(WNY) Inequality of both income and wealth is rising fast in the US. Since 1993, when significant revisions to an official measure of income inequality among households occurred, this measure of income inequality is up over 5 percent. Some increase can be attributed to growth of pay disparity between educational attainment – a college “premium”, in the last decades. But as private business continues to offer menial jobs to the latest groups of college graduates, this rationale for growing inequality becomes less powerful to explain a continuing rise of inequality.
A more powerful reason to explain growing income inequality is a shift of income from labor to capital: a rise in so-called “rentier” income. Because capital assets are extremely unevenly distributed among the US population – more so than income, any shift in income from labor to capital is going to increase income inequality. The chart shows that compensation of employees as a share of value added in the private sector is declining. The other side of this coin, so to speak, is the share of value added in the private sector accruing as rentier income – profits and interest, must be rising if labor’s share of value added is falling (see black lines in chart showing an index for the share of value added as employee compensation in the private sector).
A rising share of value added going to capital in the form of rentier income is more powerful in explaining rising inequality, given generally poor job offers from private business to newer college graduates. The college premium is shrinking, but income inequality shows no slowdown in its continued rise. Through no fault of its own, labor is being made to pay for egregious mistakes made by the allegedly efficient private sector in the run-up to the recession of 2008-9.