How many of the 1%-ers are rags to riches?

November 29, 2011 10:31 AM

Is there a solid independent study showing the percentage of 1% wealthiest who were born into money vs. those born poor who worked for it?
posted by critzer to work & money (9 answers total)

Not exactly the answer to that question (they focused mostly on quintiles instead of specific percents), but there is a lot of relevant information here (from 2006). Including:

-- Children from low-income families have only a 1 percent chance of reaching the top 5 percent of the income distribution, versus children of the rich who have about a 22 percent chance.

-- Children born to the middle quintile of parental family income ($42,000 to $54,300) had about the same chance of ending up in a lower quintile than their parents (39.5 percent) as they did of moving to a higher quintile (36.5 percent). Their chances of attaining the top five percentiles of the income distribution were just 1.8 percent.

Further, children born into the bottom quintile of income have a 42% chance of remaining there and only a 6% chance of making it to the top quintile. For those born
in the top quintile it's exactly the opposite: 42 percent remain in the top quintile as adults, and only 6 percent fall down to the lowest income bracket.
posted by CharlieSue at 11:31 AM on November 29, 2011 [3 favorites]

No. And the terms "born poor" and "worked for it" are so ambiguous as to render such a "solid" study impossible.

Did a celebrity athlete making $1 million a year "work for it"? Did Bill Gates? And does the fact that he was born to an admittedly well-off family--William H. Gates, Sr. was a leading attorney at a large firm for decades--really diminish the fact that he dropped out of Harvard and doesn't seem to have used much of daddy's money in getting rich his own self?

All of which gets at the fact that a lot of people "born rich" do have a legitimate claim to having "worked for it." Take me, for example. I'm pretty solidly middle-income (lower end of the 4th quintile). My dad, on the other hand, is in the top 5% of income earners. But he hasn't actually given me nearly as much money as he has things like opportunity and social capital, which are harder to quantify, and all of the money he has "given" me has been spent. I have no nest egg, and when I get one, it will be because I saved it up.

My point is that any money I've gotten from dad has already been eclipsed by the money that I earned myself. It may have been an accident of birth that I have the opportunities that I do, but I had to go out there and capitalize on those opportunities. I know plenty of people who don't. The image of some guy getting born into a wealthy family and never managing to get a Real Job is rhetorically effective but pretty damn uncommon these days. Rather, you have people born to wealth who are equipped to go out and earn their own money. While I certainly count myself fortunate, that doesn't mean I can rest easy. Missing more than one paycheck would mean instant insolvency.

So your whole distinction is just too simplistic to really get what's going on in the economy. That being said, the raw numbers, as discussed by CharlieSue above, are pretty telling in and of themselves. Just remember that they have at least as much to do with people taking the opportunities that they're given and working at them as they do with actual money from mom and dad. Someone born to the top 5% of income earners may have a much better shot at wind up in the top 5% than someone born to less fortunate circumstances, but there's still an 80% chance that they'll drop down at least a quintile.
posted by valkyryn at 11:54 AM on November 29, 2011 [4 favorites]

Actually, from the same report, something that provides a bit more insight (Table 3 in this PDF):

Child's possibility of getting to top 5% of income earners (above $166k), based on parents income level:

Bottom Quintile ($0-30k): 1.1%
Second Quintile ($30-42k): 1.5%
Third Quintile ($42-54k): 1.8%
Fourth Quintile ($54-72k): 5.6%
Fifth Quintile ($72k+): 14.2%

Further, of kids born into the top 5%, 21.7% of them will remain there as adults.
posted by CharlieSue at 11:54 AM on November 29, 2011 [2 favorites]

First off, you have to recognize that 1 percent is an arbitrary cutoff and there's a bit of bias involved in choosing to look at it in the first place, how you classify people, etc. Secondly, there's likely to be a first generation wealth effect because inheritance trades one big fortune for several smaller ones.

That said, I just finished reading The Millionare Next Door, which reads quite a bit like market research (written by two professors of Marketing) rather than policy analysis. Their surveys suggest that 80 percent of millionaires are first generation wealthy. They make a critical distinction though, between income and wealth. If you spend every dollar you earn, you're not wealthy.
posted by pwnguin at 12:15 PM on November 29, 2011

Most studies of intergenerational income mobility look at quintiles, not percentiles.

