Why did the one percent do so well? Mainly, their jobs pay a lot more than they used to. Top earners do make a lot of money from investment income and business profits. But what CBO calls "labor income" — salary, bonus, etc. — accounts for the biggest chunk of income for the top one percent.
This raises a second question: Why have salary, bonus, etc. gone up so much for this group? Lots of economists have been asking this question, and CBO runs through some of the possibilities, without really settling on an answer. Three of the possibilities suggested by the report:"
1. Companies have grown larger and more complex. So a single executive can have a bigger impact on profits. Therefore, it's rational for companies to pay executives a lot more.
2. A shift toward paying execs with stock options means that the value of their pay packages can shoot way up when the stock market rises.
3. "Weaknesses in corporate governance have enabled corporate executives to overpay themselves." In other words, it's not rational for companies to pay executives so much.
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