Economic Elites, Investments, and Income Inequality

Stratification research documents that income inequality is on the rise. Common explanations include changes in technology, demography, and labor market institutions. This study documents an additional driver of inequality that has been critical to the concentration of income among elites: income from investments. As they have turned to their investment portfolios for income, economic elites have become less reliant on the returns to labor. This finding indicates that the current debate over elite incomes, which tends to focus on the rise of "the working rich," needs to be expanded to include the role of income-producing wealth. Additionally, such changes have left a dramatic imprint on the entire income distribution, with investment income contributing to a growing share of overall income inequality. While family structure, labor markets, and technological change remain important topics in the study of income inequality, the findings presented here underscore the additional importance of wealth and property ownership.