Income and wealth inequality

In the last chapter of Capitalism, Shaikh highlights a few areas for further research which real economic analysis can address, including rising inequality. Taking that chapter as a starting point, I attempted to extend the analysis to evaluate after-tax income inequality and also wealth inequality. Equations are derived for after-tax income and wealth Gini indices and evaluated against empirical data. This is of course a large topic which calls for further refinement and elaboration and so I am sharing my work here (see pdf; The Economic Basis of Social Polarization is also freely available on Google Books).

Here is a brief description of the work: The economic basis of social polarization is empirically evaluated in the US (from the post-World War II boom through neoliberalism) and comparisons are made with the rest of the G7 (under neoliberalism). Income inequality is explained in terms of four factors: the growth of profit income accruing to upper management, the profit share of net value added, the proportion of profit distributed to households, and tax redistribution. Wealth inequality is explained in terms of three factors: the ratio of liabilities to assets, the ratio of financial assets to total assets, and the share of financial assets held by the ruling class. Income inequality contributes to wealth inequality through the accumulation of profit by the ruling class in the form of financial assets and wealth inequality contributes to income inequality through the financial assets owned by the ruling class mediating the appropriation of profit income. The division of net value added between wages and profit is further evaluated and explained in terms of fundamental factors shaping capitalist development: profitability, capital accumulation, capital intensity, and the wage rate.