Earnings growth and the wealth distribution

As measured by Gini coefficients, fractile inequalities, and tail power laws, wealth is distributed less equally across people than are labor earnings. We study how luck, attitudes that shape saving decisions, and growth rates of labor earnings balance each other in ways that simultaneously shape joint distributions across people of labor earnings, age, and wealth together with an equilibrium rate of return on savings that plays a pivotal role in balancing contending forces. Strong motives for people to save and for firms to demand capital raise an equilibrium interest rate enough to make wealth grow faster than labor earnings. That makes cross-sectional wealth more unevenly distributed and have a fatter tail than labor earnings, as in US data.

Automated summary

According to the study, wealth is distributed more unequally than labor earnings, influenced by luck, attitudes towards saving decisions, and growth rates of labor earnings. Strong motives for people to save and firms to demand capital raise the equilibrium interest rate, causing wealth to grow faster than labor earnings and resulting in a more uneven distribution of wealth compared to labor earnings.