Functional distribution, personal income inequality, and top shares of income: do social classes still matter?

Abstract

This paper aims at providing new evidence about the link between personal and functional distribution and top-shares composition. We apply a novel class scheme based on two key features of contemporary capitalism i.e., individuals/households receiving multiple types of incomes, and the role of managers. The empirical application in Germany, Spain, and Italy over the period 2000–2017 reveals two main results. First, we observe a direct link between personal and functional distributions. A marginal increase in wages received by labourers would reduce inequality, whereas those received by capitalist households would increase it. Second, we find that a significant portion of labour income at the top of the income distribution corresponds to wages received by capitalist households. We conclude that although the linear correspondence between income source and class location is more blurred today than it was 200 years ago, a class divide is still clear and more prominent than what is often indicated in the literature.