Earned Labor Revenue Is a Small and Weak Lever. Unearned Property Revenue, and Wealth, Rule.
– by Steve Roth
Initially posted at Wealth Economics
(Clicking (a few times) on any of the images ought to enlarge them.)
Economists and pundits have been cheered of late by the labor-share improve in the course of the first couple of years of the Covid period. And even, for a second, lower-income employees have been making progress vs higher-income people. That is excellent news. Within the lengthy view, although, these glad developments are only a minor blip within the half-century decline post-Reagan, which drove off a cliff from the Dot-Bomb by means of the International Monetary Disaster.
These measures are significant, however they don’t put throughout the sheer quantity and magnitude of the disparity, and the shift. And so they don’t impart the top consequence: excessive and more and more concentrated wealth, with all its pernicious results.
Click on on Picture to Enlarge
Essentially the most eye-popping outcomes are for the highest 1%, within the first graph spanning 34 years. It must be very tall simply to make the lower-quintile traces seen. A median top-1% family has 145 instances as a lot wealth as a bottom-20% family. That’s nearly doubled from the 1989 ratio. (Word that top-percentile wealth barely stumbled within the dot-bomb. The epochal GFC collapse was more durable; top-1% wealth took a complete six years to bounce again.)
The second graph rolls top-1% wealth into the highest 20%, and runs from 2000-2020, so it’s corresponding to the subsequent three graphs. The highest quintile nonetheless made spectacular wealth good points in that image, growing the highest vs backside ratio from 22X to 26X.
However the place did all that top-end wealth come from? From “income,” natch.
These graphs clearly present a lot smaller numbers. They’re annual flows, not accrued shares. However the ratios on the backside are meaningfully comparable.
The very first thing to note is how small high labor earnings is, comparatively. That earnings is fairly concentrated with its 16.4X ratio, and that ratio has elevated rather a lot, however the sheer (small) magnitude can’t clarify a lot of the acute wealth focus we’ve seen.
Private earnings (earned earnings + “primary” property earnings + web transfers) appears to indicate a slight ratio enchancment over 21 years, from 9.6X to 9.1X. However that’s an artifact of massive 2020 covid switch funds juicing up private earnings. The 2019 ratio was 9.7X. Private-income distribution is way more “equal” than different measures (largely resulting from transfers), and it hasn’t modified a lot over twenty years.
Unearned earnings does way more to clarify the place all of the top-quintile wealth got here from. It’s a big move, and it skews closely to the highest quintile — a 27X ratio, a lot elevated from 2020’s 20X.
This measure of complete property earnings consists of further property earnings that’s absent and ignored in “primary” property earnings, therefore in private earnings: accrued holding good points, plus different adjustments in quantity.1 This complete measure is unstable, however over six a long time, accrued holding good points have solely seen one vital drawdown, in 2008.
The purpose right here is that, welcome as they’re, adjustments to earned labor earnings are a really weak lever for shifting the large focus of wealth. If progressives wish to reverse that focus of wealth — and energy — the main focus must be on seizing the unearned property earnings. And the wealth.
