Behind the Numbers

Wealth and income in the top 1%

October 20th, 2011 Marc Lee · 10 Comments · Economy & Economic Indicators, Poverty and Income Inequality

One thing I really like about the Occupy movement is that it reclaiming mental space. I’m thinking of the overt focus on the riches gained by the top 1%, and of naming and shaming capitalism. Two are one and the same, of course. It is in the top 1% that we find the capitalists – those who own large chunks of the economy as we know it – as well as the chief beneficiaries of capitalist enterprise – those who receive high incomes due to the proximity to the system’s core, including executives, bankers, lawyers and other professionals who command high incomes but may not have an ownership stake (though they probably do).

With this in mind, I pulled together some numbers to get at how the pie is sliced. There is some Canadian data but it is patchy because we simply do not ask these impolite questions about who gets what. So to round out our understanding I draw on some US data.

Statistics Canada generally does not release statistics on Canada’s top 1%. StatsCan’s Social Policy Simulation Database and Model allows you to make a good estimate, as it draws on tax data, so I just crunched these out. For 2010, the top 1% (works out to a household income over $366,717) took 10.5% of total income (market income plus investment income plus government transfers). The next 4% took 12.0%. Overall, the top 10% of households (income over $148,241) got just under one-third of the income (32.9%).

The real action, though, is around wealth (who owns and controls what), not just the distribution of annual incomes (wages, salaries and bonuses made in a year). For wealth, we only have Canadian data for the top 10%, and only as far back as 2005 (Morisette and Zhang 2006):

A key point is that wealth is much more unequally distributed than income. These numbers are striking, with 58% of wealth in the hands of the top 10%. But we hit a bit of a wall when it comes to looking further up. There does tend to be a bit of fractal pattern that happens with distribution, so if the top 10% get 58% of the wealth, a rough estimate is that the top 1% would get 58% of the income of the top 10%, so about one-third of the total wealth. Meanwhile, the bottom half of households have a teensy 3% of total wealth, with the bottom 10% completely underwater (liabilities greater than assets, or negative net worth).

To probe the nuances of income and wealth maldistribution, US data is more informative. While the distribution of both income and wealth tends to be worse in the US than Canada, we have been racing hard to close that gap.

There is is nice summary of research on who the top 1% of US income earners are and what they do here. But let’s instead focus on Edward Wolff’s research on wealth inequality in the US, which highlights the differences between the distribution of income, wealth and non-housing wealth:

Whereas the top 1% garnered more than one-fifth (21.3%) of American income, they held a bigger slice – more than one-third (34.6%) – of total wealth (total assets less liabilities, or net worth). Because the middle class typically hold the vast majority of their wealth (to the extent they have any) in the form of housing, if housing is stripped out we get a better picture of the distribution of control over economic resources (or financial capital). Here, Wolff finds the top 1% take more than two-fifths of the wealth (42.7%).

The breakdowns from Wolff for shares outside the top 1% are similarly revealing. It is striking that what we might think of as capitalism, the ownership of the private economy, is almost entirely locked up by the top 10%, who hold 82% of US financial wealth. The financial return on that wealth feeds back into the distribution of income in any given year. As the richest have pushed their advantage, the distribution of income has become increasingly more unequal, even though the wealth share itself was about the same in 2006 as in 1983. The converse of this “top heavy” distribution is that the bottom 60% of households getting about 20% of the income, enough to stay alive but not enough to accumulate assets and therefore get into “the ownership society”.

So changes in the distribution of income are a must, and that includes measures that strengthen the hand of workers, like unionizing the low-wage service sector and living wage policies in the labour market along with progressive income taxes for the top earners and greater redistribution of those revenues into public services and income transfers (like a guaranteed income). But we need to go further and challenge the inequitable distribution of wealth itself by taxing financial wealth, or minimally the transfer of that wealth through inheritances, bequests and gifts.

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10 Comments so far older updates

  • Ron McAllister

    The rich can run but they can’t hide from the truth and the facts. The “occupy” movement isn’t a revolution, rather it is an evolution and the change is happening. It can’t come quickly enough!

  • slantendicular

    I find those wealth data for Canada to be shocking – shocking in terms of how little debt Canadians appear to have. Only something on the order of 10% of Canadians are net in debt? We hear about increasing levels of debt amongst Canadians, but it appears that those measures don’t take into account the assets that people do have – cars, houses, etc. According to these data debt isn’t as much of an issue as I thought it was.

  • G

    It’s not so much the debt, but the servicing of it.

  • G

    We should call the problems what they are, the result of unbridled capitalism.
    Since Reagan and the de regulators, thru the greed is good years.
    A form of democratic socialism is needed. In the US they still would hang anyone saying that but here we should start calling it what it is.

  • You really want to import Greece and France here?

    No offense guys but what you are proposing will sink the middle class and poor people. If income redistribution worked France and Greece would have buried the US and Canada. Not the other way around.

    History has shown that rewarding the people who produce produces the wealthiest poor. The other interesting thing merit based shows is: It destroys the wealthy class and replaces it with a merit class. There is plenty of old money in Europe. There is virtually none in the US or Canada. Think about it: name me a billionaire in the US whose parents were billionaires. They don’t exist. All of the wealthy people from Jobs to Warren Buffet earned their own money.

  • J

    Do you think Jobs would have been less productive if his income was half? Wouldn’t high productivity be better maintained if income and wealth was the same in terms of rank but reduced in terms of the gap between rich and poor? Talented people would have to continue to produce in order to maintain their ranking. Talented people have a responsibility to serve just as those who are less talented have a responsibility to contribute in different ways. If the rich could make ethical choices, I’m sure we could find solutions to many of the difficulties we are facing and will continue to face until capitalists learn to control their greed and find motivation in more than simply gaining wealth and power.

  • Derek

    So why would I go to University for 7 years, take a high demand position that requires me at the office 80 hours a week, and dedicate my life to growing my business…..if I could be just a financially rewarded sweeping the floor or flipping the burgers.

    The the people involved in the occupy movement had their way, then business development would suffer and thus there would be less jobs for the underacheivers. I don’t care who you are, but I personally came from a poor family, I borrowed and worked parttime jobs for my education. Now I work 80 hours a week and am in the top 1%. Do I not deserve something extra for the gamble I took on eductation, moving from my home and family, and the blood sweat and tears?

    Maybe I should of just quit highschool in grade 10 and flipped burgers for a living. After all, burgerflippers deserve an equal distribution of the wealth too right?

  • Marc Lee

    Guess you’ve been lucky, Derek, though you’d probably never admit it, because a lot of poor kids work hard and don’t make it.

    Interestingly, I just came across this Sci Am article right after reading your comment:
    How Wealth Reduces Compassion: As riches grow, empathy for others seems to decline
    http://bit.ly/HKPJ4f

  • Occupy Movement Cannot Be Ignored « martinlukacs

    […] the United States, income inequality in Canada is in factrising faster. In the last decades, the richest one per cent of Canadians took home a third of all income growth, and pay lower taxation than they have in […]

  • eric

    i believe the rich should give a bit more to the society to maintain harmony and fairness. At least the ultra rich should do more, as Warren and Bill Gate planned to give away most of their wealth. How much money can one really spend to have a very good life? Why not to give some to help the less fortunate kids and family?

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