Capital and Earned Income (Knowledge)

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    How do earned income and capital income lead to unequal wealth distribution and inequality in our society?

    • This topic was modified 3 years, 8 months ago by  Lilly.Yu.


    Capital wealth leads to inequality because ownership of capital is much more unequally distributed than income; while poor people generally own almost no capital assets, the rich tend to own a significant amount of capital that translates to permanent wealth. In addition, the rate of return on capital in our society is moving towards exceeding the rate of economic growth. As a result, wealthy individuals can increase their wealth at a growth rate that is faster than the economy, widening the gap between rich and poor. This wealth is then passed on to the next generation, and the cycle of inequality continues.

    Earned income contributes to inequality because, in our society, the rise of “supersalaries” is rampant. The huge increases in the top 1%’s earned income can be attributed to low taxes on executive pay cheques, and the fact that top earners often set their own pay. While the incomes of average individuals have stayed relatively the same since 1970, the top 1%’s incomes have risen by 165%, while the top 0.1%’s incomes have increased by 362%; this has greatly contributed to the wealth gap and, by extension, inequality.

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