Macro Roundup

WSJ write up of Rose’s Urban research

Josh Zumbrun, Not Just the 1%: The Upper Middle Class Is Larger and Richer Than Ever,"Wall Street Journal, June 21, 2016, https://blogs.wsj.com/economics/2016/06/21/not-just-the-1-the-upper-middle-class-is-larger-and-richer-than-ever/

Not Just the 1%: The Upper Middle Class Is Larger and Richer Than Ever

A range of data after the recession and the housing bust supported the idea that only a tiny elite of U.S. society, generally seen as the top 1%, had rebounded and was doing well.

But a growing body of evidence suggests the economic expansion since the 2007-09 financial crisis has enriched a much larger swath of the upper middle class, and that a deeper income divide is developing between that top quarter or so of the population and everyone else.

The latest piece of evidence comes from economist Stephen Rose of the Urban Institute, who finds in Research that the upper middle class in the U.S. is larger and richer than it’s ever been. He finds the upper middle class has expanded from about 12% of the population in 1979 to a new record of nearly 30% as of 2014.

“Any discussion of inequality that is limited to the 1% misses a lot of the picture because it ignores the large inequality between the growing upper middle class and the middle and lower middle classes,” said Mr. Rose. The Urban Institute is a nonpartisan policy research group.

Using Census Bureau data available through 2014, he defines the upper middle class as any household earning $100,000 to $350,000 for a family of three: at least double the U.S. median household income and about five times the poverty level. At the same time, they are quite distinct from the richest households. Instead of inheritors of dynastic wealth or the chief executives of large companies, they are likely middle-managers or professionals in business, law or medicine with bachelors and especially advanced degrees.

Smaller households can earn somewhat less to be classified as upper middle-class; larger households need to earn somewhat more.

Mr. Rose adjusts these thresholds for inflation back to 1979 and finds the population earning this much money has never been so large. One could quibble with his exact thresholds or with the adjustment that he uses for inflation. But using different measures of inflation, or using higher income thresholds for the upper-middle class, produces the same result: substantial growth among this group since the 1970s.

Mr. Rose’s new paper is part of a broader body of research reappraising and seeking to measure the upper middle class. This reappraisal does not fit comfortably in the left or the right’s political narratives. While it underscores the growth of American economic inequality, it undermines the idea of lower- and upper-middle-class voters being in the same boat. It suggests that the majority of Americans have indeed struggled but that a large minority has thrived.

Research from Sean Reardon of Stanford University and Kendra Bischoff of Cornell University, for example, found in research published in March that the number of families living in affluent neighborhoods has more than doubled, to 16% of the population in 2012 from 7% in 1980. They define these neighborhoods as those where the median income is at least 50% higher than the rest of the city.

The Pew Research Center last month found that 203 metropolitan areas have seen their middle class shrink, but in 172 of those cities, the shrinkage was in part due to the growth in wealthier families. (In 160 of the cities, the share of lower-income families grew as well.) So Pew found the middle class shrinking from both ends—not just from families falling below the middle class, but also because of families rising out.

Richard Reeves, a senior fellow at the Brookings Institution, a centrist think tank, is writing a book called “Dream Hoarders” that looks at the way upper-middle-class families perpetuate their status across generations, in ways that can sometimes be harmful to middle- or lower-middle-class families. Mr. Reeves argues that many of the social anxieties and resentments against inequality are in fact driven by what he calls “the dangerous separation” between middle- and upper-middle-income families.

Take high housing costs or the soaring costs of higher education. The spread of $3,000-a-month apartments or a national average $32,000-a-year college tuition bill is not driven by heirs or CEOs renting dozens of apartments or sending dozens of children to college. It’s driven by millions of upper-middle-class families with enough income to foot those bills, Mr. Reeves said.

“It’s true the top 1% or top.1% have galloped away more quickly,” Mr. Reeves said, but ignoring the role of the upper middle class “gets in the way of an honest conversation about what’s happening with American inequality.”

