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The Inequalities Of Income Investment Growth

1450 words - 6 pages

In “Economic Elites, Investments, and Income Inequality” from the academic journal, Social Forces, graduate Ph. D student from Ohio State University, Michael Nau presents throughout his study the rise of an additional factor that has evidently influenced the concentration of vast amounts of income among the elite class, income from investments. In this era, the common beliefs were that demography, labor market institutions, and technology were causing the inequality to rise and for the elites to produce this astounding amounts of income. Nau’s findings present how the debate over the incomes of the elites has to be expanded apart from the ‘working rich class’ to also include the income ...view middle of the document...

On the other hand, he mentions the sociological and economical view, which is the belief that the rise of inequality is due to institutional changes such as the fall of minimum wage and the loss of union power. However, when it comes to the income of the elites he argues that the income growth due to investment is a ‘key piece’ to this confusion of how the wealthy are accumulating unlimited amounts of money.
Nau then explains how there are three hypotheses to the shift in economic power toward the investors and their concentration and growing income share. In the first place, Nau presents the hypotheses that “during the 1990s and first decade of the 2000s, income concentration at the top was driven by investment gains.” At the same time, he presents that also “during the 1990s and first decade of the 2000s, top-income household increasingly took on the characteristics and behaviors of investors. Finally, his third hypotheses is that “during the 1990s and first decade of the 2000s, investment income’s contribution to overall income inequality increased relative to non-investment income.”
When it comes to the data and methods, this study used the Federal Reserve Board’s Survey of Consumer Finances (SCF), which is a repeated survey that includes the information on household income and wealth holdings; the Federal Reserve conducts this survey every three years. To test the hypothesis there are different methods used, but for the main analysis, this study uses the SCF data from 1992 to 2010, described as the best period to test the hypotheses.
Nau displays the results of the three hypotheses in descriptive statistics from the SCF Data. For instance, the first hypotheses it clearly states that non-investment income decline after the late 90s and the investment income rose until the 2008 recession. The results of the second hypothesis state the behavior and characteristic of elites as investors, and describe how elites behave as investors when the economy is good and when is bad they return to the labor market. Finally, the third hypothesis results indicate that investment plays an important role in the overall income inequality during financial bubbles, and even in downturns, proving the third hypothesis.
Research Methods:
The Federal Reserve Board’s Survey of Consumer Finances (SCF) was the study used on this article for its main analysis. This survey dates from the 1992 to 2010, and includes the information of household income, wealth holding, and other financial topics. In addition, the survey includes a subsample of the most affluent households, and groups them into different categories according to their wealth. However, the edge key that makes the SCF better than other surveys is the fact that it has more information when it comes to the different financial situations of the elites. As a result, the SCF is considered by many experts in the field of finance as one of the best sources on the wealth and investment behavior of the citizens in the...

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