Labor, Capital, and Inequality in New York: A Functional Income Approach
New York City is facing a political and economic moment defined by a basic contradiction. It is one of the richest local economies in the United States, but gains from that wealth are not broadly shared. Affordability is now the central issue in the city’s political economy.
Mohamed Obaidy, Ph.D., associate director and economist at CNYCA, examines a distinct dimension of inequality: the distribution of income between labor and capital. While wage inequality describes how labor income is distributed among workers, functional income distribution examines how economic output is divided between compensation to workers (labor) and compensation to business owners (capital). This approach can reveal whether labor, as a collective unit, receives a growing or shrinking share of the economic output they help produce.
Taking this approach, the report offers several startling findings:
Between 2001 and 2024, the labor share declined and capital share increased across the U.S., New York State, and in New York City. However, New York City experienced the most striking decline in labor share - from 55.9 percent to 49.2 percent - and largest increase in capital share - from 39.8 percent to 46 percent - making it one of the most unequal cities in the country from a functional income lens.
New York City workers are the most productive they’ve been in 20 years, but it has not translated into wage growth for the bottom 90 percent of workers. While labor productivity increased by 36.3 percent from 2001 to 2024, average hourly wage excluding the top 10 percent wage earners increased by 22.5 percent only.
New York City’s current business taxation system does not adequately capture enough taxes from this growing capital share. Policymakers have an opportunity to examine what income is taxed, how it is taxed, and whether the tax base reflects where capital income is actually generated.
The report concludes with recommendations to address functional income inequality in New York City. Policymakers could strengthen New York workers’ rights and bargaining power, while also examining what and how income is taxed to best capture where capital income is generated in the economy today.