Urban Institute looks at changes is income distribution in absolute not relative terms and finds the middle class hollowing out was driven by the rise of the upper middle class

“…This study found that the proportion of the population in the upper middle class went from 13 percent in 1979 to over 29 percent in 2014. The effect of this growth was magnified by the greater income differences between this group and the rest of the population. Although wealthier people always have a greater share of total income, this report documents a major shift in the distribution of economic resources. In 1979, the bottom three income groups controlled 70 percent of all incomes, and the upper middle class and rich controlled 30 percent. By 2014, this distribution shifted to 37 percent for the bottom three groups and 63 percent for the upper middle class and rich groups. The middle class alone saw its share of income decline from 46 percent in 1979 to 26 percent in 2014. Any discussion of inequality that is limited to the 1 percent misses a lot of the picture because it ignores the large inequality between the growing upper middle class and the middle and lower middle classes. This difference has a physical dimension in that most metropolitan areas differ greatly by the size and price of the homes in their neighborhoods and communities. We try to limit segregation by race or ethnicity, but segregation by income (which is growing) is accepted as a fact of life. By setting up an absolute standard of living as the defining characteristic of social classes, economic growth takes the form of people moving up from lower income groups to higher ones. As figure 1 shows, only people in the bottom five adjusted-income percentiles had lower real income in 2014 than in 1979. As incomes rise from the 7th to 99th percentile, real income growth progressively rises. So, the lower and “middle” middle class decline is because of more families qualifying for the upper middle class.As figure 3 shows, this movement would have been much larger if the 53 percent average income growth had been shared equally across the entire income distribution. Although this study found that median income grew 29 percent (only the bottom six percentiles had no real income gains), this gain excludes the growing benefits provided by employers and other sources of income. The CBO (2016) includes these factors (adjusts for family size and uses the PCE as the price deflator) and finds that median incomes grew 37 percent from 1979 to 2013 (the last year of their published data). Finally, ongoing research will focus on the demographic characteristics of the growth of the upper middle class and rich by family status, education, and race/ethnicity. The upper middle class and rich in 2014 were composed predominantly of people who were married or cohabiting (82 percent in 2014 and 86 percent in 1979), who had a bachelor’s or graduate degree (30 percent in 1979 and 59 percent in 2014), and who were non-Hispanic whites (79 percent in 2014 and 93 percent in 1979)….”

Stephen Rose, “The Growing Size And Incomes Of The Upper Middle Class,” Urban Institute, June 2016, https://www.urban.org/sites/default/files/publication/81581/2000819-The-Growing-Size-and-Incomes-of-the-Upper-Middle-Class.pdf

Cited In CBS Q&A“…A recentBrookings studyfinds the share of working- and middle-class families falling from about 80% of families in the late 1960s to 50% today, with the entire loss coming from families with rising incomes….”

In 1981 68% of the population was middle (50%) or upper middle (18%). In 2002 the same 68% of population was in the two groups but the middle middle -11% (39%) and upper middle was +11 (18% to 29%) in 2016 the share of the two ground was up to 69% of population with the middle-middle being 36% of population and upper middle 33% of population.

“..Figure 1 shows the rise in median family incomes from the first to last year (inflation- and sizeadjusted to reflect a family of three) over the two periods. The later period has higher income levels but much lower growth rates. Between 1967 and 1981, median family income rose by 27%, more than three times as much as the 8% growth experienced in the period between 2002 and 2016. It is interesting to note that in the last period, the steep recession of 2008 and slow recovery did not lead to declining real median incomes for prime-age adults. here is however a good deal of variation between individuals and families. While some will see a big jump in income, others may see a fall. Figure 2 shows the proportion of each cohort experiencing losses or gains in income. Three times as many people in the later 15-year period experienced a large loss, defined as a drop of more than 25%, compared to the earlier period (12% v. 4%). Overall, the share of people losing ground (a loss of income of at least 5%) doubled from 15% to 30% in the last period. Many fewer experienced a large gain (33% v. 53%)…Next, I show the size of the five income classes (as defined above) at the beginning and end of the two periods, i.e. 1967 and 1981; 2002 and 2016. As Figure 3 shows, the higher income classes expanded significantly during the first period. Between 1967 and 1981, the upper middle class tripled in size (from 6% to 18%) and the MMC grew by 3 percentage points (from 47% to 50%). Offsetting these gains were a corresponding shrinkage of the lower middle class (LMC) from 31% to 20% and the poor/near-poor (PNP) from 16% to 11%....The analyses presented here confirm the broadly accepted picture of rising income inequality and slowing income growth for middle-class Americans. But a few additional points are worth drawing out. First, while the benefits of economic growth have not accrued equally, they have not gone solely to the top 1%. The upper middle class has grown. Second, the main reason for the shrinking of the middle class (defined in absolute terms) is the increase in the number of people with higher incomes. Third, while there has been some narrowing of racial income gaps, and an improvement in the position of Black people in particular, they remain wide. Fourth, education matters more than ever in terms of securing a place in a high or even middle income bracket. Fifth, there has been a significant increase in the number of Americans experiencing downward mobility. Sixth, the growth of median incomes for working-age adults over a fifteen year period has declined sharply.The advantage of using longitudinal data is that it tracks the actual economic trajectory of individuals over time. It may therefore provide a better guide to how Americans, especially those in the middle class, experience their own economic position and progress. People are likely to use their own economic history as a benchmark for their progress, as well as an assessment of how well other people are doing. The big winners in recent decades have been those in the mainly college-educated upper middle class. Slower income growth for of the rest of the population, combined with a heightened risk of losing economic ground over time, may help explain the current discontent of many in the American middle class….”

