Numerous scholars have identified various factors associated with growing levels of income inequality. This is a summary of some, not all, of the more prevalent evidence-based studies.
Stock Market, Rise of Financial Sector and Finance Driven Technology Boom. Galbraith (2012) places a great deal of inequality squarely on the heart of the financial crisis. He says, “The crisis was about the terms of credit between wealthy and everyone else, as mediated by mortgage companies, banks, rating agencies, investment banks, government sponsored enterprises, and the derivative markets.
He also demonstrates that increased levels of inequality are reflected in the finance driven technology boom. His analysis of the role of technology is more nuanced than the traditional proposition that technology causes inequality. He maintains the technology industry in the US “structured itself to take advantage of venture capital and use those funds to bid up pay, especially in the higher ranks of the technology firms.” Later on he says, “…inequality in the structure of incomes largely follows the stock market. People at the very top of the income structure hold a large share of our corporate stocks, pay themselves with stock options, and finance their companies with venture capital in a rising equities market…In the 1990s, it was the boom in technology markets that drove capital wealth and incomes of these individuals up, which drove the inequality in (manufacturing) wage structures down.” See Galbraith, James K. (2012). Inequality and Instability: A Study of the World Economy Just Before the Great Crisis and Galbraith: Inequality is an Engine of Instability and Collapse
Marginal Tax Rates. Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva find lower marginal tax rates on the rich results in higher income inequality. See Taxes, Economic Growth and Inequality and the Tax Policy Center’s analysis of the role of tax cuts at The Effect of Tax Cuts on Income Distribution.
Inheritance. Wolff and Gittleman (2010) examine the role of inheritance. See Inheritance of Wealth.
Stolper-Samuelson Theorem: Cheap Foreign Labor. Bivens (2007), supporting the Stolper-Samuelson theorem, concluded that trade explained 12.5 percent of the growth in income inequality between 1980 and 1995. See How Much of the Wage Gap is Explained by Cheap Foreign Labor?
Capital Gains and Dividends. One of the best multivariate studies that decomposes the factors of inequality is Hungerford (2011). Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006: The Role of Labor Income, Capital Income, and Tax Policy. Bernstein, using Hungerford’s analysis and data, provides a succinct depiction of the contribution of the various income sources to changing income inequality, 1996-2006.
The above figure clearly depicts the large role capital gains and dividends play in changes to income inequality, 1996-2006. See Major Contributor to Income Inequality Identified Related: Lenzner: The Top 0.1% of the Nation Earn Half of All Capital Gains and there is evidence that the Top 1% Captured 93% of the Income Gains in the First Year of Recovery.
Decline of Unions. Some scholars have linked the decline in unions to wage inequality. See Deunionization, Wage Inequality and the Decline of the Middle Class
Interested readers should also Google “Kuznets curve and inequality” to understand a theory of economic development that predicts in a developing economy inequality will rise to a certain point and then decline.