Capital in the Twenty-First Century

Piketty looks at the reasons for inequality of labour income, which has exploded since the 1980s, especially in the United States. He also considers why different countries have varying degrees of labour income inequality. According to standard theory, a worker’s wages are determined first by their marginal productivity, the additional output their labour brings to a company. Wages are determined by the skill of a worker relative to supply and demand for that skill. For example, if demand is high for pilots, due to an expansion in the aviation industry and there are few trained pilots, the wages of pilots relative to other workers will increase.

Piketty criticises this theory for being “limited and naïve” (383). As he points out, the marginal productivity of a worker is often, especially in large companies, hard to judge. Moreover, this theory ignores the fact that “the relative power of different social groups often plays a central role in determining what each worker is paid” (383). That said, the theory does highlight the centrality of supply and demand of skills for determining wage inequality. Both these factors depend on the state of education and the level of technology. As technology improves and is implemented in business and the economy, new occupations are created.