New Brookings from Rose, following up on his previous research (attached) looks at the evolution of the middle class (in absolute terms) using longitudinal data to follow individual’ trajectories over time shows the primary driver of the “hollowing out” of the middle class has been the increase in the number of people with higher incomes. He does not that there has been “a significant increase in the number of Americans experiencing downward mobility” 30% which is 2x the rate of the previous period (that is an income lost of at least 5%) share of population that is poor or near poor went from 11% in 1981 to 13% in 2016. Note he does say due to immigration there are more Hispanic respondents which might account for that, though he doesn’t carve that out

“…Butthe real political legacy of the decade comes from the Civil Rights Act of 1964. It contained highly intrusive measures that were justified, in the minds of the American public, by the need to end Southern racial segregation—with its separate facilities, its inferior schools, its exclusion of Blacks from voting. The new law cut constitutional corners, constraining freedom of association, exposing criminal defendants to being retried for crimes of which they’d been acquitted, and drawing the federal government into the running of local elections.It opened the door to new kinds of lawsuits: The U.S. attorney general, for instance, could now file discrimination suits against local school districts. It imposed a degree of federal management on all institutions that received federal money. And it created a vast investigative infrastructure through the Equal Employment Opportunity Commission and various cabinet offices of civil rights….”

Christopher Caldwell, "The Democrats’ Refounding of America,"Wall Street Journal, August 13, 2020, https://www.wsj.com/articles/the-democrats-refounding-of-america-11597342320

"....That leaves the middle suburbs, with a large share of less educated and less prosperous white voters, as the battleground. These are places like Lake County, Ill.; Macomb County, Mich.; Beaver County, Pa.; and Racine County, Wis. After giving George W. Bush an edge of 2 points in 2000 and 6 in 2004, these areas turned for Barack Obama by 3 points in 2008 and shifted back to Mitt Romney by 2 in 2012. Mr. Trump prevailed in these working-class suburbs by an astonishing 13 points, propelling his narrow victories in Upper Midwest states that Republicans hadn’t carried since the 1980s.... As conservative rural and small-town voters shifted their allegiance toward Republicans and the suburbs became more important to the Democratic coalition, the party moved left on many issues.... Taken as a whole, the party’s agenda would substantially expand the size, scope and cost of the federal government. That will require higher taxes on corporations, wealthy Americans, investors and estates....."

William Galston, "Democrats Move Left, but the Center Holds,"Wall Street Journal, August 14, 2020, https://www.wsj.com/articles/democrats-move-left-but-the-center-holds-11597429469

Today’s Democratic Party is very different from the party that nominated Bill Clinton 28 years ago. It is more liberal and more ethnically and racially diverse than ever before, and more united on essentials than at any time in its recent history.

In 1994, Gallup reports, self-described moderates made up half the party, liberals and conservatives a quarter each. Today, liberals are half the party and moderates a bit more than one-third, conservatives only 14%. By contrast, conservatives already dominated the Republican Party in the 1990s—about 60% of its voters compared with a bit more than 70% today. The content of these ideological labels has changed over three decades. But Democrats’ center of gravity has shifted far more than the Republicans’. (Independents are 45% moderate, 30% conservative and 21% liberal, each within a few points of their 1994 share.)

