Where do the rich come from?

By | 22.1.2017

Were you not born into a rich family? Never mind, your chances to become a billionaire have never been better.

Steven Kaplan and Joshua Rauh (both from the University of Chicago) conducted one of the less typical academic researches when they studied characteristics of the richest Americans. Using the Forbes ranking which lists the top 400 wealthiest individuals in the US economy, the authors explored three simple questions: whether wealth is self-made or inherited; in what industrial activities the firms of the rich operate and to what extent technology plays a role in their business activity; and whether the Forbes 400 members have graduated from college or not.

To provide a bigger picture, they analysed four years with approximately 10-year gaps between them. Starting with 1982 and finishing with 2011’s issue they described the dynamics of the changes. The study reveals that nowadays the Forbes 400 are more likely to run their own business rather than a business established by their ancestors. In 1982 only 40 percent of the Forbes 400 members started their own business, compared to almost 70 percent in 2011. The effect of family’s wealth has also become smaller within the group of self-made billionaires. While in 1982, roughly 60 percent of Forbes 400 members grew up in rich families, nowadays, it is only around 20 percent. Equally interestingly, the share of Forbes 400 members from poor families has remained constant, around 20 percent. The figure below provides more details.

2017-01-13

The data further indicate increasing importance of education. In particular, the percentage of college graduates among the 400 richest businessmen has grown by 10 percentage points, to 87 percent. Similarly, the rate of dropouts has increased as well. Naturally, the number of those who did not attend college at all has decreased. Considering the industry of the businesses, there are several trends worth attention. In the last 20 years, retail, technology-based industries and financial firms (hedge funds, private equity) have become more represented in the Forbes 400, whereas real estate, energy and media have experienced a decline. Overall, the structure of Forbes 400 has changed dramatically since 1982 and the position of the wealthiest individuals seems to be more open for those with no business to inherit.

Reference: Kaplan, S. N., & Rauh, J. D. (2013). Family, education, and sources of wealth among the richest Americans, 1982–2012. The American Economic Review103(3), 158-162. Available here

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