Rising Tides Don't Lifts All Boats: The Stagnation of American Incomes and the Rise of Inequality

This study sheds new light on rising income inequality in the United States by examining trends in the real incomes of American families at five different points along the US income distribution.  In the post-war decades, the incomes of most American families grew at very similar rates, creating a remarkably stable and relatively egalitarian distribution of income.  Starting around 1980, however, growth in real incomes slowed markedly for most families but skyrocketed for the very rich.   Using time-series data on the US political economy from 1947 to 2012, single-equation error correction models show that the unequal slowdown in real income growth, and the concomitant rise of inequality, is associated with the decline of organized labor, the financialization of the economy, the emergence of higher unemployment, and foremost the weakening link between labor’s productivity and its income.  Results also support Piketty’s recent argument that slow economic growth benefits the very rich.  The study assesses these findings in light of sociological and economic theories of inequality.