A June 2020 report from the Pew Research Center details the party’s demographic shifts. It has become less white and more educated. In 1994, 23% of Democrats were nonwhite. Today 40% are, compared with 17% of Republicans. When it comes to education, the parties have switched places. In 1996, 22% of Democrats and 27% of Republicans had college degrees. The figures are now 41% and 29%, respectively. College-educated whites rose from 19% to 28% of Democrats, while whites without degrees fell from 58% to 30%. Non-college-educated whites now make up 57% of Republicans.

This shift has been especially pronounced among women. In 1994 nearly half of white women with college degrees identified as Republican, compared with only one-third today. White men have moved more slowly in this direction, from 59% to 51%.

Add religion to the mix, and Republicans look like the America of the 1990s while Democrats resemble projections for the 2050s. In 2008, the earliest year for which Pew has data, white Christian Democrats outnumbered religiously unaffiliated ones by 26 points. Today, unaffiliated Democrats outnumber white Christians by 12 points. By contrast, more than 6 in 10 Republicans are white Christians, and only 15% of Republicans are unaffiliated.

The level of religious polarization is the highest in the history of modern survey research. Republican identification has increased among white evangelical Protestants (from 61% in 1994 to 74%), among white Catholics (45% to 57%) and among Mormons (61% to 74%). Democratic identification among unaffiliated voters has risen, from 52% to 67%.

Then there’s geographic polarization. Urban voters have increasingly identified with Democrats and rural voters with Republicans, a trend that accelerated in 2016. Twenty percent of Mr. Clinton’s 1992 vote came from rural America, compared with only 9% of Hillary Clinton’s, according to Boston College political scientist David Hopkins.

The battleground is the suburbs—evenly divided in the early 1990s and now. The suburban share of the presidential vote has steadily increased, to an all-time high of 56% in 2016, Mr. Hopkins finds. A pronounced suburban shift toward one party would be a decisive change in the partisan balance that could reshape American politics for a generation. Democrats have become increasingly dependent on suburban voters, whose share of the Democratic presidential total has risen to 52% from 40% while the party’s urban vote share remained stable and its rural share collapsed.

These trends are even more pronounced in congressional elections. According to Mr. Hopkins, the share of Democratic House seats in predominantly suburban districts rose to 60% in 2018 from 41% in 1992, while the share in rural districts fell to 5% from 24%. The share of Democratic senators from predominantly suburban states rose to 79% from 55% while the share from rural states fell to 6% from 28%.

Suburbs are politically heterogeneous. Mr. Hopkins finds that Democrats have improved their presidential performance in the suburban counties surrounding the 20 largest metropolitan areas but not smaller ones. In a parallel analysis, George Washington University’s American Communities Project divides these places into three categories: urban suburbs, middle suburbs and exurbs. Democrats have long dominated the urban suburbs, with their ethnically diverse, highly educated and prosperous populations. Mrs. Clinton outpolled Mr. Trump in these areas by 19 points in 2016. At the other end are the exurbs, also highly educated and well-to-do but mostly white and adjacent to rural areas. Long dominated by Republicans, they gave Mr. Trump a 17-point margin.

That leaves the middle suburbs, with a large share of less educated and less prosperous white voters, as the battleground. These are places like Lake County, Ill.; Macomb County, Mich.; Beaver County, Pa.; and Racine County, Wis. After giving George W. Bush an edge of 2 points in 2000 and 6 in 2004, these areas turned for Barack Obama by 3 points in 2008 and shifted back to Mitt Romney by 2 in 2012. Mr. Trump prevailed in these working-class suburbs by an astonishing 13 points, propelling his narrow victories in Upper Midwest states that Republicans hadn’t carried since the 1980s.

Demography and geography have reshaped the Democratic Party’s ideology. As conservative rural and small-town voters shifted their allegiance toward Republicans and the suburbs became more important to the Democratic coalition, the party moved left on many issues.

Other forces contributed. Industrial labor unions, which were moderate on culture and foreign policy, have waned while more ethnically diverse, left-leaning public-employee and service-sector unions gained ground. The financial crisis of 2008-09 exacerbated doubts about the market-friendly orientation that dominated the party during the 1990s, as did rising inequality and corporate concentration. Occupy Wall Street in 2011 was a harbinger of the progressive coalition that Sen. Bernie Sanders, an independent who calls himself a democratic socialist, mobilized in his 2016 challenge to Mrs. Clinton. The surprise primary victory of another democratic socialist, Alexandria Ocasio-Cortez, over a Democratic House leader turned out to be the first of several such upsets in 2018 and this year.

