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Income vs. Wealth Inequality

by Emmanuel Saez

Over the last 30 years, the bottom 90 per cent of families saved zero, on average, while top wealth holders have been able to save more and more.

Everywhere you look today, people are talking about inequality in developed countries. One simple way to measure that is to estimate top-income shares: What share of total, pre-tax income goes to certain groups—such as the top 10% of families, the top 1% of families, or the top 0.1% of families?

Advanced economies typically started their progressive income taxes a century ago. Thomas Piketty first studied the case of France, and shortly thereafter, together we studied the U.S. Since then, over 25 countries have been studied through a collective effort involving many researchers. The data are posted online in the World Wealth and Income Database — a global project that includes statistics covering North America, most of Western Europe and a number of developing countries, such as China and India.

As evidenced by this database, the U.S. has gone through large variations in income concentration: In recent years, the top 10 per cent’s income share has grown from 33 to over 50 per cent, surpassing the peaks of pre-World War II. The tax data allow us to disaggregate further within the top 10 per cent. A simple way to do that is to decompose it into three groups: The top 1%, the next 4%, and the next 5% (i.e., the bottom half of the top decile).

Using these measures, the top 10% gained 17 percentage points since the late 1970s, going from 33 to 50 percentage points; and almost all of those 17 percentage points—between 12 and 13—have gone to the top 1% (families with incomes above $443,000 in 2015). Their share of total pre-tax income rose from nine percentage points to somewhere between 21 and 22 in recent years.

The next 4% are families making between $180,500 and $443,000 in 2015, and this group has gained, but only three or four points. The last income share series for the bottom half of the top 10 per cent (families with incomes between $125,000 and $180,000 in 2015) has not experienced much gain at all since the 1970s.

Even within the top 1%, the gains are unequal and grow larger, the higher you go. The share of income of the top 0.1% (families with more than $2 million in income today) has gone up from 3% in the late 1970s to 11 per cent in 2015. Therefore, a big part of the increasing income concentration can be traced to this very top income group.

In the U.S. today, wealth is so concentrated that the share owned by the bottom 90 per cent of families is only slightly above 20 per cent, and hence about the same as the share for the top 0.1%. That means that the wealth of the top 0.1% of families is 900 times larger, on average, than the average wealth of the bottom 90 per cent of families.

On the housing front, it is well known that the explosion of mortgage refinancing has eaten into the equity of the bottom 90 per cent. Combined with other forms of debt, including consumer credit cards and loans, this explosion in debt means, effectively, that over the last 30 years, the bottom 90 per cent of families saved zero, on average, while top wealth holders have been able to save more and more.

The result: A huge increase in wealth inequality that, unfortunately, is likely to persist — short of adopting more drastic policies aimed at curbing the wealth at the top and encouraging wealth accumulation at the bottom. 

Emmanuel Saez is a Professor of Economics and Director of the Centre for Equitable Growth at the University of California, Berkeley. For more, visit the World Wealth and Income Database at

This article originally appeared in The Inequality Issue (Fall 2017) of Rotman Management. The magazine offers the latest thinking on leadership and innovation and is published three times a year. 

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