So how could inequality rise so sharply since the 1990s, despite the stability of the wage-profit split? First, because the wage structure has shifted markedly in favor of very high wages. While the vast majority have seen most of their wage increases absorbed by inflation, very high salaries—especially those above €200,000 a year—have experienced considerable increases in purchasing power.

The second explanation is that the much-discussed stability of the wage-profit split doesn’t take into account increased levies on labor (especially payroll taxes for social insurance) or the fall in taxes on capital (particularly the profit tax). If we look at the incomes actually pocketed by households, we find that the capital income share (dividends, interest, rent) has risen continually while the after-tax wage share has dropped relentlessly, making the growth of inequality that much worse. Not to mention that companies doped up by the stock market bubble and its illusory (and undertaxed) capital gains have doubled their dividend payouts in the last twenty years, to the point where their ability to self-finance their operations has gone negative (retained profits, which are less than half of gross profits, are not even enough to replace worn-out capital). The answer, again, lies in the tax system and requires a rebalancing between labor and capital—for example, by subjecting business profits to family-benefit and national health contributions. [...]