In 2016, U.S. companies’ pursuit of bigger profits through higher prices transferred 3 percentage points of national income from the pockets of low-income and middle-class families to the wealthy, according to new research on market concentration and inequality.

The study, forthcoming in the Oxford Review of Economic Policy, examines growing consolidation of corporate power. 

With 401(k)s becoming more common, the traditional line between shareholders and consumers has become blurrier than ever. That’s led a number of economists to declare that what’s good for shareholders is also, by definition, good for the middle class.

At the risk of oversimplifying, take the example of a family with a diabetic member who must pay for insulin on a regular basis. The family also happens to own stock in the three powerful pharmaceutical companies that manufacture insulin in the United States. Those companies have drastically increased the prices of insulin in recent years, in part because of their dominance of the domestic insulin market. Those price increases have resulted in higher profits for company executives and their shareholders.

Whether those price hikes ultimately harm or benefit the family depends on two factors: how much they spend on insulin and how much of a stake in the insulin companies they own through the stock market.

To answer this, the researchers use data from the federal Survey of Consumer Finances and the Consumer Expenditure Survey to calculate the distribution of corporate equity and of total consumer expenditures. They find that corporate equity is much more unequally distributed than expenditures.

The top 20 percent of U.S. households own nearly 90 percent of the country’s total equity, the study said. But those households account for a hair under 40 percent of total consumer spending. On net, that means it’s nearly impossible for the typical family to make up for higher prices via their stock portfolio.

The researchers took it a bit further, finding that monopolistic pricing takes a bite out of every income group’s share of national income, with the notable exception of the top 20 percent, whose incomes rise. In effect, companies are using their market power to extract wealth from poor and middle-class households and deposit it in the pockets of the wealthy, to the tune of about 3 percent of national household income in 2016.

 

Ingraham writes for the Washington Post.