Women, wealth, and mobility

Lena Edlund and Wojciech Kopczuk have an AER paper from 2009, the abstract is this:

Using estate tax returns data, we observe that the share of women among the very wealthy in the United States peaked in the late 1960s at nearly one-half and then declined to one-third. We argue that this pattern reflects changes in the importance of dynastic wealth, with the share of women proxying for inherited wealth. If so, wealth mobility decreased until the 1970s and rose thereafter. Such an interpretation is consistent with technological change driving long-term trends in mobility and inequality, as well as the recent divergence between top wealth and top income shares documented elsewhere.

The article is ungated here (pdf).  Perhaps this is relevant to some current debates…?


"Perhaps this is relevant to some current debates…?"

This post seems likely to draw some fire. And I wonder if someone will accuse the paper authors of being sexist? Not that I have any reason to believe they are.

Their argument that the proxy is useful is pretty decent. (Section II.C)

"Despite the Margaret Whitmans and Oprah Winfreys of the world, the Forbes 400 lists
suggest that family remains the primary route to wealth for women. According to the 2004 list,
the wealthiest women in America inherited their wealth. Ms. Whitman’s achievements afforded
her only the 152nd spot, well short of positions occupied by the widow and the daughter of Sam
Walton, the Mars fortune heiress, Cox daughters, and others. In fact, all seven women among
the 25 richest Americans came to wealth through their families. In contrast, of the 18 top men,
14 were self-made.
Table 4 lists, by year, the number (and share) of women on the list, and specifically those who
had inherited their wealth. It is noteworthy that while women make up 45–50 percent of those
who inherited wealth, their share among the self-made is substantially lower (6.6 percent in
2003). Moreover, the drop in the share of women is mirrored by a drop in the share of individuals
who inherited wealth. In 1982, more than one-third had inherited, whereas by 2003 this fraction
had more than halved.19"

On average, women live about seven years longer than men (or that seems to be the most oft-quoted number), and they would inherit their husband's estate. This might explain the wealth difference by itself.

Yes! One way or another, mortality rate deltas are likely to have an effect. Similarly, if divorce rates among the wealthy increased between 1925 and 2000, women may have had control over their inherited or married wealth at a younger age than in the past. Section III did address some of this. Yet the implications aren't easy to quantify, e.g. maybe women were more likely to mismanage their inherited wealth than men? Perhaps that accounts for the difference as much as the wealth mobility supposition.

Did you notice the terminology? Dynastically wealthy, mostly women, were the rentier group versus the self-made (men) were designated the entrepreneurial group ;o)

The proxy is also being used at a time when women are playing a more active role as market economy actors as the employment available to women expands. So, the proportion is going down when it should be going up.

On the other hand, shifts in the estate tax over time suggest that some of the shift could be due to increasing dollar cutoffs for estate tax obligations over time (shifting from medium rich to pretty darned rich) over time. Also, innovations like qualified terminable interest property trusts (QTIP trusts) or leveraged inter vivos gift giving to descendants, may have made it possible for property that was nominally in the name of women before these estate planning innovations to be in the name of men after these innovations, for these purposes.

WIthout looking more closely at the data, it is hard to know, but those would be methodology issues worth examining.

General wealth equality versus female representation in the top percentiles of wealth?

Two sacred cows, sacrifice one.

Indeed, it's not quite accurate to say that wealth mobility increased after the 1970s when the sample population is people who are already "very wealthy".

Sounds almost like they are mining all possible sources to make claims that inequality has been declining or that wealth mobility has been increasing, while most of us know that the number of square feet we can afford to rent after other basic costs is smaller than it was in most urban areas 30 or 50 years ago.

Want a starter home? You better have a good job in a very well remunerated industry. Or be willing to save every penny for 10 years. 30 years ago or 50 years ago you could have a downpayment easily within a few short years in jobs which required low or no skills.

International competition is not easy. But we should not lie to the working class that they are getting wealthier when they are not. Instead, we could point to the international competition and say "it's not getting better because we need to COMPETE", but that will ring false when spoken from the lips of executives who earn 100 times workers on the factory or office floor.

