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Wealth and Income in the Top 1%

One thing I really like about the Occupy movement is that it reclaiming mental space. I’m thinking of the overt focus on the riches gained by the top 1%, and of naming and shaming capitalism. Two are one and the same, of course. It is in the top 1% that we find the capitalists – those who own large chunks of the economy as we know it – as well as the chief beneficiaries of capitalist enterprise – those who receive high incomes due to the proximity to the system’s core, including executives, bankers, lawyers and other professionals who command high incomes but may not have an ownership stake (though they probably do).

With this in mind, I pulled together some numbers to get at how the pie is sliced. There is some Canadian data but it is patchy because we simply do not ask these impolite questions about who gets what. So to round out our understanding I draw on some US data.

Statistics Canada generally does not release statistics on Canada’s top 1%. StatsCan’s Social Policy Simulation Database and Model allows you to make a good estimate, as it draws on tax data, so I just crunched these out. For 2010, the top 1% (works out to a household income over $366,717) took 10.5% of total income (market income plus investment income plus government transfers). The next 4% took 12.0%. Overall, the top 10% of households (income over $148,241) got just under one-third of the income (32.9%).

The real action, though, is around wealth (who owns and controls what), not just the distribution of annual incomes (wages, salaries and bonuses made in a year). For wealth, we only have Canadian data for the top 10%, and only as far back as 2005 (Morisette and Zhang 2006):

A key point is that wealth is much more unequally distributed than income. These numbers are striking, with 58% of wealth in the hands of the top 10%. But we hit a bit of a wall when it comes to looking further up. There does tend to be a bit of fractal pattern that happens with distribution, so if the top 10% get 58% of the wealth, a rough estimate is that the top 1% would get 58% of the income of the top 10%, so about one-third of the total wealth. Meanwhile, the bottom half of households have a teensy 3% of total wealth, with the bottom 10% completely underwater (liabilities greater than assets, or negative net worth).

To probe the nuances of income and wealth maldistribution, US data is more informative. While the distribution of both income and wealth tends to be worse in the US than Canada, we have been racing hard to close that gap.

There is is nice summary of research on who the top 1% of US income earners are and what they do here. But let’s instead focus on Edward Wolff’s research on wealth inequality in the US, which highlights the differences between the distribution of income, wealth and non-housing wealth:

Whereas the top 1% garnered more than one-fifth (21.3%) of American income, they held a bigger slice – more than one-third (34.6%) – of total wealth (total assets less liabilities, or net worth). Because the middle class typically hold the vast majority of their wealth (to the extent they have any) in the form of housing, if housing is stripped out we get a better picture of the distribution of control over economic resources (or financial capital). Here, Wolff finds the top 1% take more than two-fifths of the wealth (42.7%).

The breakdowns from Wolff for shares outside the top 1% are similarly revealing. It is striking that what we might think of as capitalism, the ownership of the private economy, is almost entirely locked up by the top 10%, who hold 82% of US financial wealth. The financial return on that wealth feeds back into the distribution of income in any given year. As the richest have pushed their advantage, the distribution of income has become increasingly more unequal, even though the wealth share itself was about the same in 2006 as in 1983. The converse of this “top heavy” distribution is that the bottom 60% of households getting about 20% of the income, enough to stay alive but not enough to accumulate assets and therefore get into “the ownership society”.

So changes in the distribution of income are a must, and that includes measures that strengthen the hand of workers, like unionizing the low-wage service sector and living wage policies in the labour market along with progressive income taxes for the top earners and greater redistribution of those revenues into public services and income transfers (like a guaranteed income). But we need to go further and challenge the inequitable distribution of wealth itself by taxing financial wealth, or minimally the transfer of that wealth through inheritances, bequests and gifts.






Enjoy and share:


Comment from Sandwichman
Time: October 20, 2011, 1:44 pm

Excellent, Marc! I had the question today about Canadian stats after I posted a photo of a great picket sign from OWS showing a graph of annual household income in the U.S.:

Comment from Sandwichman
Time: October 20, 2011, 6:47 pm

Marc, I asked Trish Hennessey the question earlier today and now she has referred me to this report by Armine Yalnizyan:

Comment from Darwin O’Connor
Time: October 21, 2011, 9:00 am

The chart that Sandwichman points to, and I’ve see elsewhere, is the one I think best sums up the 99% movement. It’s dramatic and easy to understand. It shows the dramatic rise of the 1% and the stagnation of everyone else. It might be more dramatic if it was done by individual income rather then household income because many household have become two income over the last few decades.

Generating an equivalent one for Canada would be very helpful.

Comment from Dan
Time: October 24, 2011, 12:35 pm

Actually, if you look at the data a little more closely you’ll see that the share of wealth of the top 1% hasn’t actually changed all that much. And if you go back to the full data series Wolff used, you’ll see that the share of wealth of the top 1% has been higher at multiple points in the past, going back to the period right after the great depression. It’s not really growing. Furthermore, it didn’t vary much even when marginal income tax rates in the States approached 90% – nor did government revenue change much.

This suggests that wealth accumulation has a lot more to do with the intrinsic nature of the population than with specific tax policies. That the top 20% control 85% of the wealth is not surprising if you follow Pareto’s principle for large populations. It could simply mean that 20% of the people generate 85% of the value in the economy. If that’s the case, then taking away their wealth could have drastic consequences for economic growth.

You also have to be careful with the income data when attempting to interpret it through the lens of class division. For one thing, you should really adjust it for age, since young people tend to be poorer and earn less money than old people, and that’s perfectly natural.

You also need to adjust it for cost of living, because the people who earn the highest incomes tend to be forced to live in the most expensive places and have the most expensive educations that many are still paying off. A lawyer living in Manhattan may earn a big salary, but he’s probably also living in a $3,000/mo apartment that would cost $800/mo anywhere else, and he may be paying off $200,000 in student loans from an ivy-league school that has subjected his ilk to cost increases more than twice the rate of inflation.

Therefore, what you may be seeing in the rise of income at the top is partly the result of rent-seekers driving up prices in everything associated with in-demand jobs, and salaries going up to match.

Finally, another big change in income distribution has to do with the rise of professional two-income households, and the growing share of wealth those households are capturing. That includes engineers, doctors, lawyers, and public union members. A household with two nurses in it can be earning close to $200,000/yr, plus extraordinarily good public service pensions. Are those really the people you want to go after? But it’s families like that which have done the best in the past 20 years, at the expense of people without college educations or people employed in the private sector in small businesses.

Comment from Darwin O’Connor
Time: October 25, 2011, 12:05 pm

“It could simply mean that 20% of the people generate 85% of the value in the economy.”

I don’t think so. I especially don’t think the 1% generate 35% of the value in the economy. Of course it may depend on you definition of value. Much of the money the 1% generates comes from fictionalization stuff. Although it may show up on the GDP, it doesn’t actually do anything, but shift stacks of money around.

“you should really adjust it for age”

I’m not sure why this would be a factor. There has always been people of a variety of ages for any given year.

“Finally, another big change in income distribution has to do with the rise of professional two-income households”

I expect the rise of two-income households is much more likely to be helping to keep income inequity from getting even worse or cause it. Adding another income make a bigger difference to house hold income if the first income is average then if it is exceptionally high.

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