A Massive Income Shift from Work to Wealth

A new Cleveland Fed study details the declining share of U.S. national income that comes from the labor we do and the rising share of national income that comes from the wealth we own. The problem: Only a few of us own that wealth.

Our two major presidential candidates descended on Ohio last week, and legions of reporters followed closely behind. Those reporters filed tens of thousands of words on what they saw and heard on their quick in-and-out Ohio excursion.

But not one of those reporters filed a word about what may have been the most nationally significant news out of Ohio last week: the release of a new analysis on income inequality from the Federal Reserve Bank of Cleveland.

This new Cleveland Fed analysis examines both “labor” and “capital” income in America since 1980. Labor income includes everything we make from our jobs: wages and salaries, pensions and health insurance benefits.

Capital income comes from the ownership of assets. Interest, dividends, and the capital gains from buying and selling stocks, bonds, and other forms of property all count as capital income.

Labor income, the Cleveland Fed analysis shows, “has been declining as a share of total income earned in the United States for the past three decades.” The capital share, by stark contrast, has been increasing

In other words, Americans have been making less from work and more from wealth. But only a relative few Americans, the Cleveland Fed observes, have significant quantities of that wealth. The unsurprising result: We have witnessed a significant “spike in inequality” over the past generation.