Income Inequality: History, Causes, and Solutions
Median Wage Stagnation
Between 1979 and 2018, real GDP per capita increased by 89.1% LES1252881600Q while median wages increased just 6.3% LES1252881600Q. We'll call this discrepancy The Gap. What explains it?
A Didactic Math Note
Suppose X = A * B * C. Suppose ∆X means "% increase in X".
Then, 1+∆X = (1+∆A) * (1+∆B) * (1+∆C)
So, ln(1+∆X) = ln(1+∆A) + ln(1+∆B) + ln(1+∆C)
I implicitly use this observation to determine what "%" of the gap various hypotheses explain.
Hypothesis 1: Capitalists
Maybe the owners of capital are making off with all the money rather than the laborers. During the same time period, labor compensation as a percent of GDP decreased from 56.2% to 53.1% Table 1.1.5. Table 2.1.. This explains just 10% of The Gap.
Hypothesis 2: Benefits
Maybe laborers are being paid more, but it's via benefits rather than wages. This is also partly true: salaries and wages as a percent of compensation have decreased from 84.8% to 81.3%. This explains 7% of The Gap.
Hypothesis 3: Workers
The hawk-eyed reader will note a definitional foible: the employment-population ratio. At the moment, we are comparing the median full-time wage to wages per capita. If more people are working now (as a percentage) relative to 1979, then that could explain part of The Gap.
The employment-population ratio has increased slightly from 59.9% to 60.4% EMRATIO. I think the worst case scenario is that a X% increase in the employment-population ratio can explain X% of The Gap. In this case the change in the employment-population ratio explains just 1% of The Gap.
Hypothesis 4: Distribution
As far as I can tell, this leaves 82% of The Gap between real GDP per capita and median wages to be explained by how compensation for labor is distributed.