Personal and national income collide

Income inequality is a hot topic for professional economists and lay public. Piketty’s book Capital in the Twenty-First Century (2013) attracts common attention and discusses income distribution between labor and capital. The root concern is related to increasing share of capital income. We made some comments on this topic showing that capital does not eat from the part of labor income but converts corporate income into personal income. Piketty projects some further growth in the proportion of capital income.

Here we present an extremely simple observation which bans any further growth in the capital ‘s share of income. Figure 1 displays the evolution of national income (NI), i.e. the sum of labor and capital income, and personal income (PI), both reported by the Bureau of Economic Analysis.  In the 1970s, the difference was 10% and then stared to decrease. This is the period which Piketty highlights as the era of capital income, i.e. all increase in the share of personal income was appropriated by capital.  Since 2011, there is no room for further growth in the share of capital income – all national income is distributed as personal income. There is no other source of income, except may be decrease in consumption of fixed capital (CFC). There is nothing to share any more.

Figure 1. Evolution of national income (NI) and personal income (PI) both normalized to Gross Domestic Product. Currently, they are almost identical. 

No comments:

Post a Comment