Inequality and rising profitability in the United States, 1947–2012

Abstract

The last 40 years has seen slow growing earnings and income for the middle class, as well as rising overall inequality. In contrast, the early postwar period witnessed rapid gains in wages and family income for the middle class and a moderate fall in inequality. The ‘booming’ 1990s and the first decade of the 2000s did not bring much relief to the middle class, with median income growing by only 2% (in total) between 1989 and 2012. The stagnation of middle class living standards since 1973 or so is attributable to the slow growth in earnings. While average earnings almost doubled between 1947 and 1973, it advanced by only 22% from 1973 to 2012. The main reason for the stagnation of labor earnings derives from a clear shift in national income away from labor towards capital, with overall profitability rising either back to previous postwar highs or to new highs by 2012. Based on regression analysis, a positive and significant connection is found between top income shares and the profit share. The unionization rate, computer investment per worker, the minimum wage, and the unemployment rate are also significantly related to top income shares.

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