Here's a Swedish study (Bjorklund, Roine, and Waldenstrom, 2008) focusing on intergenerational top income mobility.

This paper presents new evidence on intergenerational income and earnings mobility in the top of the distributions. Using a large dataset of matched father-son pairs in Sweden we are able to obtain results for fractions as small as 0.1 percent of the population. Overall, mobility is lower for incomes than for earnings and it appears to decrease the higher up in the distribution one goes. In the case of incomes, however, we find that mobility decreases dramatically within the top percentile of the population. Our results suggest that Sweden, well-known for its egalitarian achievements, is a society where equality of opportunity for a large majority of wage earners coexists with capitalistic dynasties.

Specifically, there's almost no mobility in the top 0.1%: nearly everyone in the top 0.1% started there.

For fathers with incomes in the top 0.1 percentile, we estimate a coefficient of 0.827 with a standard error as low as 0.099. Taken at face value, this coefficient implies that a 10 percent income differential among high-income fathers is transmitted into an 8.3 percent differential among sons.

From the conclusions:

... it is crucial to study small fractions in the top of the distribution to get a clear picture of income mobility. Discussing “the top” as consisting of the top 20, or top 10, or even the top 5 percent, runs the risk of missing important aspects. Indeed, our most striking results do not show until within the top percentile.

What's the mechanism? Here's a Canadian study showing that while 40% of Canadian men have worked at some point for their father's employer, that rises to 70% of Canadian men whose fathers' incomes are in the top 1%. (Part of a series of blog posts on possible explanations for inequality; the author, Miles Corak, is a former labor economist at Statistics Canada.)

pwnguin: note that in the US, being a millionaire isn't enough to put you in the top 5% by household wealth. The top 1% have more than $5 million in household wealth. See Table 3 (page 45) in this paper.
posted by russilwvong at 12:48 PM on November 29, 2011 [1 favorite]

Also, echoing valkyryn, this doesn't mean that the top 1% are not working long hours. A brief blog post by Paul Krugman. Or see this article by Roger Martin and Mihnea Moldoveanu on capital vs. talent: a lot of the top 1% are highly-paid employees (CEOs and investment bankers, for example).
posted by russilwvong at 12:57 PM on November 29, 2011

The Myth of the Meritocracy is a good one stop shop for this kind of discussion. There are many more advantages to being born into the middle class (or above) than merely money itself - there's also the matter of connections, social capital, peer expectations, etc.

That said, I just finished reading The Millionare Next Door, which reads quite a bit like market research (written by two professors of Marketing) rather than policy analysis. Their surveys suggest that 80 percent of millionaires are first generation wealthy. They make a critical distinction though, between income and wealth. If you spend every dollar you earn, you're not wealthy.

If I recall correctly, The Myth of the Meritocracy has a decent takedown of The Millionaire Next Door. If it wasn't that book it was taking down, it was a similar book.

I think we all know that people who are born into privilege still have to work hard to get through life and hold down actual jobs. The OP asked for information about those in "the 1%" today who were born either in poverty or in wealth. If you don't have information about the question the OP is actually asking, then please take the derail elsewhere.
posted by Sticherbeast at 1:25 PM on November 29, 2011 [2 favorites]

If I recall correctly, The Myth of the Meritocracy has a decent takedown of The Millionaire Next Door.

I'd be interested to see such a debunking, since I have my ideas of how one might do it. But I'm not finding anything on Amazon going by the name of The Myth of Meritocracy. I did spot a book titled The Meritocracy Myth published recently.

Though browsing the preview I did spot an oddity: claiming that Democracy in America was published in 1967. Not particularly important but it does undermine the "well researched" impression they want to give off.
posted by pwnguin at 7:25 PM on December 25, 2011

Sorry, yes, it was The Meritocracy Myth. Not sure why I kept getting the title wrong.
posted by Sticherbeast at 8:09 PM on December 25, 2011