Understanding 100 Years of the Evolution of Top Wealth Shares in the U.S.: What is the Role of Family Firms?

Abstract

We use a simple random growth model to study the role of changing dynamics of family firms in shaping the evolution of top wealth shares in the United States over the course of the past century. Our model generates a time path for top wealth shares remarkably similar to those found by Saez and Zucman (2016) and Gomez (2019) when the volatility of idiosyncratic shocks to the value of family firms is similar to that found for public firms by Herskovic, Kelly, Lustig, and Van Nieuwerburgh (2016) over the past 100 years. We also show that consideration of family firms contributes not only to overall wealth inequality, but also to considerable upward and downward mobility of families within the distribution of wealth. We interpret our results as indicating that improving our understanding of the economics of the process by which families found new firms and then, eventually, diversify their wealth is central to improving our understanding of the distribution of great wealth and its evolution over time.