Why Are the Wealthiest So Wealthy? A Longitudinal Empirical Investigation

Abstract

We use 1993-2015 Norwegian administrative panel data on wealth and income to study lifecycle wealth dynamics. At age 50, the excess wealth of the top 0.1%, relative to mid-wealth households, is accounted for by higher saving rates (34%), initial wealth (32%), and higher returns (27%), while higher labor income (5%) and inheritances (1%) account for the residual. One-fourth of the wealthiest-the "New Money"-start with negative wealth but experience rapid wealth growth early in life. Relative to the "Old Money", the New Money are characterized by even higher saving rates and returns, and also by higher labor income.

The Life-Cycle Dynamics of Wealth Mobility

“…Observing individuals over long periods of time is crucial for studying the nature of wealth accumulation and prior contributions have used this data to investigate the role of return heterogeneity (Fagereng, Guiso, Malacrino, and Pistaferri 2020), differences in saving behaviors (Fagereng, Holm, Moll, and Natvik 2019), the importance of gifts and inheritances for lifetime resources (Black, Devereux, Landaud, and Salvanes 2022), and the relationship between wealth and lifetime income (Black, Devereux, Landaud, and Salvanes 2023). In related work, Ozkan, Hubmer, Salgado, and Halvorsen (2023) focus on the drivers of wealth accumulation among the wealthiest 0.1 percent at age 50 looking backward at their lifetime trajectories.…”

“…For instance, the wealthiest group makes up 9 percent of our sample. See Ozkan et al (2023) for a detailed discussion of individuals in the top 0.1 percent of the Norwegian wealth distribution. these timing differences are related to the education choices of the individuals of each subgroup.…”

The Life-Cycle Dynamics of Wealth Mobility

“…Second, we lack information on pension entitlements, including employer-provided pension plans. Private pensions represent less than 20 percent of all pensions in Norway, while pay-as-you-go public pensions makes up the remaining 80 percent (Ozkan, Hubmer, Salgado, and Halvorsen 2023). 11…”

“…2 See Gomez (2023) for evidence from the Forbes 400 list and Ozkan, Hubmer, Salgado, and Halvorsen (2023) for evidence on the top 0.1 percent of Norwegian wealth holders. Quantitative analysis of the origins of the wealthiest individuals dates back to at least to Wedgwood (1929).…”

“…Observing individuals over long periods of time is crucial for studying the nature of wealth accumulation and prior contributions have used this data to investigate the role of return heterogeneity (Fagereng, Guiso, Malacrino, and Pistaferri 2020), differences in saving behaviors (Fagereng, Holm, Moll, and Natvik 2019), the importance of gifts and inheritances for lifetime resources (Black, Devereux, Landaud, and Salvanes 2022), and the relationship between wealth and lifetime income (Black, Devereux, Landaud, and Salvanes 2023). In related work, Ozkan, Hubmer, Salgado, and Halvorsen (2023) focus on the drivers of wealth accumulation among the wealthiest 0.1 percent at age 50 looking backward at their lifetime trajectories.…”