Earnings growth and the wealth distribution

Thomas J. Sargent, Neng Wang, Jinqiang Yang

    Research output: Contribution to journalArticlepeer-review

    Abstract

    As measured by Gini coefficients, fractile inequalities, and tail power laws, wealth is distributed less equally across people than are labor earnings. We study how luck, attitudes that shape saving decisions, and growth rates of labor earnings balance each other in ways that simultaneously shape joint distributions across people of labor earnings, age, and wealth together with an equilibrium rate of return on savings that plays a pivotal role in balancing contending forces. Strong motives for people to save and for firms to demand capital raise an equilibrium interest rate enough to make wealth grow faster than labor earnings. That makes cross-sectional wealth more unevenly distributed and have a fatter tail than labor earnings, as in US data.

    Original languageEnglish (US)
    Article numbere2025368118
    JournalProceedings of the National Academy of Sciences of the United States of America
    Volume118
    Issue number15
    DOIs
    StatePublished - Apr 13 2021

    Keywords

    • Heavy tail
    • Inequality
    • Power law

    ASJC Scopus subject areas

    • General

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