



Where did the gains from productivity go? Well, they went to the top. Household income, adjusted for inflation, has grown 12X more for the top 1% than for the middle 20% ... and 24X more than the bottom 20%.







The full story of income inequality cannot simply be told with wages, where the 40-year growth gap between the top 10% and the rest is "only" about two-to-one.







To understand the full story, you have to look at capital income -- from assets like housing and stocks and bonds. This is where income growth for the top 1% has positively exploded, taking income inequality to record highs.







This is not a new trend. This is an old trend going back to before the Reagan administration. Since 1979, the top 5% took home more than half of total income growth. The top 1% took nearly 40%.







EPI's conclusion that health care costs and technology have nothing to do with stagnating wages for the middle class is controversial (see here and here for other takes). But its diagnosis for the three "wage gaps" is still compelling. Slide here, graphs to follow.







First, let's look at the gap between the super-super rich and the rest. About 60% of the increase in the top 1%'s share of total income seems to come from the expansion of the financial sector and the explosion in executive pay in non-financial compensation.







At the same time that their incomes have grown, effective tax rates on the super-super rich have fallen, especially since our laws give preference to income from capital gains. This is huge, because the top 1% has controlled more than 40% of stock market wealth since the 1980s. The next 9% owns another 40%. Stock wealth hasn't exactly democratized.







Since 1960, average effective tax rates have fallen dramatically for the top 0.1% -- much of it thanks to preferences for capital gains income. Progressive taxation won't fix the middle class crisis, Mishel pointed out to me over the phone, but it can discourage sky-high CEO salaries and provide more public funds to pay for infrastructure, education, and a safety net.







We're moving from the tippy-top of income to the very bottom here. As taxes have fallen at the top, the minimum wage has fallen at the bottom. In 1964, the minimum wage was about 50% of the average worker's hourly earnings. By 2011, that figure fell to 37%.







Although the minimum wage probably has a light effect on middle-class wages, it goes a long way toward explaining the falling market wages of the very poor -- especially among women, for whom it explains about two-third of the "50/10 wage gap" change in the last 40 years.





Explaining the stagnation of the middle class is more complicated. According to EPI, the story begins in manufacturing, where trade with less developed nations (who can produce cheaper goods with cheaper labor) hurt wages among the non-college-educated class that once relied on manufacturing jobs.

