Distribution of wealth
The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or economic heterogeneity.
The distribution of wealth differs from the income distribution in that it looks at the economic distribution of ownership of the assets in a society, rather than the current income of members of that society. According to the International Association for Research in Income and Wealth, "the world distribution of wealth is much more unequal than that of income."
For rankings regarding wealth, see list of countries by wealth equality or list of countries by wealth per adult.
Definition of wealth
Wealth of an individual is defined as net worth, expressed as: wealth = assets − liabilitiesA broader definition of wealth, which is rarely used in the measurement of wealth inequality, also includes human capital. For example, the United Nations definition of inclusive wealth is a monetary measure which includes the sum of natural, human and physical assets.
The relation between wealth, income, and expenses is: :change of wealth = saving = income − consumption. If an individual has a large income but also large expenses, the net effect of that income on her or his wealth could be small or even negative.
Conceptual framework
There are many ways in which the distribution of wealth can be analyzed. One common-used example is to compare the amount of the wealth of individual at say 99 percentile relative to the wealth of the median percentile. This is P99/P50, which is one of the potential Kuznets ratios. Another common measure is the ratio of total amount of wealth in the hand of top say 1% of the wealth distribution over the total wealth in the economy. In many societies, the richest ten percent control more than half of the total wealth.Pareto Distribution has often been used to mathematically quantify the distribution of wealth at the right tail. In fact, the tail of wealth distribution, similar to the one of income distribution, behave like Pareto distribution but with ticker tail.
Wealth over people curves are a visually compelling way to show the distribution of wealth in a nation. WOP curves are modified distribution of wealth curves. The vertical and horizontal scales each show percentages from zero to one hundred. We imagine all the households in a nation being sorted from richest to poorest. They are then shrunk down and lined up along the horizontal scale. For any particular household, its point on the curve represents how their wealth compares to the average wealth of the richest percentile. For any nation, the average wealth of the richest 1/100 of households is the topmost point on the curve or or. In the real world two points on the WOP curve are always known before any statistics are gathered. These are the topmost point by definition, and the rightmost point or or. This unfortunate rightmost point is given because there are always at least one percent of households with no wealth at all. Given that the topmost and rightmost points are fixed... our interest lies in the form of the WOP curve between them. There are two extreme possible forms of the curve. The first is the "perfect communist" WOP. It is a straight line from the leftmost point horizontally across the people scale to p=99. Then it drops vertically to wealth = 0 at.
The other extreme is the "perfect tyranny" form. It starts on the left at the Tyrant's maximum wealth of 100%. It then immediately drops to zero at p=2, and continues at zero horizontally across the rest of the people. That is, the tyrant and his friends own all the nation's wealth. All other citizens are serfs or slaves. An obvious intermediate form is a straight line connecting the left/top point to the right/bottom point. In such a "Diagonal" society a household in the richest percentile would have just twice the wealth of a family in the median percentile. Such a society is compelling to many. In fact it is a comparison to a diagonal society that is the basis for the Gini values used as a measure of the disequity in a particular economy. These Gini values show the United States to be the third most dis-equitable economy of all the developed nations.
More sophisticated models have also been proposed.
Inequality
Wealth distribution pyramid
Personal wealth varies across adults for many reasons. Some individuals with little wealth may be at early stages in their careers, with little chance or motivation to accumulate assets. Others may have suffered business setbacks or personal misfortunes, or live in parts of the world where opportunities for wealth creation are severely limited. At the other end of the spectrum, there are individuals who have acquired a large wealth through different ways. In Western countries, the most typical way of becoming wealthy is entrepreneurship. Other typical way is pursuing a career with the end goal of becoming a C-level executive, a leading professional in a specific field or a top corporate sales person. Only around 1% of new millionaires acquire their wealth via other means such as professional sports, show business, art, inventions, investing, inheritance or lottery.In 2013, Credit Suisse prepared a wealth pyramid infographic. Personal assets were calculated in net worth, meaning wealth would be negated by having any mortgages. It has a large base of low wealth holders, alongside upper tiers occupied by progressively fewer people. In 2013 Credit-suisse estimate that 3.2 billion individuals – more than two thirds of adults in the world – have wealth below US$10,000. A further one billion fall within the 10,000 – US$100,000 range. While the average wealth holding is modest in the base and middle segments of the pyramid, their total wealth amounts to US$40 trillion, underlining the potential for novel consumer products and innovative financial services targeted
at this often neglected segment.
