Sandra Black: Where Does Wealth Come From?

June 4, 2023 Pharaoh

Sandra Black
Columbia University
“Where Does Wealth Come From?”
Tuesday, April 12, 2022

Biography: Sandra E. Black is Professor of Economics and International and Public Affairs at Columbia University. She worked as an Economist at the Federal Reserve Bank of New York, and a Professor in the Department of Economics at UCLA, and held the Audre and Bernard Centennial Chair in Economics and Public Affairs at the University of Texas at Austin before arriving at Columbia University. She is currently an Editor of the Journal of Labor Economics. Dr. Black is a Research Associate at the National Bureau of Economic Research (NBER) and the Director of the NBER Study Group on Economic Mobility. She served as a Member of Obama’s Council of Economic Advisers from August 2015-January 2017. Her research focuses on the role of early life experiences on the long-run outcomes of children, as well as issues of gender and discrimination.

Abstract: Understanding inequality requires an understanding of how wealth relates to the potential wealth an individual could accumulate and where this wealth comes from. Using administrative data from Norway, we create measures of potential wealth that abstract from differential consumption and spending behavior. We then examine how these measures relate to observed net wealth of individuals at a point in time and the role played by different sources of wealth in the distribution of potential wealth. We find that net wealth is a reasonable proxy for potential wealth, particularly in the tails of the distribution. People in different parts of the potential wealth distribution get their wealth from different sources. Labor income is the most important determinant of wealth, except among the top 1%, where capital income and capital gains on financial assets become important.
Inheritances and gifts are not an important determinant of wealth, even at the top of the wealth distribution. Finally, although inheritances are not important, parental wealth does influence child’s wealth.

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