Berman and Milanovic show increased "intersection between the top decile of capital-income recipients and labor-income earners" since Reagan 1986 tax reform has led to higher income inequality

Regrettably the study does not mention another factor, how free-trade, particularly with China and East Asia generally, helped drive wages in the US at the bottom ever lower. The Reagan era produced a perfect storm of screwed for the bottom half in America.

Here:

Where does homoploutia come from? The data do not allow us to determine that with certainty, but they allow to investigate what is consistent with individual hypotheses. There is strong evidence that increased wage-stretching that began around 1980 is associated with the rising homoploutia (the other alternatives that do not perform as well are rising inequality of capital incomes and rising capital share).

The link between higher inequality of labor incomes and homoploutia might have occurred in two ways. The first is that many high-earning individuals saved a large share of their wages, invested it, and after some years began receiving large capital incomes. The second is that many capital-rich people decided, perhaps because of changed social norms, or because top jobs became more lucrative as marginal tax rates were reduced, not to treat university education as “luxury consumption” but rather to use it to secure good jobs. It could be, of course, that both mechanisms were at work. 

Has America Exported Its Middle Class?

Thomas Edsall for the New York Times here seems to think so, and summarizes a number of studies which say yes and no:

Branko Milanovic, a visiting professor at CUNY who once served as a senior economist at the World Bank, has tracked worldwide changes in income growth from 1998 to 2008.

Milanovic calculates that the middle class in China and India experienced 60 to 70 percent income growth from 1998 to 2008, while growth stalled for the middle and working classes in the United States.

The question then becomes, in Milanovic’s words, “Does the growth of China and India take place on the back of the middle class in rich countries,” especially the United States? Milanovic does not claim a direct causal relationship, but contends that the two “may not be unrelated.”