Poor Laborers and Rich Capitalists? On the Evolution of Income Composition Inequality in Italy 1989-2016

Abstract

We study the evolution of inequality in income composition in terms of capital and labor income in Italy between 1989 and 2016. We document a rise in the share of capital income accruing to the bottom of the distribution, whilst the top of the distribution increases its share of labor income. This implies a falling degree of income composition inequality in the period considered and, hence, the fact that Italy is moving away from being an economy composed of poor laborers and rich capitalists. This result is robust to the use of different definitions of capital and labor income. A falling degree of income composition inequality implies a weaker link between the functional and personal distributions of income. Therefore, fluctuations in the total factor shares of income are having an increasingly weaker impact on income inequality in Italy. Finally, we conceptualize a rule of thumb for policy makers seeking to reduce income inequality in the long run. This rule relates fluctuations in the total factor shares and the level of income composition inequality to the specific income source to be redistributed. (Stone Center on Socio-Economic Inequality Working Paper)

Income Composition Inequality

“…Given the theoretical nature of the present work, the objective of this section is, rather than providing a sound political economy analysis of the countries under scrutiny, to show how the method can be applied in practice and the results interpreted. For a thorough examination of the evolution of income composition inequality in Italy, see Iacono and Ranaldi (2020). For the study of the evolution of income composition inequality in the Scandinavian context, see Iacono and Palagi (2020), whereas for an assessment of the relationship between income composition inequality and income inequality at the global scale, see Ranaldi and Milanovic (2020).…”

Global Distributions of Capital and Labor Incomes: Capitalization of the Global Middle Class

“…A detailed description of the database and its main variables can be found in the Description File. This paper also aims to contribute to the more recent stream of research on compositional inequality (Ranaldi, 2019, 2021, Ranaldi and Milanovic, 2020, Iacono and Ranaldi, 2020, Iacono and Palagi, 2020.…”

Determinants of Income Composition Inequality

“…In previous centuries, the affluent commanded capital income while the poor only relied on their wages. Today, rich capitalists also earn high salaries, while an increasing fraction of the middle classes also draw on capital income (Iacono and Ranaldi 2020). ICI's behavior thus reveals important information about the nature of capitalist organization (Milanovic 2019, Ranaldi and.…”