Top Ten New York Times Bestselling Author
Wojciech Kopczuk and Eric Zwick, "Business Incomes at the Top," National Bureau Of Economic Research, August 2020, https://www.nber.org/papers/w27752
AI Summary. U.S. workers earn the most Big Macs annually (10,215), but Swiss workers lead on an hourly basis at 7 Big Macs per hour versus the U.S. at 6, reflecting longer American working hours rather than higher hourly wages.
Economist Staff The EconomistCore argument: American workers earn the equivalent of 10,215 Big Macs annually, topping global McWage rankings, but longer working hours reduce U.S. hourly purchasing power to six Big Macs per hour, behind Switzerland’s seven.
On an annual basis, America continues to top our McWages rankings. The average American worker earns enough to buy 10,215 Big Macs a year; Switzerland and Australia are in second and third place, respectively. But American working hours are supersized, too. On an hourly basis, Switzerland comes out on top: the average worker there earns the equivalent of seven Big Macs an hour, compared with America’s six. Australia ranks third, at five burgers for every hour worked.AI Summary. Corporate profit margins have expanded ~250 basis points over the past year, approaching all-time highs, as 23% profit growth far outpaced 8% growth in corporate value added. Labor's share of income is hitting new lows, confirming that margin expansion—not faster economic growth—is the primary driver of record profit levels.
Abiel Reinhart J.P. MorganCore argument: Corporate profit margins expanded nearly 250 bps over the past year and are approaching all-time highs, as domestic profit growth of 23% dwarfed the 8% rise in corporate value added, compressing labor’s share of income to record lows.
Nominal pre-tax corporate profits in the national income and product accounts (NIPA) were very robust in both 2Q (41% [annual rate]) and over the last year (23%). Excluding post-recession spikes, we haven’t seen a year this strong since the mid-2000s. Higher margins [were] the key driver [of profit growth], as 23% y/y domestic profit growth was far in excess of the 8% increase in corporate value added. Profit margins (pre-tax profits divided by value added) increased close to 250bp over the last year, and are approaching all-time highs, whereas the labor share is hitting new lows.AI Summary. Spending and wage growth have largely converged across income groups, with lower- and middle-income households posting after-tax wage growth of 5.2% and 4.2% year-over-year, narrowing a previously wide gap — though the top 5% of earners continue to outpace all others.
David Michael Tinsley, Joe Wadford, Liz Everett Krisberg, Vanessa Cook, et al. Bank of AmericaCore argument: The K-shaped spending and wage growth divide has largely closed since May, with income cohorts converging by July—except the top 5% of earners, who continue to outpace all other groups.
We have discussed the “K-shaped” divide between higher- and lower-income households’ spending and wage growth. But since May, our data has shown a significant narrowing in this gap. As of July, spending and wage growth have largely converged across income cohorts, with the exception of the top 5% of earners, who continue to outpace the rest. A similar dynamic was evident in discretionary spending. In our view, one factor behind the narrowing spending growth gap is stronger after-tax wage growth. For lower- and middle-income households, after-tax wage growth rose to 5.2% YoY and 4.2% YoY, respectively, in July.AI Summary. Guaranteed income transfers reduce total household earnings by more than the transfer amount, as other household members—particularly partners—work fewer hours and are less likely to advance in their jobs.
Elizabeth Rhodes, David Broockman, Eva Vivalt, Patrick Krause, et al. National Bureau of Economic ResearchCore argument: Guaranteed income transfers narrowed the gap between participant income and total household income by approximately $1,700 per year, a reduction driven by lower earnings among other household members rather than collective income gains.
Figure 4 summarizes treatment effects on the standardized family-level indices. The transfers’ effects reshaped the income and employment of other household members. The gap between participant income and total household income fell by about $1,700 per year (s.e. $800). The decline appears to reflect lower earnings among other household members. Effects on employment outcomes are consistent with this interpretation. Partner promotions and transitions to better jobs decrease significantly, but these effects are very small in magnitude. Partner hours and employment show more meaningful declines but are not significant in the unconditional analysis. Several other measures provide supporting evidence of negative effects on labor supply. Net transfers—the value given [to extended family] minus the value received—increased by roughly $135 per year. Estimates for household stability, decision-making, and the division of labor cluster near zero.AI Summary. Higher cognitive ability predicts both higher capital income and higher investment returns, with the return advantage reflecting skill rather than risk-taking, as high-ability individuals earn better risk-adjusted returns while holding lower-risk portfolios.
