The US economy has fundamentally shifted in recent decades. Income earned from work has fallen to a record low share of national income, while the share of income earned from capital, like owning stocks or businesses, has risen. This gradual shift has taken place alongside recent economic trends—rising prices and affordability challenges, AI-driven labor market disruptions, extreme wealth concentration—that have contributed to a persistent sense of economic pessimism (PDF) among American households.

The current economy has broken old relationships between work, income, and wealth. How can policymakers provide economic security in the world we live in now?

Some proposed ideas focus on building wealth at key thresholds or sharing wealth more widely. Others propose ways to increase household incomes. And still more seek to better protect workers and households against the whims of the labor market.

Alone, none of these ideas orient the economy toward supporting workers and households. What current conversations—about wealth, income, earnings, and work—too often miss is how tightly these ideas are interwoven. To help families achieve durable economic security in the modern economy, policymakers need to offer integrated policy solutions that address income and wealth together, and analysts need to produce new research and metrics that explore the effectiveness of such policies.

Labor market disruptions are reshaping wealth, income, and economic security

On an intuitive level, the connections between income, wealth, and economic security are clear. For most households, most income comes from earnings from work, and wealth accumulates by saving earned income. That wealth is then used to purchase assets (which can allow wealth to accumulate), cover unforeseen costs, and prepare for the future.

Recent changes in employment patterns and earnings have affected the relationship between work and wealth. Unpredictable and volatile incomes heighten workers’ need for wealth—to cope with interruptions in income and feel positively about the future—even as they undermine workers’ ability to build wealth. With disruptions to the labor market from AI, the rising importance of gig work and self-employment, market concentration, the decline of defined benefit pensions, and changes to occupations and the type of work employers seek, people are experiencing less certainty in their hours, salaries, employment benefits, and jobs.

When these disruptions lead to job loss and displacement, workers can face greater pressure on earnings and opportunities to accumulate wealth. And in an economy where health care, housing, and energy costs are already increasing, more families may struggle to stay afloat. Such cost burdens tend to disproportionately affect people who already have lower incomes, whose wages and salaries haven’t always kept up with inflation.  

Existing policy has benefited those with existing wealth, and failed to benefit workers

Alongside these labor market trends, other economic forces have increasingly favored capital ownership relative to work. Wealthier people see higher returns on their assets, while those who are trying to earn enough income to build wealth have less opportunity to do so. The rise of AI especially threatens to accelerate trends that have favored capital, as the economic benefits of AI may flow disproportionately to those who own the technology investments, rather than workers.

In many ways, policy decisions have created this reality. Tax policy advantages wealth and its growth, treating capital relatively favorably, which allows wealthier people to accumulate wealth and derive passive income from their wealth while being lightly taxed. But current policy is less effective at helping people with lower incomes. Instead of focusing on how wage-earning workers can build and convert their earnings into wealth, most economic policy seeks to plug holes in income.

At the same time, existing forms of social insurance, such as unemployment insurance, no longer effectively protect many workers, and outright gaps in the safety net, such as the lack of national paid leave policy, mean that a loss of income can greatly exacerbate insecurity. Further, union jobs and protections have declined, which has contributed to weaker earnings and job security for many workers. As a consequence, many workers today have to rely on—and draw down—personal wealth to weather shocks.

Policymakers who want to support wealth-building for people in lower- and middle-income groups also need indicators of when people have predictable incomes and sufficient wealth. If building wealth over time is a function of predictable incomes, then policymakers need more frequent and accurate measures of earnings from different types of work and total household income, as well as agreed-upon benchmarks of what constitutes sufficient income to plan and save.

Solutions that can reconnect income and wealth

Policymakers can create a more virtuous relationship between income and wealth that allows for both to grow.

First, policymakers should consider labor policies that promote sufficient and stable earnings, such as laws that require giving notice for changes in hours and scheduling.

Second, policymakers can explore ways to respond to changing labor market dynamics. Recent conversations about AI-adjustment insurance, forms of wage insurance, and paid leave could support families who lose earnings and allow them to plan for illness and older relatives’ long-term care needs.

Third, policymakers can align wealth-building policies with different starting points in the wealth distribution. Those starting with no inherited wealth could receive more tax deferrals or no tax liability to protect their savings for the future. They could also receive home and business ownership loans at lower interest rates to ensure they pay off the principal and accumulate wealth, rather than taking longer to pay down interest (which studies have shown is more common for people at lower incomes and with low or no starting wealth).

Together, these policies can strengthen the economy while responding to its changes. Pursuing parallel tracks of income stabilization and wealth accumulation is necessary for families to thrive.