As the 2020 primaries began, the left had reason to hope that this would be its year. Sens. Sanders and Elizabeth Warren got off to strong starts, and early primaries made Mr. Sanders a front-runner. If African-Americans—many of whom who are more moderate than white progressives—hadn’t united behind Mr. Biden in South Carolina, the Vermont senator probably would be the party’s nominee.

The Biden campaign understood the need to conciliate the left—something Mrs. Clinton failed to do in 2016. It set up six “Biden-Sanders unity task forces” to work out compromises on contested issues. Mr. Biden made speeches and put out briefing papers that were well to the left of positions he had endorsed during the primaries. He has sought to promote party unity without alienating either his moderate base or the suburban independents and moderate Republicans who held their noses and voted for Mr. Trump four years ago.

Mr. Biden’s challenge, in short, has been to keep his balance. Even with the left-wing insurgency, most Democrats are reformers, not revolutionaries. They want to improve capitalism, not establish socialism. They worry that social mobility has slowed and not all Americans have enjoyed the fruits of economic growth. They believe that corporate concentration has inhibited innovation and that financialization has distorted the economy. They think all Americans deserve shelter and medical care. They want to make society more inclusive. They are convinced that climate change is dangerous and human activity contributes to it. They believe that alliances and international institutions help advance American interests but pushing for regime change usually doesn’t. These views are contestable but hardly radical.

The 2020 Democratic platform is evidence that the center has held. Here’s a list of what it doesn’t endorse: Medicare for All, the Green New Deal, reparations for slavery, defunding the police, free college for all, cancellation of all student debt, open borders, abolishing Immigration and Customs Enforcement, a national ban on fracking, deep cuts in the defense budget, and the anti-Israel boycott, divestment and sanctions movement.

Instead, it calls for reforms to existing programs aimed at making affordable health insurance available to all, reducing carbon emissions with new technologies, improving police practices, equalizing opportunity across racial and ethnic lines, reducing the costs of college, making immigration enforcement more humane, and reducing the costs of defense procurement.

Still, the Democratic Party leans further left than it did in 1992. Taken as a whole, the party’s agenda would substantially expand the size, scope and cost of the federal government. That will require higher taxes on corporations, wealthy Americans, investors and estates. Other positions put the party at odds with Republicans in ways that are longstanding and familiar. Today’s Democrats aren’t supply-siders, but they haven’t been since Lyndon B. Johnson’s administration. They continue to believe vigorous regulation is compatible with economic growth and innovation.

Democrats are more focused than ever on equality for women, racial and ethnic minorities, disabled Americans and the full range of gender identities. They are more united on social and cultural issues than on their prescriptions for the economy. Their unity presages intensified conflict with social conservatives, with no end in sight.

Although a Biden foreign policy would break sharply with Mr. Trump’s, it would do so mostly by restoring the status quo ante. Democrats want to rejoin the Paris climate accords, the World Health Organization, and the Iran nuclear deal. They seek to strengthen alliances in Europe and Asia and don’t think relations with nations like Germany and South Korea should be held hostage to disagreements about funding for alliances and military bases. They’re wary of China but don’t want a new cold war. Although the party has a vocal anti-Israel faction, the 2020 platform continues to describe Israel as a “Jewish and democratic state,” and it reiterates the longstanding Democratic commitment to a two-state Mideast solution, “a strong, secure, and democratic Israel,” the Jewish state’s “qualitative military edge” and its “right to defend itself.”

By nominating Joe Biden and endorsing this platform, the Democratic Party has reaffirmed its identity as a center-left party of reform. The Trump campaign will do its best to blur the line between reformist policies and radicalism. The voters will decide which characterization of the Democrats’ agenda is credible.

