Analyzing top US income shares: earned or extracted?

With the current Occupy Movement occurring on Wall Street and other parts of the globe, a lot of attention has recently been given to growing inequality and how much the top 1 percent of households have in terms of income versus the other 99 percent in the United States. Mainstream economists and other social scientists point to greater trade liberalization, lower union membership, smaller government, greater GDP growth, a greater presence of the financial services industry in the economy, and lower marginal tax rates on upper income households as making significant contributions to growing income inequality and greater income shares for those at the top of the income scale in the United States. Additionally, some mention that gains to upper income households have been made possible by a growing pay gap between skilled and unskilled or educated versus less educated workers, in which upper income households are made up disproportionately of college educated and highly trained individuals. Finally, declines in the number of high paying jobs in manufacturing are also blamed for rising inequality and greater gains in income to top income households relative to those in other income groups. All of these factors affecting inequality have been found to be statistically significant in one study or another. This research note does not dispute the findings of other research efforts but explores the use of three other concepts to explain income inequality. The use of 1) the profitability of the private sector, 2) the decline in the wages and salaries of most workers, and 3) the Marxian concept of rate of exploitation are offered as additional explanations of inequality and the income shares of top income households. Since the Great Depression, it appears that the income shares of the top strata are due just as much to the income losses and “exploitation” of other groups and to governmental policies as they are due to the performance of the general US economy or to the performance of private sector profitability and returns on education. These findings which offer support to both sides of the arguments over greater accumulation of income by those at the top of the income scale.