Raising the Curtain: Trade and Empire

A brilliant paper. But I have a worry: those at the upper tail of the income distribution are, to a substantial degree, those whose broadly-construed portfolios are ludicrously risky who happen to be unusually lucky. I am not sure they have properly accounted for luck here: Matthew Smith, Danny Yagan, Owen M. Zidar, and Eric Zwick: Capitalists in the Twenty-First Century: "Entrepreneurs who actively manage their firms are key for top income inequality. Most top income is non-wage income, a primary source of which is private business profit. These profits accrue to working-age owners of closely-held, mid-market firms in skill-intensive industries. Private business profit falls by three-quarters after owner retirement or premature death...

...Classifying three-quarters of private business profit as human capital income, we find that most top earners are working rich: they derive most of their income from human capital, not physical or financial capital. The human capital income of private business owners exceeds top wage income and top public equity income. Growth in private business profit is explained by both rising productivity and a rising share of value added accruing to owners...


#noted

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