Why Incomes Stopped Rising
1. Aggregate demand factors.
When aggregate demand (or GDP) grows, employment and labour-force participation also increase, enabling incomes to rise. Conversely, lower labourforce participation rates, rising unemployment, and waning productivity (output per worker) can all lead to stagnating or falling incomes. Unemployment in particular can have a dampening effect on household income.
2. Demographic factors.
These capture changes in the number of working-age people in each household. This number has fallen in several of our focus countries because of the shrinking size of households, the result of changing family structures, lower fertility rates and aging, which decreases the number of people available to work.
3. Labour-market factors.
These include the evolving pattern in labour demand and supply. This is manifested in the wage share of GDP and the median household’s share of wages. Among the forces that can explain movements in these two factors are income gains for high-skill workers and negligible income gains or declines for low- and mediumskill workers, and the share of part-time and temporary work, which is often less well paid than full-time work. Labourmarket factors can vary depending on the role and influence of unions, different national labour regulations and practices, trade and immigration, and the degree to which jobs are affected by automation.
4. Capital income factors.
These include capital gains from asset sales, interest and dividends from investments, rental income, income from business, or income received from private pension plans.
5. Tax and transfer factors.
Transfers include a range of cash payments to beneficiaries such as social security payments, disability or workers’ compensation, and unemployment benefits. The first three of these categories—aggregate demand, demographic, and labour-market factors—contribute to changes in labour income. Changes in market income are driven by changes in this labour income, together with changes in capital income. Disposable income is the amount households receive after taxes, and transfers are applied to market income.