Wealth Inequalities

Abstract

In many countries, wealth is highly concentrated, much more so than income. This review presents the long run trend of wealth inequality since the 1990s. Subsequently, it discusses the multitude of available datasets documenting and investigating wealth inequality and then critically evaluates the benefits and drawbacks of each. Following, an overview on descriptive studies of wealth inequality with a focus on augmented and pension wealth, portfolio composition, and intergenerational transmission is provided. Finally, the review details developments in structural models that explain the concentration of wealth. The evidence points to a sharp rise of wealth inequality beginning in the early 1990s through the mid-2010s in the United States. However, recent trends differ, for example, for Sweden and the United Kingdom. The last two decades have witnessed a virtual explosion of datasets on household wealth, including, notably, new internationally conformable databases such as the World Inequality Database, the Luxembourg Wealth Study Database, the Household Finance and Consumption Survey, and new administrative data from Nordic countries. The possibility to combine different datasets via record linkage or statistical matching further enlarges their research potential. Several new studies have expanded the concept of wealth from conventional marketable wealth to augmented wealth including pension and social security wealth. On the theoretical front, new modeling approaches have been devised to account for the extreme skewness in wealth distributions, including the introduction of heterogeneous rates of return by wealth class.

Wage Risk and Portfolio Choice: The Role of Correlated Returns

“…The return on housing wealth, especially in Germany, is far less volatile than the return on equity. Data from Jordà et al ( 2019) and a calculation using this data in König et al (2020) support this fact. 11 Thus, when we include housing wealth as a non-risky/non-financial asset and reproduce our main results in Appendix E, our main conclusions are qualitatively unaffected.…”

A micro perspective on r > g

“…The publication of Capital in the Twenty‐first Century (Piketty 2014) sparked a surge of interest in the study of wealth inequality and the relation between the rate of return on capital and the growth rate of income (for a recent survey, see König et al . 2020). The main take‐away in Piketty (2014) and Piketty and Zucman (2014) is that whenever the rate of return on wealth overcomes the growth rate of income ($$$ r>g $$$), wealth‐rich individuals (the so‐called rentiers ) would accumulate wealth faster than individuals typically holding low or negative values of wealth and mainly relying on income, thus fostering wealth disparities in the longer run.…”

Inequality of Opportunity in Wealth: Levels, Trends, and Drivers

“…Our data source, the Socio-Economic-Panel (SOEP), is able to address all data limitations encountered in the research to date. The SOEP is a representative panel of German households and a prime data source for researchers to track income and wealth inequality in Germany (Biewen 2000;Schröder et al 2020;König, Schröder, and Wolff 2020;Albers, Bartels, and Schularick 2022). Since 2002, this panel contains detailed information on individuals' assets and liabilities, which allows for the calculation of net wealth.…”