The Functional Distribution, Again

It seems that they did. Here are some data on labor incomes and property incomes. Labor incomes include all wages and other labor compensation, while property incomes include interest, rent, and dividends, as reported by the census bureau. The incomes are before taxes and do not include government subsidies, either. The following table shows the fraction of the total labor and property incomes that were labor incomes, in the second row, and property incomes in the third row. the fourth row shows the breakdown between labor and property incomes as a "pie chart."

Table 6

year	1970	1980	1990	1994
labor incomes	0.86	0.83	0.80	0.82
property incomes	0.14	0.17	0.20	0.18

In the "pie charts," of course, the labor share is represented by the blue shaded "pie" and the share of property income by the pinkish shaded "piece of the pie." We see the share of property income getting consistently larger through the first two periods. That's consistent with the explanation that greater inequality is a result of a shift of the functional distribution of income toward a greater proportion of property incomes. In 1994, however, we see a slight shift back toward a larger share for labor incomes, although the inequality continued to increase from 1990 to 1994. It would seem that other factors became more important in the four years 1990-1994.

What the evidence suggests is that shifts in both the functional distribution of income and the inequality of wages are factors in the increase in inequality since 1970. In general, we will find the John Bates Clark model is a good starting point, but only gives us part of the story.