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Anyway, I stumbled on this figure below, from a very insightful paper by Philippon and Reshef. The figure plots an index of financial deregulation against relative pay in the industry (an increase in the deregulation index implies looser regulation).
A Striking Picture of Pay and Deregulation in Finance | Jared Bernstein | On the Economy
The figure below from Piketty’s book shows the increase in the share of US income going to the top 10%, i.e., the top decile. The increase in the wage share since 1970 is about 10 percentage points, or about two-thirds of the increase. The increase in capital income explains the other third, which ain’t nuttin,’ but the wage story told in the NYT piece and the figure below is still the main driver.
Piketty also shows how the rise in supersalaries has changed the composition of income at the very top. Back in 1929 (the last time inequality was at today’s levels), income from capital comprised the main source of income for the top 1%; today, you’d have to go all the way up to the top 0.1% before capital overtook earnings as the main source of income.
What’s Driving the Growth of US Inequality: Labor or Capital Income? | Jared Bernstein | On the Economy
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The causes and consequences of rising inequality have stirred a lively debate on appropriate policy responses. This column reviews how governments have successfully used fiscal policy to address distributive concerns. It also examines the policy alternatives that countries can pursue in order to reduce income and wealth inequality at a minimum cost to efficiency. Such policies include exploitation of property taxes, reductions in tax deductions that favour upper-income groups, investing in increasing the human capital of low-income groups, and reforming social benefits.
Taxing, spending, and inequality | vox
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We show modern information technology (in short IT) is the cause of rising income and wealth inequality since the 1970's and has contributed to slow growth of wages and decline in the natural rate. We first study all US firms whose securities trade on public exchanges. Surplus wealth of a firm is the difference between wealth created (equity and debt) and its capital. We show (i) aggregate surplus wealth rose from -$0.59 Trillion in 1974 to $24 Trillion which is 79% of total market value in 2015 and reflects rising monopoly power. The added wealth was created mostly in sectors transformed by IT. Declining or slow growing firms with broadly distributed ownership have been replaced by IT based firms with highly concentrated ownership.
Rising fraction of capital has been financed by debt, reaching 78% in 2015. We explain why IT innovations enable and accelerate the erection of barriers to entry and once erected, IT facilitates maintenance of restraints on competition. These innovations also explain rising size of firms. We next develop a model where firms have monopoly power. Monopoly surplus is unobservable and we deduce it with three methods, based on surplus wealth, share of labor or share of profits. Share of monopoly surplus rose from zero in early 1980's to 23% in 2015. This last result is, remarkably, deduced by all three methods. Share of monopoly surplus was also positive during the first, hardware, phase of the IT revolution. It was zero in 1950-1962, reaching 7.3% in 1965 before falling back to zero in 1970. Standard TFP computation is shown to be biased when firms have monopoly power.
Climateer Investing: "...modern information technology is the cause of rising income and wealth inequality since the 1970's and has contributed to slow growth of wages..."
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