Wisdom from James Galbraith
Income inequality soared in the late 1990s. Why? A decomposition by
region and sector can tell you pretty much exactly: it was the tech
bubble and the stock boom. Capital gains and stock options
realizations. Much of it in just five places in the whole country:
Manhattan, King County WA, and Santa Clara, San Francisco and San Mateo
Counties, CA. Take out those five, as Travis Hale and I showed in a
paper, and the between-counties component of income inequality (which
isn’t all of it, but it isn’t chopped liver, either) doesn’t go up at
all.Meanwhile, earnings inequality went down in the same time. Why? Full
employment. This component of inequality is closely tied to utilization
rates and unemployment. It varies with hours worked, and overtime
earned, more than anything else. It is, in short, a macroeconomic
phenomenon.
Addendum: Here is more wisdom from that blog, on welfare reform, an overrated event in terms of its significance, though I will demur on the minimum wage question.