Good factoid Rogoff estimates that real estate and related industries have contributed roughly 29% of China's GDP and estimate the impact of slowdown in the sector on GDP

Ken Rogoff and Yuanchen Yang, "Peak China Housing," National Bureau Of Economic Research, August 2020, https://www.nber.org/papers/w27697

“…we provide a quantitative characterization of the upstream and downstream contribution to GDP of China’s real estate sector by exploiting newer input-output tables. Our updated measure, based on cross-industry correlations derived from China’s most recent input-output matrix, and taking into account higher-order effects (in addition to first-order) is 29%, even higher than in earlier studies..... Applying a similar method, we can estimate the dependence on real estate sector of other major economies in the world (Figure 24). China is even more dependent on housing construction than Ireland and Spain just prior to the financial crisis, and far more dependent than the United States….We present new and significantly updated data to suggest the real estate sector has an outsized footprint on China’s economy, and that broadly construed (using an input-output table and taking into account higher-order effects) constitutes 29% of China’s economy, even higher than previous estimates. (Taking into account the external sector lowers the estimate to 24%.) Moreover, demand supply factors have tilted significantly in recent years, suggesting the possibility of significant downward pressures, especially due to slowing trend growth. Based on input-output and scenario analyses, we find that 20% fall in the housing sector and related activities (if one did occur), could lead to a roughly 5-10% decline in the level of output….”

"....Using new narrative measures of exogenous variation in marginal tax rates associated with postwar tax reforms in the US,this study estimates short run tax elasticities of reported income of around 1.2 based on time series from 1946 to 2012. Elasticities are larger in the top 1% of the income distribution but are also positive and statistically significant for other income groups. Previous time series studies of tax returns data have found little evidence for income responses to taxes outside the top of the income distribution. The different results in this study arise because of additional efforts to account for dynamics, expectations and especially the endogeneity of tax policy decisions. Marginal rate cuts lead to increases in real GDP and declines in unemployment. This study also presents evidence that the responses are to marginal tax rates rather than average tax rates.Counterfactual tax cuts targeting the top 1% alone have short-run positive effects on economic activity and incomes outside of the top 1%, but increase inequality in pre-tax incomes.... Moving outside of the top 1% or 5%, the elasticities drop off sharply and are generally insignificant. Based on the results in Table 2, the evidence for a sizeable response outside the top 1% or in the aggregate appears weak or nonexistent.The relatively large short run elasticities for the top 1% also do not contradict more modest long run responses.....Cuts for taxpayers outside of the top 1% also lead to increases in incomes and economic activity, but with a longer delay…..”

Karel Mertens and Jose Montiel Olea, "Marginal Tax Rates And Income: New Time Series Evidence," National Bureau Of Economic Research, June 2013 Revised September 2017, https://academic.oup.com/qje/article-abstract/133/4/1803/4880451

Reviewed the first of the two of the paper's David Rivera sent, looks at relationship btw marginal tax rates and elasticities by incomes (this is pre-TCJA) paper finds that top 1% incomes show strongest short run response to tax rates, but also finds statistically significant drop off @ cutoff of top 5% income; they do find that lower income earners also see an increase in income but with a time lag:“…The regression results indicate thatincomes in the top 1% of the income distribution display the strongest short run response to tax rates, which is consistent with the notion that high income tax payers display more avoidance behavior. However, contrary to prior time series studies of tax return data, wealso find statistically significant elasticities for lower income groups and narrower wage income measures. Moreover, marginal rate cuts lead to increases in real GDP and declines in the unemployment rate that are broadly consistent with existing macro results. Simple calculations suggest aggregate hours elasticities of 0.37 on the intensive margin and 0.41 on the extensive margin…”

New NBER has some interesting factoids on hedge fund performance, N=6,000 funds over two decades (1995 to 2016), study finds investors earned 36 cents for each dollar of gross excess returns, with the other 64 cents paid as management and incentives fees.

Would have been interesting if they had been able to carve out RenTec or D.E Shaw.

“…During the 22-year sample period, investors paid about half of their aggregate gross profits as incentive fees—whereas the average contractual incentive fee is below 20%. Moreover, there is a considerable disconnect between returns generated and incentive fees earned across all but the worst-performing 5% of funds. After including management fees, investors collected about 36 cents for each dollar of gross excess return generated by funds on their invested capital. The other 64 cents were paid as management and incentive fees. Adding insult to injury, these results are obtained before adjusting fund returns for risk…..(over a risk-free hurdle rate and before adjusting for any risk).In the cross-section of funds, there is a substantial disconnect between lifetime performance and incentive fees earned. These poor outcomes stem from the asymmetry of the performance contract, investors' return-chasing behavior, and underwater fund closures….We study the long-run outcomes associated with hedge funds' compensation structure. Over a 22-year period, the aggregate effective Hedge funds in our sample charge a nominal incentive fee rate of 19.0% of gross profits, on average. In practice, however, investors paid 49.6% of the cumulative gross profits as incentive fees during our sample period. That is, the effective incentive fee rate is 2.62 times higher than the corresponding nominal rate. Adding management fees to the equation, managers collected the lion’s share of returns over the years. Total fees paid amount to 63.6% of the cumulative gross returns when including management fees…”

