The Evolutions of Top Incomes AND Inequality of Wage Rates, Earnings, and Family Income in the U.S.

Both chapters, The Evolution of Top Incomes and Wage Rates, Earnings, and Family Incomes, deal with variations in incomes and inequalities associated with those incomes. First, The Evolution of Top Incomes, talks about the income and wealth distribution, mainly focusing on the top income earners and the fluctuations of their wealth. Most of the fluctuations on the top income earners was due to the top 1%’s fluctuations, which in turn effects the rest of the top. From 1916 until the 70’s, the top incomes (.01%) were made up of mostly capital income, with business income and wage income following. After that, salary incomes have become what is making people wealthy at the top. This is because of a decreased concentrations of capital income, not a decline in the share of capital income in the economy as a whole. In other words, the most wealthy is still the most wealthy, just from another source (salary instead of capital). This is explained by the fall in top capital incomes due to the war and great depression.


Income inequality dropped because of the shocks to their capital holdings from 1914 to 1945 (destruction, inflation, bankruptcies, and the effects of financing the wars). Top capital incomes also did not recover, which is attributed to the start of progressive income and estate taxation. So, the more you made, the more you were taxed. Add that into trying to recover from all of the things going on in the world, and things start to change. This also gave others a chance to rise up because of the increase of top wages. The working rich were then at the top of the income hierarchy. Top wages though did not increase in the entire world, but only in English speaking countries. Three ideas of why were discussed, but none of them were said to be convincing. I believe that when you take all 3 ideas (technological progress, impediments to free markets due to regulations and unions, and the increased ability of executives to set their own pays) and add them all together makes more sense in explaining this. Not one exact thing will change the entire economy and distribution of wealth. All of these feed off each other to make a certain marketplace unique.
The second chapter, Inequality of Wage Rates, Earnings, and Family Income in the Unites States talks about something a little different. Discussed is the changes in inequality of 4 distinct income concepts: (1) Individual Wage Rates, (2) Individual Family Earnings, (3) Family Annual Earnings, and (4) Family Income Adjusted for Family Size. Number 1 and 2 focus on labor economics, stating that changes in distribution of wage rates reflect changes in labor supply and labor demand. Also, public policy analysts were interested in changes in the distribution of well-being and changes in poverty, which has to do with family income inequality.
I think Gottschalk and Danziger made sense in what they explained through their research findings, but I think they made it more difficult to understand than what it was. While reading it, it would click at first, then when they went into their explanation of the research, it seemed like they just repeated everything over and over making it confusing, and then in the conclusion they then repeated what they originally said again. To summarize, there is inequalities in all of the 4 concepts listed above. Male wage rates inequalities were increasing because of technological changes, foreign competition, changes in wage-setting institutions, and changes in governmental regulations. This in turn, effects all of the other factors, such as family earnings and incomes. To counter these effects though, would be the hours of work the individual did. If he had a lower wage, then he would work more hours, which still made a high inequality in wage rates, but a lesser inequality in individual earnings. The same is said for the women. They had less inequality in wage rates, which made the family earnings inequalities lesser. And lastly, if the male had low wages, someone (the woman) could work more hours or simply begin working to offset the lower amount of money they earn. So one cannot rely on just one concept to explain inequalities, because they all influence each other. These rates of inequality also fluctuate durin recessions and recoveries, which piggybacks off from the previous chapter, explaining how the war and great depression effected incomes during that time.
Another concept that was discussed was of family earnings inequalities. This to me was the most obvious. The authors describe the concept that family earnings depend on everyone working in the family, and males with high earnings tend to marry females with high earnings, increasing the inequalities in family earnings. This to me was stating the obvious. If a rich male doctor married an female gas station attendant, and then a rich female executive of a large company married a garbage man, their incomes would generally be more equal. But it doesn’t work that way, which is why there is that inequality in the first place. This also had to do with another obvious explanation that was given: increased wage inequalities of the 80’s reflected an increase in returns to education. Those who went to college were paid more than those who didn’t, adding to the income inequality. I just felt that a lot of the chapter was common sense, and it was made into a complex thing which made it more confusing, making me second guess what I already knew, just for them to tell me that was what they were explaining in the first place.