From Working Rich to Rentiers: How Capital Income Reclaimed the Top 1%

Introduction

In their landmark paper Distributional National Accounts, Professors Saez and Zucman argue that the rise in top-end inequality since the late 1990s is driven not by wages, but by capital income — dividends, business profits, interest, and capital gains. This claim challenges the popular narrative of the “working rich” and suggests a return to a rentier-dominated elite.

Using Distributional National Accounts (DINA) data, we tested this hypothesis directly by computing the share of capital income within the Top 1% of earners from 1962 to 2019. The results are striking — and they confirm the professors’ claim with empirical clarity.

Capital vs. Labor Income

Capital income refers to the returns individuals receive from owning assets rather than from working. In the DINA framework, this includes dividends, interest, business profits, rental income, and realized capital gains — essentially, the income that flows from wealth.

By contrast, labor income consists of wages, salaries, bonuses, employer‑provided benefits, and pensions. Together, labor and capital income make up pre‑tax factor income, the broadest measure of what people earn before government taxes and transfers. Understanding the balance between these two sources is crucial, because shifts in their relative importance reveal whether top earners are primarily “working rich” or “rentiers” whose income is driven by asset ownership.

A Long Decline: 1960s to 2000

From the early 1960s through the end of the 20th century, the capital income share of the Top 1% fell steadily. In 1965, capital income accounted for roughly 72% of total pre-tax factor income for the Top 1%. By 2000, that share had dropped to just over 51%.

This decline wasn’t sudden — it was structural. It reflected a shift in the composition of top incomes:

The rise of high-salaried professionals, executives, and entrepreneurs
The expansion of stock-based compensation and bonuses
The cultural valorization of labor over passive wealth
Tax reforms in the 1980s that favored earned income
The decline of traditional rentier classes and inherited wealth

This era — often described as the age of the “working rich” — saw labor income dominate the top of the distribution.

Chart: Capital Income Share of the Top 1% Over Time

library(dplyr)
library(ggplot2)

yearly_summary <- readRDS("../../dina_yearly_summary.rds")

# Create a clean dataset focused on the Top 1%'s labor, capital, and total income
# These fields come directly from your yearly_summary object and align with DINA definitions

df_capital_top1 <- yearly_summary %>%
  transmute(
    year,  # calendar year
    
    # Total capital income for the Top 1% (dividends, interest, business income, rents, etc.)
    capital_top1 = top1_ttl_income_factor_capital,
    
    # Total labor income for the Top 1% (wages, salaries, pensions, employer contributions)
    labor_top1   = top1_ttl_income_factor_labor,
    
    # Total pre-tax factor income for the Top 1%
    total_top1   = top1_ttl_income_factor,
    
    # Capital share of total income for the Top 1%
    capital_share_top1 = capital_top1 / total_top1,
    
    # Labor share of total income for the Top 1%
    labor_share_top1   = labor_top1 / total_top1
  )

df_capital_decline <- df_capital_top1 %>%
  filter(year >= 1962, year <= 2000)

ggplot(df_capital_decline, aes(x = year, y = capital_share_top1)) +
  
  # Actual observed capital-share line
  geom_line(color = "firebrick", linewidth = 1.2) +
  
  # Regression line showing the long-term downward trend
  geom_smooth(
    method = "lm",
    se = FALSE,
    color = "black",
    linewidth = 1
  ) +
  
  labs(
    title = "Capital Income Share of the Top 1% (1962–2000)",
    subtitle = "A long, steady decline in capital’s role at the top",
    x = "Year",
    y = "Capital Income Share"
  ) +
  
  theme_minimal(base_size = 14)

Data: Saez & Zucman’s Distributional National Accounts (DINA). Analysis by the author.

# Source: Piketty, Saez, and Zucman (2016), Distributional National Accounts. Author’s calculations.
# Data: Saez & Zucman’s Distributional National Accounts (DINA). Analysis by the author.

The Inflection Point: Around 2000

The year 2000 marks a clear turning point. After decades of decline, the capital income share of the Top 1% begins to rise — sharply and persistently.

Between 2000 and 2008, capital share surged from ~51% to ~60%. By 2019, it had reached 62.5%. This reversal is not a statistical anomaly — it’s a structural shift.

What changed?

The bursting of the tech bubble shifted wealth from labor-heavy tech roles to capital-heavy finance and asset ownership
The rise of private equity, hedge funds, and pass-through business income
A surge in dividend payouts and capital gains during the post-crisis recovery
Tax policy changes that favored capital income (e.g., lower rates on dividends and gains)
The aging of top earners, many of whom transitioned from labor to asset income

Chart: Capital vs Labor Income Share of the Top 1%

# Overlay capital and labor income shares for the Top 1%
# Adds a vertical line at the year 2000 to highlight the structural break

#library(ggplot2)

ggplot(df_capital_top1, aes(x = year)) +
  
  # Capital share line
  geom_line(
    aes(y = capital_share_top1, color = "Capital share"),
    linewidth = 1.2
  ) +
  
  # Labor share line
  geom_line(
    aes(y = labor_share_top1, color = "Labor share"),
    linewidth = 1.2
  ) +
  
  # Vertical line marking the inflection point around 2000
  geom_vline(
    xintercept = 2000,
    color = "gray30",
    linewidth = 0.9,
    linetype = "dashed"
  ) +
  
  labs(
    title = "Capital vs Labor Income Share of the Top 1% (Pre-tax Factor Income)",
    subtitle = "The year 2000 marks a clear turning point in income composition",
    x = "Year",
    y = "Share of Total Income",
    color = "Income Type"
  ) +
  
  scale_color_manual(
    values = c(
      "Capital share" = "firebrick",
      "Labor share"   = "steelblue"
    )
  ) +
  
  theme_minimal(base_size = 14)

Data: Saez & Zucman’s Distributional National Accounts (DINA). Analysis by the author.

A Return to Rentier Dominance

The crossover between labor and capital shares around 2000 is visually unmistakable. Labor income, which had dominated for decades, begins to decline. Capital income rises and overtakes it — reclaiming its historical role as the primary driver of top-end inequality.

This pattern directly supports Saez and Zucman’s claim:

“The working rich are either turning into or being replaced by rentiers.”

Implications

This shift has profound implications for how we understand inequality:

Policy targeting wages alone may miss the real drivers of inequality
Capital taxation, wealth taxes, and corporate transparency become central tools
Redistribution efforts must grapple with the concentration of asset ownership, not just income flows

It also reframes the narrative: inequality today is not just about high salaries — it’s about who owns the capital.

Conclusion

The data confirms what Saez and Zucman hypothesized: since 2000, capital income has driven the rise in top-end inequality. The long decline from the 1960s to 2000 gave way to a capital resurgence — one that continues to shape the economic landscape today.

This isn’t just a story about numbers. It’s a story about power, ownership, and the evolving structure of the American elite.

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