Being rich isn't what it once was

The share of U.S. wealth in the hands of the top 1% of U.S. persons fell a lot in the twentieth century.  Take a look at the trend, as estimated in a new working paper by Wojciech Kopczuk and Emmanuel Saez ("Top Wealth Shares in the United States, 1916-2000: Evidence from Estate Tax Returns")

Figure 2 in Kopczuk and Saez.

The share ranges between 35% and 40% from 1916 to the start of the depression, then falls through the depression years and the world war. After the war, it never rises above 25%, and even appears to fall somewhat during the 1970s. It is stable at about 21-22% during the boom of the 1990s.

What caused these shifts?  Kopczuk and Saez have some ideas:

• The shift from the "high" wealth share before the depression to the "low" level from the world war on may be associated with (a) the collapse of stock values during the depression and (b) the increase in corporate income taxes during WWII. (p 11)


• The failure of the wealth share to bounce back after the world war may be due to (a) the persistence of progressive income and estate taxes after the world war, (b) the emergence of strong anti-trust policies in the New Deal and their persistence after the war, and (c) post-war "democratization" of higher education contributing "to the emergence of a large middle and upper middle class in America which was able to accumulate wealth and hence perhaps reduce the share of total wealth accruing to the groups in the top percentile." (pgs 18-19)


• A week or so ago I posted on an analysis of twentieth century income trends in top income groups prepared by Piketty and Saez. The figure I posted showed upward trends in the income shares received by the top 10% and 1% of U.S. income earners in recent years. The figure above shows that this increase in income didn't translate (up to 2000) in an increase in the wealth share for the top 1% of the population. Kopczuk and Saez speculate that (a) there was not enough time during the boom for people to accumulate enough wealth, (b) savings rates for people with high incomes may be lower now than they once were, (c) a larger proportion of high earners may be up there for only a short period of time. (pgs. 16-17)

This time series isn't available from government data sets. Kopczuk and Saez had to estimate this using information from estate tax records and data sets on mortality rates. The paper provides the details and a discussion of potential biases.