Wealth Distribution and Social Mobility in the US: A Quantitative Approach

TLDR

The study quantitatively identifies factors driving U.S. wealth dynamics that align with its skewed distribution and social mobility. The analysis focuses on skewed earnings, varying saving rates by wealth level, and stochastic idiosyncratic wealth returns. All of these factors are fundamental for matching both distribution and mobility, and the stochastic return process that best fits the U.S.

Abstract

We quantitatively identify the factors that drive wealth dynamics in the United States and are consistent with its skewed cross-sectional distribution and with social mobility. We concentrate on three critical factors: (i) skewed earnings, (ii) differential saving rates across wealth levels, and (iii) stochastic idiosyncratic returns to wealth. All of these are fundamental for matching both distribution and mobility. The stochastic process for returns which best fits the cross-sectional distribution of wealth and social mobility in the United States shares several statistical properties with those of the returns to wealth uncovered by Fagereng et al. (2017) from tax records in Norway. (JEL D31, E13, E21, E25)