The Causes of Wealth Inequality (14): Wage Stagnation at the Bottom of the Income Distribution

Income inequality has risen in many countries during the last decades, including the U.S. The causes of this evolution obviously differ from country to country, although some causes may be universal. If we focus on the U.S., one important cause is wage stagnation for middle class and poor families since the 1970s. This stagnation, combined with the fact that the incomes of the wealthy continued along their pre-1970s growth path, caused increasing income inequality. The 1970s are a clear turning point, as you can see here:

(source)

The decades before the 1970s were what has been called a time of “shared prosperity”. Maybe trickle down economics really did work back then. Since the 1970s, however, income gains went almost entirely to the very wealthy, without much of the gains trickling down.

If that is why inequality has increased, we still have to answer the question why lower wages have stagnated. Maybe the decline of the minimum wage has something to do with it:

(source)

And, because a picture’s worth a thousand words, here you have one:

wage stagnation cartoon, by RJ Matson

(source)

Inspired, of course, by this Escher classic:

Ascending and Descending, 1960, Lithograph by MC Escher

More posts in this series are here.

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