Spencer Bastani, Kristina Karlsson, Jonas Kolsrud and Daniel Waldenström Uppsala UniversityCore argument: Cognitive ability’s capital income gradient is 3x steeper than labor income gradient in log specifications, driven by higher saving rates.
We document three results. First, cognitive ability predicts capital income. Figure 2 plots mean log income and mean income rank against the nine cognitive ability scores reporting test performance on a 1–9 scale, with both series normalized to zero at the lowest score. In the log specification (Panel a), the capital income gradient is roughly three times steeper than the labor income gradient. In the rank specification (Panel b), the ordering reverses: the labor income gradient is steeper, because the heavy right tail of capital income compresses rank differences. Figure 3 provides a complementary perspective, plotting average cognitive ability across percentiles of the labor and capital income distributions. [The relationship between ability and rank flattens at the top of the labor distribution but strengthens at the top of the capital distribution.] Second, the capital-income gradient is only partially explained by labor income: a decomposition shows that ability is associated with higher saving rates and investment returns through channels beyond labor income. Third, the investment return channel is consistent with skill rather than risk compensation, as high-ability individuals earn higher risk-adjusted excess returns while holding portfolios with lower systematic risk.
Ed Comment:Includes important methodology, caveats and good quotes about how one can make the numbers be whatever they want.
Zwick follows up onCapitalist In the Twenty-First Century, paper is just a discussion of how tax policy shapes how business are organized, and some research they plan on doing based off changes from TCJA:
“…First, as the complexities of the Tax Cuts and Jobs Act of 2017 unfold, a number of research opportunities should emerge. On one hand, the law reduced the marginal and effective corporate tax rates, creating—for the first time since 1987—a stronger incentive to shift business income away from a pass-through to a C-corporation structure. As an offset for capital-intensive pass-throughs that are more likely to consider C-corporation form in the first place, the 2017 legislation also introduced a new tax deduction (“Section 199A deduction”) on personal income tax returns that amounts to a 20 percent reduction in taxes on business income in this form. As an acknowledgement of the incentives to characterize entrepreneurial income in the tax-preferred form,this rate is not available to a large number of “specified service businesses,” including lawyers, doctors, consultants, and similar types of firms that rely primarily on human capital. Goodman et al. (2019) simulate the effect of the 199A deduction for pass-through owners based on 2016 data and conclude that while it benefits business owners throughout the income distribution, over 72 percent of tax savings accrues to the top 5 percent. Henry, Plesko and Utke (2018) discuss the complex interaction of tax incentives regarding the choice of the organizational form in the aftermath of the 2017 legislation….”
Doubt you will want to add this to database, Just an FYI on his future research
“…In 2014, 69 percent of the top 1 percent of income earners and 84 percent of the top 0.1 percent of income earners accrued some pass-through business income. In absolute terms, that amounts to more than 1.1 million pass-through owners with annual incomes above $390,000 and 140,000 pass-through owners with annual incomes of more than $1.6 million. In both number and aggregate income, these groups far surpass the top executives at public companies, who have been the focus of much inequality commentary. As shown in Figure 1, the 10,700 top public company executives earned a total of $33 billion in 2014 in salary and options. In contrast, the 14,900 business owners in the top 0.01 percent of the income distribution received more than $100 billion in income from S-corporations and partnerships. In 2014, approximately 270,000 wage earners in the top 1 percent and 27,000 wage earners in the top 0.1 percent worked for public companies, earning a total of $260 billion and $110 billion in wages and salaries, respectively. For every public company employee in the top 1 percent and top 0.1 percent, there are four and five pass-through owners, respectively. In short, the typical top 1 percent earner is not a public company executive or tech billionaire; instead, a top earner is typically a doctor, lawyer, or the owner-operator of a middle-sized business. These top pass-through owners are predominantly working age, in contrast to the older top earners whose income comes from other categories of capital. Looking at those with more than $1 million in annual income, Smith et al. (2019) find that 60-70 percent of the millionaires who get a majority of their income from either wages or pass-through ownership are in their 40s and 50s. However, the millionaires who get a majority of their income from C-corporation dividends or other capital tend to be older with about two-thirds falling into age brackets from their 50s to their 70s….”
