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Quarterly Journal of Economics Vol. 134 No. 4 2019

Capitalists in the Twenty-First Century*

Matthew Smith1; Danny Yagan2; Owen Zidar3; Eric Zwick4

1 U.S. Treasury Department · 2 University of California, Berkeley, and National Bureau of Economic Research · 3 Princeton University and National Bureau of Economic Research · 4 University of Chicago Booth School of Business and National Bureau of Economic Research

open access

Abstract

How important is human capital at the top of the U.S. income distribution? A primary source of top income is private “pass-through” business profit, which can include entrepreneurial labor income for tax reasons. This article asks whether top pass-through profit mostly reflects human capital, defined as all inalienable factors embodied in business owners, rather than financial capital. Tax data linking 11 million firms to their owners show that top pass-through profit accrues to working-age owners of closely held mid-market firms in skill-intensive industries. Pass-through profit falls by three-quarters after owner retirement or premature death. Classifying three-quarters of pass-through profit as human capital income, we find that the typical top earner derives most of her income from human capital, not financial capital. Growth in pass-through profit is explained by both rising productivity and a rising share of value added accruing to owners.

DOI
10.1093/qje/qjz020
Volume
134
Issue
4
Pages
1675-1745
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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