Capital and labour at the top: evidence from the 1936 US income tax project

Part of the Inequalities Seminar Series

Speaker:
Dr Miguel Artola Blanco, Assistant Professor, Department of Social Sciences, Carlos III University of Madrid

This paper explores how the transition from pre-WWII capitalism to welfare capitalism not only involved a decline in income inequality but also a realignment in the composition of capital and labour incomes at the top of the distribution. Using a clearly defined metric—the overlap between top labour and top capital earners—we document how a substantial minority of top capital earners who had not been working in the pre-WWII era gradually entered the labour force in the 1940s and 1950s. This shift occurred alongside an increase in highly paid self-employed workers, who inherently combine labour and capital income and were more likely to receive returns from other assets. Finally, these developments were reinforced by sociodemographic change, particularly the growing labour force participation of married women, which further strengthened the correlation between labour and capital incomes.

We use two exceptionally detailed sets of sources. A unique dataset of federal income tax returns for the year 1936 that covers approximately the top 5% of the U.S. population, and the census microdata from IPUMS, which typically cover up to the top 1% of the population and provide invaluable insight into the sociodemographic characteristics of top earners.

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LSE Sir Arthur Lewis Building G.03, 32 Lincoln's Inn Fields, London, United Kingdom

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