The authors of the paper are not sexist, insofar as I can determine. While the primary data source is U.S. Census data from the Integrated Public Use Microdata Series, IPUMS (and the Forbes 400 list, meh), the authors draw heavily on methodology of none other than everyone's favorite populists, Thomas Piketty and his co-author Emmanuel Saez.

The paper uses inherited wealth as a proxy for wealth mobility among the top 1% to 0.01% wealthiest men and women. They tacitly assume that women are less likely to be self-made millionaires than men, i.e. that women inherit through lineage or marry into money rather than earn it on their own. In general, that's true, whether anyone likes it or not. So, a higher share of women among the wealthy would reflect a rise in inherited wealth at the top thus lower wealth mobility, and vice-versa.

The findings, of a lower share of women among the wealthy from 1969 onward, is used to infer that meritocracy and individual initiative has triumphed over dynastic wealth, i.e. explaining why wealth concentration has remained stable, despite increasing income concentration in the past 30 years. Yes, the paper says that wealth concentration has remained stable but the composition of the wealthy changed. Rejoice, the nouveaux riche have arrived, worked their way to the top. Maybe.

The paper concentrates on the top 0.4%. Seems fine to me. Here's a problem, on p. 148,

"the estimated wealth held by the top 1/50th of the top 0.01% peaked at 3.5 percent in 2000, and the top 1% of households is estimated to hold as much as 34% of total wealth"

I thought the top
(1/50) * 0.01% = 0.02 * 0.0001 = 0.00002 = 0.002%
were more, not less wealthy than in 2000, and the top 1% held more than 34% of the wealth now, about 40 - 45%.

Why the disparity? Maybe because this March 2009 paper depends mostly on Census data through 2000, and Piketty/ Saez data through 2003, see p. 150. There are other explanations that are of a cultural and demographic nature which might explain some of the findings. Again, not entirely the authors' fault, given the data they were working with.

used to infer that meritocracy and individual initiative has triumphed over dynastic wealth

Not so fast. Dynastic wealth less of a factor? Sure. Meritocracy? Well, I'm not so sure. Even Dinesh D'Souza has criticized our move toward a "casino economy."


I'm sorry. I was mostly being facetious* about that. Dynastic wealth remains a force to be reckoned with, despite my wishes to the contrary. As for meritocracy, I'm of the same opinion as Dinesh D’Souza! So true, that we have moved toward a “casino economy”. That is bad. It is a disincentive to productive work. It extinguishes hope, for having a family, and in a worse case scenario, for societal stability.

Also, the paper is not conclusive, as the topic is complex, and not too amenable to quantitative analysis. The simple time series data in Table 1 is suspect, or at a minimum, inadequately explained, for example,
Why are the sample sizes greater than the population sizes?
Why do the number of top 0.1% wealth households remain static every year from 1925 to 2000, with an obs count of approximately 235?

* I was trying to be polite, for a change! Professor Cowen is tolerant but I don't want to push my luck, given my past history ;o)

How do they cope with the money going into trusts and foundations?

Social mobility increases, women and minorities hardest hit.

Right. There simply weren't all that many great fortunes created in America from 1929 into the 1970s compared to during the Robber Baron age. For example, my treasured 1969 Guinness Book of World Records noted that the current richest man in the world, J. Paul Getty, really wasn't all that rich relative to the size of the economy as Ford and Rockefeller had been in the 1920s.

Thus, a large fraction of the richest people in America in the first Forbes 400 compendium in 1982 were heirs and heiresses of the great pre-1929 fortunes. Back in the 1930-1970 era, heiresses were often major celebrities, such as Barbara Hutton, whose lives were followed in great detail in the press. Now, they have to be successful fashion designers (Gloria Vanderbilt) or make a sex tape (Paris Hilton) to get the same level of publicity.

Now, it could be in the future that the vast new fortunes of the last 35 or so years will create a large new caste of heirs and heiresses who will clog the ranks of the Forbes 400. For example, the Pritzkers take up eleven spots on the Forbes 400 and their excellent political connections (Penny Pritzker, the Secretary of Commerce, played the single most important role in making a part-time legislator, part-time lecturer, and part-time lawyer into Presidential Timber) may help them hang on.

There's much talk of heirs and heiresses, but let's not forget divorce that also tends to transfer wealth from men to women.

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