The pyramid shows that:
- half of the world's net wealth belongs to the top 1%,
- top 10% of adults hold 85%, while the bottom 90% hold the remaining 15% of the world's total wealth,
- top 30% of adults hold 97% of the total wealth.
Wealth distribution in 2012
21st century
At the end of the 20th century, wealth was concentrated among the G8 and Western industrialized nations, along with several Asian and OPEC nations.Wealth inequality
A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned 1% of global wealth. Moreover, another study found that the richest 2% own more than half of global household assets.Real estate
While sizeable numbers of households own no land, few have no income. For example, the top 10% of land owners in Baltimore, Maryland own 58% of the taxable land value. The bottom 10% of those who own any land own less than 1% of the total land value. This form of analysis as well as Gini coefficient analysis has been used to support land value taxation.Credit Suisse Report – Wealth Distribution & Gini (2019)
This table was created from information provided by the Credit Suisse Research Institute's "Global Wealth Databook", Table 3.1, published 2019.In the United States
According to PolitiFact, in 2011 the 400 wealthiest Americans "have more wealth than half of all Americans combined." Inherited wealth may help explain why many Americans who have become rich may have had a "substantial head start". In September 2012, according to the Institute for Policy Studies, "over 60 percent" of the Forbes richest 400 Americans "grew up in substantial privilege".In 2007, the richest 1% of the American population owned 34.6% of the country's total wealth, and the next 19% owned 50.5%. The top 20% of Americans owned 85% of the country's wealth and the bottom 80% of the population owned 15%. From 1922 to 2010, the share of the top 1% varied from 19.7% to 44.2%, the big drop being associated with the drop in the stock market in the late 1970s. Ignoring the period where the stock market was depressed and the period when the stock market was overvalued, the share of wealth of the richest 1% remained extremely stable, at about a third of the total wealth. Financial inequality was greater than inequality in total wealth, with the top 1% of the population owning 42.7%, the next 19% of Americans owning 50.3%, and the bottom 80% owning 7%. However, after the Great Recession which started in 2007, the share of total wealth owned by the top 1% of the population grew from 34.6% to 37.1%, and that owned by the top 20% of Americans grew from 85% to 87.7%. The Great Recession also caused a drop of 36.1% in median household wealth but a drop of only 11.1% for the top 1%, further widening the gap between the 1% and the 99%. During the economic expansion between 2002 and 2007, the income of the top 1% grew 10 times faster than the income of the bottom 90%. In this period 66% of total income gains went to the 1%, who in 2007 had a larger share of total income than at any time since 1928.
Dan Ariely and Michael Norton show in a study that US citizens across the political spectrum significantly underestimate the current US wealth inequality and would prefer a more egalitarian distribution of wealth, raising questions about ideological disputes over issues like taxation and welfare.
| Year | Bottom 99% | Top 1% |
| 1922 | 63.3% | 36.7% |
| 1929 | 55.8% | 44.2% |
| 1933 | 66.7% | 33.3% |
| 1939 | 63.6% | 36.4% |
| 1945 | 70.2% | 29.8% |
| 1949 | 72.9% | 27.1% |
| 1953 | 68.8% | 31.2% |
| 1962 | 68.2% | 31.8% |
| 1965 | 65.6% | 34.4% |
| 1969 | 68.9% | 31.1% |
| 1972 | 70.9% | 29.1% |
| 1976 | 80.1% | 19.9% |
| 1979 | 79.5% | 20.5% |
| 1981 | 75.2% | 24.8% |
| 1983 | 69.1% | 30.9% |
| 1986 | 68.1% | 31.9% |
| 1989 | 64.3% | 35.7% |
| 1992 | 62.8% | 37.2% |
| 1995 | 61.5% | 38.5% |
| 1998 | 61.9% | 38.1% |
| 2001 | 66.6% | 33.4% |
| 2004 | 65.7% | 34.3% |
| 2007 | 65.4% | 34.6% |
| 2010 | 64.6% | 35.4% |
World distribution of wealth
By region
World distribution of financial wealth.In 2007, 147 companies controlled nearly 40 percent of the monetary value of all transnational corporations.
