Capitalists in the Twenty-first Century

122 Pages Posted: 23 Feb 2019

See all articles by Matthew Smith

Matthew Smith

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Danny Yagan

University of California, Berkeley - Department of Economics

Owen Zidar

Princeton University

Eric Zwick

University of Chicago - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 01, 2019

Abstract

Have the idle rich replaced the working rich at the top of the U.S. income distribution? Using tax data linking 11 million firms to their owners, this paper finds that entrepreneurs who actively manage their firms are key for top income inequality. Most top income is non-wage income, a primary source of which is private business profit. These profits accrue to working-age owners of closely-held, mid-market firms in skill-intensive industries. Private business profit falls by three-quarters after owner retirement or premature death. Classifying three-quarters of private business profit as human capital income, we find that most top earners are working rich: they derive most of their income from human capital, not physical or financial capital. The human capital income of private business owners exceeds top wage income and top public equity income. Growth in private business profit is explained by both rising productivity and a rising share of value added accruing to owners.

JEL Classification: D31

Suggested Citation

Smith, Matthew and Yagan, Danny and Zidar, Owen and Zwick, Eric, Capitalists in the Twenty-first Century (January 01, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-26. Available at SSRN: https://ssrn.com/abstract=3340159 or http://dx.doi.org/10.2139/ssrn.3340159

Matthew Smith

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Danny Yagan

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Owen Zidar

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

Eric Zwick (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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