A Contemporary Perspective on Social Classes and functional Income Distribution

Abstract

According to classical political economists, there was a correspondence between the type of income received and social class location. Labourers received wages, while capitalists and rentiers received profits and rents. As a result, the standard measures of functional income distribution would reflect the distribution of income between classes. However, this straightforward distinction is more complicated today than it was 200 years ago. This paper proposes a new classification of labourers and capitalists that, while retaining some of the original insights of classical political economists, considers three important features of contemporary capitalism: the fact that individuals and households can earn multiple sources of income, the role of managers, and that of wealth. We apply this approach in studying the distribution of income and wealth in Italy over the period 1991–2016. We find that the labour class is growing considerably in size, while suffering an absolute and relative loss of income. Despite some labourers move towards the top of income distribution, most of the increasing representation of wage income at the top of the distribution is due to managers.