The first regularity we observe when we try to measure income inequality is that inequality with respect to capital is always greater than inequality with respect to labor. The distribution of capital ownership and income from capital is always more concentrated than the distribution of income from labor.Two points need to be clarified at once. First, we find this regularity in all countries in all periods without exception, and the magnitude of the phenomenon is striking. To give an idea of the order of magnitude in question, the upper 10 percent of the labor income distribution receives 25–30 percent of total labor income, whereas the top 10 percent of the capital income distribution owns more than 50 percent of all wealth…Second, this regularity is by no means foreordained, and its existence tells us something important about the nature of the economic and social processes that shape the dynamics of capital accumulation and the distribution of wealth. For example, suppose that at a given point, labor incomes reflect not only permanent wage inequalities among different groups of workers (based on the skill level and hierarchical position of each group) but also short-term shocks (for instance: wages and working hours in different sectors might fluctuate considerably from year to year or over the course of an individual’s career). Labor incomes would then be highly unequal in the short run, although this inequality would diminish if measured over a long period. A longer-term perspective would be ideal for studying the true inequalities of opportunity and status that are unfortunately quite difficult to measure.In a world with large short-term wage fluctuations, the main reason for accumulating wealth might be precautionary (as a reserve against a possible negative shock to income), in which case inequality of wealth would be smaller than wage inequality… All of this is logically possible but clearly not very relevant to the real world, since inequality of wealth is always and everywhere much greater than inequality of income from labor…If wealth is accumulated primarily for life-cycle reasons (saving for retirement, say), then everyone would be expected to accumulate a stock of capital more or less proportional to his or her wage level in order to maintain approximately the same standard of living after retirement. In that case, inequality of wealth would be a simple translation in time of inequality of income from labor and would as such have only limited importance, since the only real source of social inequality would be inequality with respect to labor.Such a mechanism is plausible, and its real-world role is of some significance, especially in aging societies. In quantitative terms, however, it is not the primary mechanism at work. Life-cycle saving cannot explain the very highly concentrated ownership of capital we observe in practice, any more than precautionary saving can. The very high concentration of capital is explained mainly by the importance of inherited wealth and its cumulative effects. The fact that the return on capital takes on extreme values also plays a significant role in this dynamic process…