Wealth concentration
Wealth concentration is a process by which created wealth, under some conditions, can become concentrated by individuals or entities. Those who hold wealth have the means to invest in newly created sources and structures of wealth, or to otherwise leverage the accumulation of wealth, and are thus the beneficiaries of even greater wealth.Economic conditions
The first necessary condition for the phenomenon of wealth concentration to occur is an unequal initial distribution of wealth. The distribution of wealth throughout the population is often closely approximated by a Pareto distribution, with tails which decay as a power-law in wealth.. According to PolitiFact and others, the 400 wealthiest Americans had "more wealth than half of all Americans combined." Inherited wealth may help explain why many Americans who have become rich may have had a "substantial head start". In September 2012, according to the Institute for Policy Studies, "over 60 percent" of the Forbes richest 400 Americans "grew up in substantial privilege".The second condition is that a small initial inequality must, over time, widen into a larger inequality. This is an example of positive feedback in an economic system. A team from Jagiellonian University produced statistical model economies showing that wealth condensation can occur whether or not total wealth is growing.
Joseph E. Fargione, Clarence Lehman and Stephen Polasky demonstrated in 2011 that chance alone, combined with the deterministic effects of compounding returns, can lead to unlimited concentration of wealth, such that the percentage of all wealth owned by a few entrepreneurs eventually approaches 100%.
Correlation between being rich and earning more
Given an initial condition in which wealth is unevenly distributed, several non-exclusive economic mechanisms for wealth condensation have been proposed:- A correlation between being rich and being given high paid employment.
- A marginal propensity to consume low enough that high incomes are correlated with people who have already made themselves rich.
- The ability of the rich to influence government disproportionately to their favor thereby increasing their wealth.
Because these mechanisms are non-exclusive, it is possible for all three explanations to work together for a compounding effect, increasing wealth concentration even further. Obstacles to restoring wage growth might have more to do with the broader dysfunction of a dollar dominated system particular to the US than with the role of the extremely wealthy.
Counterbalances to wealth concentration include certain forms of taxation, in particular wealth tax, inheritance tax and progressive taxation of income. However, concentrated wealth does not necessarily inhibit wage growth for ordinary workers.
Markets with social influence
Product recommendations and information about past purchases have been shown to influence consumers choices significantly whether it is for music, movie, book, technological, and other type of products. Social influence often induces a rich-get-richer phenomenon where popular products tend to become even more popular.Redistribution of wealth and public policy
In many societies, attempts have been made, through property redistribution, taxation, or regulation, to redistribute wealth, sometimes in support of the upper class, and sometimes to diminish economic inequality.Examples of this practice go back at least to the Roman republic in the third century B.C., when laws were passed limiting the amount of wealth or land that could be owned by any one family. Motivations for such limitations on wealth include the desire for equality of opportunity, a fear that great wealth leads to political corruption, to the belief that limiting wealth will gain the political favor of a voting bloc, or fear that extreme concentration of wealth results in rebellion. Various forms of socialism attempt to diminish the unequal distribution of wealth and thus the conflicts and social problems arising from it.
During the Age of Reason, Francis Bacon wrote "Above all things good policy is to be used so that the treasures and monies in a state be not gathered into a few hands… Money is like fertilizer, not good except it be spread."
The rise of Communism as a political movement has partially been attributed to the distribution of wealth under capitalism in which a few lived in luxury while the masses lived in extreme poverty or deprivation. However, in the Critique of the Gotha Program, Marx and Engels criticized German Social Democrats for placing emphasis on issues of distribution instead of on production and ownership of productive property. While the ideas of Marx have nominally influenced various states in the 20th century, the Marxist notions of socialism and communism remains elusive.
On the other hand, the combination of labor movements, technology, and social liberalism has diminished extreme poverty in the developed world today, though extremes of wealth and poverty continue in the Third World.
In the Outlook on the Global Agenda 2014 from the World Economic Forum the widening income disparities come second as a worldwide risk.
Wealth surveys
Many countries have national wealth surveys, for example:- The British
- The Italian Survey on Household Income and Wealth
- The euro area
- The US Survey of Consumer Finances
- The Canadian
- The German
Additional data, charts, and graphs
- by G. William Domhoff
- – Lorenz curve and Gini coefficient
- The World Distribution of Household Wealth
- from Dalton Conley's textbook which was adapted from the 1992 UNDP original