A Profile of Very High Income Earners in the US
The US National Bureau of Economic Research have just published a fascinating dissection of top income earners, the ones we know have grabbed a rapidly escalating share of all income. This study provides a wealth of detail on the incomes of those we would suspect to be in the top 0.1% or higher (in 2004 the top 0.1% of US tax filers began at $1.4 million, the top 0.01% or 1 person in 10,000, at over $7 million.) The plausible suspects are CEOs and senior executives of large corporations; Wall Street executives running investment banks, private equity and hedge funds; top lawyers; and sports stars and celebrities.
You’ll have to pay $5 for the paper to get the wealth of data on all of these groups – it’s very rich in terms of data on top Wall Street and senior executive incomes- but there are some key findings. Senior corporate executives are very well-paid for sure – but they make up only 1 in 25 or so of the top 0.1%. (This study even calls them “Main Street”!) Top Wall Street types make much more than “Main Street” and their incomes have been rising rapidly, but they still make up only another one in ten or so of the group. Top lawyers and sports stars and celebrities add to the list but don’t exhaust it.
The bottom line is that a surprisingly large chunk of the very, very affluent may be independently very wealthy individuals as opposed to those who top identifiable very high earnings pyramids.
Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?
|Steven N. Kaplan, Joshua RauhNBER Working Paper No. 13270
Issued in July 2007
NBER Program(s): CF LS PE
—- Abstract —–
We consider how much of the top end of the income distribution can be attributed to four sectors — top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%). Individuals in the Wall Street category comprise at least as high a percentage of the top AGI brackets as non-financial executives of public companies. While the representation of top executives in the top AGI brackets has increased from 1994 to 2004, the representation of Wall Street has likely increased even more. While the groups we study represent a substantial portion of the top income groups, they miss a large number of high-earning individuals. We conclude by considering how our results inform different explanations for the increased skewness at the top end of the distribution. We argue the evidence is most consistent with theories of superstars, skill biased technological change, greater scale and their interaction.