Income inequality, top shares of income and social classes in the 21st century

This paper studies income distribution and inequality in Germany, Spain and Italy by applying the approach described in Fana and Villani (2022a). This framework provides a novel classification of labourers and capitalists that considers some features of contemporary capitalism, namely the fact that individuals/households can receive multiple types of incomes and the role of managers in shaping class belonging. First, we perform a decomposition of the Gini index to study which sources of income contribute to inequality. A marginal increases in wages would contribute to the reduction of the overall level of inequality, while profits and property income augment it. Furthermore, only the growth of wages received by labourers would help to lower inequality, whereas those received by capitalists would increase it. Second, we discuss how our approach links to the literature on wages at the top of the distribution of income, assessing whether the growth of wages at the top of the distribution of income is evident in our dataset and we explore who receives these wages at the top of the distribution of income. We find that there is a growing presence of wages at the top of the distribution on income. However, this growth corresponds mostly to wages received by what we call capitalists, not labourers. We conclude that despite a linear correspondence between income source and class location is more blurred today than it was 200 years ago but, nonetheless, a class divide is still clear, at least in the three countries analysed.