Arnold Kling  

Who Are the High Earners?

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Steve Kaplan and Joshua Rauh write,


Overall, we estimate that the groups we study represent 15% to 26.5% of the individuals who comprise the AGI categories at and above the top 0.1%. Among the groups we study, non-financial public company CEOs and top executives are estimated relatively precisely and represent 2.0% to 6.4% of the very top AGI brackets.

AGI = Adjusted Gross Income. The groups that they study are: top-five executives of publicly traded firms; Wall Street Executives; partners of top law firms; and athletes and celebrities. They conclude that explanations for increased inequality at the top that focus on executive compensation are incorrect, because the top executives are a small fraction of the overall high earners.

I would feel more confident about their analysis if they could account for more of the high earners. They write


We suspect that some of the missing individuals are trial lawyers, executives of privately-held companies, highly paid doctors, and independently wealthy individuals who have a high AGI.

For 2004, to be in the top 1 percent of AGI, you needed to earn $309,160. To make it to the top 0.1 percent, you needed $1.4 million. To make it to the top 0.01 percent, you needed $7.2 million. To make it to the top .001 percent, you needed $31 million.

I think that there are a fair number of people who own small businesses or real estate who earn more than $300,000 a year. And I agree with the authors' guess about doctors. But until we know for sure...

Tyler Cowen really likes the paper.


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CATEGORIES: Income Distribution



COMMENTS (7 to date)
Horatio writes:

Add quants and traders to that list. For quants, $300k is normal in the 2nd year and the veterans who have been in the game for 10 years or more easily top $1 million per year.

Dan Weber writes:

Can someone do a breakdown of the hours involved in these jobs? Can I still spend time with my family while doing them?

I'm not trying to make value judgments with these questions. Rather, to keep my career options open.

Robin Hanson writes:

I'm surprised that we seem so ignorant about what careers make the most money - I sure hope this get clarified soon.

Karl Smith writes:

I'm surprised that we seem so ignorant about what careers make the most money - I sure hope this get clarified soon.

This actually has interesting implication for the notion of compensating differentials.

Can you say that the reason I-Bankers make so much is that people are unable or unwilling to take the job, when in fact many people don't even realize the job pays that much?

Moreover, why don't firms do more to publicize how much their workers make? Is there a public good problem? All Banking firms benefit from more applicants so its not worth it for you to advertise? That seems a stretch for me given the effectiveness of other industry groups.

Perhaps, if more people knew how much a given career pays there would be more incentive to fake your type in order to get a job. My personal sense is that in Management Consulting, type faking is a serious problem that makes the work environment much more political.

spencer writes:

Dan -- to make the big bucks on wall street figure on working a 60 to 80 hour work-week essentially every week.

jp writes:

Dan -- Don't count on having a life if you want to make that kind of money practicing law. The hours are about the same as what Spencer predicts for his field. And hours can spike a lot higher.

It's possible to make good money practicing law and to still have a life, if you're cagey and lucky. But not $300K and up.

Mr Juggles writes:

Two potential explanations:
1) There's no need to further highlight potential earnings in i-banking because these employers already highlight compensation enough to cull the most suitable workers. Evidence: the annual "most desired firms to work for" lists at colleges always have i-banks as 5+ of the top 10 spots. Note that these industries are structured such that it's much more important to get the client work (and get it done right) than it is to be labor cost efficient. It takes roughly the same number of bankers to execute a $10bn M&A transaction as a $1bn transaction. So hiring a lot of people isn't necessary; as long as the banks can get the top 5% of students from the Top 25 colleges, they have plenty to work with.
2)Perhaps very high earners (at more senior levels) in these fields realize that publicizing their earnings would likely result in further taxation, either in the form of IRS taxes or regulations. Evidence: the immediate knee-jerk towards special taxation clauses after the Blackstone and Fortress IPO filings highlighted their partners' incomes.

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