Baris Kaymak and Markus Poschke, "The Evolution Of Wealth Inequality Over Half A Century: The Role Of Taxes, Transfers And Technology,"Journal Of Monetary Economics, October 2015, https://markus-poschke.research.mcgill.ca/papers/KP_toptax.pdf

“….. Results highlight the role of increasing wage dispersion during this period as the main driver of trends in inequality…The findings emphasize the role of increasing wage dispersion, often attributed to skill biased technical change, as the main culprit of higher income and wealth inequality in the U.S. Changes in tax and transfer policies over the second half of the 20th century have played a key role, accounting for nearly half of the rise in wealth concentration. Nevertheless, their combined effect on the distribution of income and consumption were limited. The results indicate the equilibrium adjustment in prices, the redistributive nature of transfers and the offsetting effects of taxes and transfers on consumption as main reasons for this limited role. As such, the results call for caution when drawing conclusions regarding welfare, based on income and wealth distributions. An interpretation of our findings is that changes in the transfer policies have been as influential as the changes in tax policies. Yet, unlike the wide coverage of falling top income tax rates, changes in the transfer system has received little attention of late. Our focus has been on two major federal programs: the social security and medicare. Several other programs were introduced during this period, both at the federal and the state level, that could potentially have similar effects on the economy, such as the Earned Income Tax Credit program or the Welfare-to-Work programs. Given the redistributive nature of transfers in U.S., our findings highlight the need for empirical measures of wealth dispersion including claims on the public sector. The findings here suggest that such a measure would generally display a lower concentration of wealth, and a smaller increase over time….. changes in tax policy have to be analyzed in connection with the corresponding changes in transfer policy. During the same period, the share of total transfer payments in GDP increased from 4.1% to 11.9%. The rise in transfer spending was driven by two major programs: Social Security and Medicare, both of which target senior citizens. By subsidizing income and healthcare expenditures for the elderly, these programs curb incentives to save for retirement, a major source of wealth accumulation over the life-cycle. Furthermore, since both programs are redistributive by design, they have a stronger effect on the savings of low and middle income groups. By contrast, those at the top of the income distribution have little to gain from these programs. We argue that the redistributive nature of transfer payments was instrumental in curbing wealth accumulation for income groups outside the top 10% and, consequently, amplified wealth concentration in the U.S….Since the wealth distribution reacts more slowly to the economic environment than income, the full effect of the more recent changes in policy and wage dispersion has not yet fully materialized. Given today's wage structure and barring any further changes in tax and transfer policy,the model predicts two to three more decades of increasing wealth concentration, at which point the wealthiest 1% will eventually hold about half the wealth in the economy, roughly 10 percentage points more than their current share. Should future top wages increase further relative to the rest, the future increase in top wealth shares would be even larger. In contrast to their contribution to wealth inequality, top income tax cuts had no effect on the income distribution. The increase in income inequality is instead almost entirely attributable to the changes in the wage distribution. The difference comes from equilibrium adjustments in prices that work in opposing directions when income and wealth dispersions are concerned. Accumulation of additional wealth in response to tax cuts leads to a decline in the interest rate and an increase in the wage rate. The fall in the equilibrium interest rate discourages savings by lower wealth groups and exacerbates the direct effect of tax cuts on wealth inequality. As for income, the lower interest rate mitigates the rise in top incomes, while a higher wage rate benefits lower income groups as they live mainly off labor income. Therefore, changes in prices amplify the impact of tax cuts on wealth dispersion, while they mitigate their impact on income dispersion …”

It also argues that increased transfers have reduced the need for the bottom 90% to save for retirement which has the effect of lowering their wealth accumulation which has amplified wealth concentration. Finds that btw 1980-2010 wage dispersion contributed 62.1% of the change in top 1% wealth (not income) share

Second paper David sent. This argues that wage dispersion, related to skill based technical change, has been the primary driver of higher income and wealth inequality in the US.