Visicalc was released in 1979 and with that the microcomputer revolution was underway. Productivity soared while labor costs remained relatively stagnant. Every job we eliminate with software is an increase in productivity and a downward pressure on labor costs. Fast-forward 40 years and here we are.

A lot of things happened. Reagan lowered taxes, increasing the incentive to move money out of your buisness and into other investments. Globalism startedly picking up, meaning a lot of wage growth for the lower classes was outsorced to other countries instead of kept in America. The graph doesn’t capture how total employee compensation has risen a bit more than in that graph due to the explosion of costs in the American Medical sector eating up a lot of the potential compensation increase. Perhaps most importantly, Reagan began the attack on unions, resulting in there being less ability on the employee side to argue for increased wages. You could argue the massive money printing starting with the Iraq wars and going through the 2008 crisis has led to a massive funneling of that created money to the upper class, further increasing the inequality, and further exacerbated again by the death on unions meaning workers had less advocates in washington arguing for the lower classes to get a piece of that pie.

This is a good summary of what happened. I'd add a few more: the wealthy invested more and more into the political system in the past 30-40 years, culiminating in the millions pouring in each year following Citizens United. They use their influence to co-opt government power, allowing them to use regulatory capture to fend off competitors, capture big government contracts from forever wars, and loosen regulations to benefit their own interests.

It's a vicious cycle, and if we just use the benefits of a wealth tax to build a larger federal government, that apparatus will only be used against the poor/middle class and for (most of) the wealthy. We have to redistribute this wealth back down to the individual and community level for it to have an effect, since it's harder for ultra-wealthy to co-opt thousands of communities and millions of free-thinking individuals than to co-opt centralized gov power (although manufacturing consent can come into play here).

> increasing the incentive to move money out of your buisness and into other investments

how does lower taxes incentivize moving money out of businesses? What investments were they moving into?

Higher taxes on income, dividends, and realized gains incentivize money being reinvested in the business instead of distributed to shareholders. If taking money out of a company creates taxable income, stockholders have an extra reason to press companies to find ways they can use that money to increase value instead.

Basically, an extra incentive for companies to hire more people and do more research instead of do things like stock buybacks.

A few things happened around that time that might of contributed. Movement to a fiat currency as opposed to the gold standard, women joined the workforce in larger numbers through the 70's and 80's, globalization as a concept was born and outsourcing boomed.

It's not at all clear to me that 1979 is even the best reference year to pick. It looks to me like the trend lines broke in 1973-1975, but by the nature of this type of chart, careful choice in starting year can provide a chart that suggests a different break point. (It's probably better to think of these as "fuzzy" lines, which are 10% starting in each of 1946, 1947...1955.)

Yeah, 1973 is a much better reference year. Both because that's what the data actually says, and because there was a very clear cause: inflation. 1973 was the year of the oil crisis, the year that fixed exchange rates under Bretton Woods became floating exchange rates, and the year that the 1970s inflation happened.

Inflation doesn't affect all professions equally. Differentiated professions (those where there's only a limited supply of workers, and a limited number of positions) can bargain for higher wages, because there's nobody else that can take the job if you don't. The common people can't, because that's what it means to be common: you are easily replaceable. Hence when inflation hits, the upper classes capture the vast majority of the new money and new wealth created, while the lower classes get stuck with the same nominal wage, which purchases far less.

seems to me 72 was when the divergence started, and 79 was just when it became permanent

A little bit earlier

Bretton Woods system collapsed between 1971 and 1977

It was more like 1971: http://wtfhappenedin1971.com

Ronald Reagan happened.

Neoliberalism happend.