Roelofs
What Else is Wrong with Globalization
Andrew Levine
Why Trump’s Muslim Travel Ban?
Mike Whitney
Blood in the Water: the Trump Revolution Ends in a Whimper
Vijay Prashad
Trump, Turmoil and Resistance
Ron Jacobs
U.S. Imperial War Personified
David Swanson
Can the Climate Survive Adherence to War and Partisanship?
Andre Vltchek
Governor of Jakarta: Get Re-elected or Die!
Norman Pollack
Self-Devouring Reaction: Governmental Impasse
Patrick Cockburn
The Coming Destruction of Mosul
Steve Horn
What Do a Louisiana Pipeline Explosion and Dakota Access Pipeline Have in Common? Phillips 66
Brian Saady
Why Corporations are Too Big to Jail in the Drug War
Graham Peebles
Ethiopia: Peaceful Protest to Armed Uprising
Luke Meyer
The Case of Tony: Inside a Lifer Hearing
Binoy Kampmark
Adolf, The Donald and History
Robert Koehler
The Great American Awakening
Murray Dobbin
Canadians at Odds With Their Government on Israel
Fariborz Saremi
A Whole New World?
Joyce Nelson
Japan’s Abe, Trump & Illegal Leaks
Christopher Brauchli
Trump 1, Tillerson 0
Yves Engler
Is This Hate Speech?
Dan Bacher
Trump Administration Exempts Three CA Oil Fields From Water Protection Rule at Jerry Brown’s Request
Richard Klin
Solid Gold
Melissa Garriga
Anti-Abortion and Anti-Fascist Movements: More in Common Than Meets the Eye
Thomas Knapp
The Absurd Consequences of a “Right to Privacy”
FacebookTwitterGoogle+RedditEmail