Recap so far:  Income growth among the top .01% of earners has been driving rising US inequality over the past few decades.  But the improved fortunes of the super-rich is partly an artifact of 1986 tax reforms, which resulted in business income being increasingly reported on individual tax returns (rather than on corporate forms). Thus, the widening gap between the top incomes and the rest of us did not so much reflect the creation of new income but of newly reported personal income - a change in how the income was categorized and counted.

But that's not the whole story. A select group of Americans really did see their incomes rise spectacularly and not just on paper. These were executives, managers, financial professionals, and technology professionals - occupations that often come with wealth-based income streams, such as stock options.  Indeed:

“The incomes of executives, managers, financial professionals, and technology professionals who are in the top 0.1 percent of the income distribution are found to be very sensitive to stock market fluctuations." Bakija, Cole, and Heim (2012)

This is where income inequality meets wealth inequality: the income of the very, very rich is augmented by their assets, mostly business equity and financial investments, which alone account for over 75% of the wealth of the top 1% (Wolff, 2017).  The value of capital has been growing faster than the value of labor, so the lucky few who own a bunch of capital - mainly successful business owners and major players in the stock market - have done rather well for themselves.

The points I've made so far in this series are pretty much in line with Bakija, Cole, and Heim (2012):

[Between] "financial market asset prices, corporate governance, entrepreneurship, and income shifting across corporate and personal tax bases... the dramatic rise in top income shares is largely explained."

But inequality isn't just about what's happening at one end of the income or wealth distribution.  Within the wider society, inequality is alive and well, thanks to assortative mating.  Next

References:

Bakija, J., Cole, A. and Heim, B. Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data, Working Paper Williams College, April 2012.

Wolff, Edward N.  Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered?  NBER Working Paper No. 24085 Issued in November 2017