(WNY) The average real (inflation-adjusted) wage per job in the Buffalo-Niagara Falls, NY area is failing to keep pace with real income from capital gains, interest, and rents – “rentier” income. The first chart to the left shows that as the average real wage (solid black line) is relatively stagnant during the years 2001-11, total real personal income per capita (dotted black line) is rising fast, indicating that rentier income is rising even faster. The second chart to the left compares the annual real growth rates for total personal income per capita and the average wage during these years, with personal income per capita growing at a much higher annual rate.

Analysis of statistics released by the US Commerce Department shows that there is an observably large shift upwards in the ratio of rentier to work incomes about the years 1980-1 in the Buffalo area. One possible source of rising income inequality in the Buffalo area is the clear up-tick in this ratio, occurring just when economic research suggests that income inequality started to rise dramatically in the US. Because rentier-type incomes disproportionately go to upper-income groups, it makes good sense to conclude that the observed shift upwards in this ratio is contributing to rising inequality.

A casual glance at the last chart begs an obvious question: what is driving the clear upward shift? Because this observed shift in behavior coincides with tax-policy changes made in the early part of the 1980s – the top rates on upper incomes were cut dramatically and other changes were made to reduce tax assessments on sources of income common to upper-income groups, it is quite likely that these tax-policy changes are contributing to the shift in the Buffalo area’s distribution of income, thereby contributing to rising income inequality locally.

Rising income inequality is worrying for many reasons. Some of these reasons are social and political, but others are purely economic. It will prove increasingly difficult in the US economy to fund sufficient consumer spending if both workers’ real incomes stagnate and output rises. It is quite possible that high levels of consumer debt in recent decades is a direct result of the economy failing to provide sufficient incomes to workers in order to afford the goods and services that are produced in the economy.