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Earnings Inequality and Other Determinants of Wealth Inequality

Author

Listed:
  • Jess Benhabib
  • Alberto Bisin
  • Mi Luo

Abstract

We study the relation between the distribution of labor earnings and the distribution of wealth. We show, theoretically as well as empirically, that while labor earnings and precautionary savings are important determinants of wealth inequality factors, they cannot by themselves account for the thick tail of (the large top shares in) the observed distribution of wealth. Other determinants, like stochastic returns to wealth, as well as savings rates and rates of returns increasing in wealth, need to be accounted for.

Suggested Citation

  • Jess Benhabib & Alberto Bisin & Mi Luo, 2017. "Earnings Inequality and Other Determinants of Wealth Inequality," American Economic Review, American Economic Association, vol. 107(5), pages 593-597, May.
    • Handle: RePEc:aea:aecrev:v:107:y:2017:i:5:p:593-97
    Note: DOI: 10.1257/aer.p20171005
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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