Family, Education, and Sources of Wealth Among the Richest Americans, 1982-2012
Steven N. Kaplan
University of Chicago Booth School of Business and NBER
Joshua D. Rauh
Stanford University Graduate School of Business, NBER, and the Hoover Institution
We examine characteristics of the 400 wealthiest individuals in the U.S. over the past three decades as tabulated by Forbes Magazine, and analyze which theories of increasing inequality are most consistent with these data. The Forbes 400 in recent years did not grow up as advantaged as in decades past. They are more likely to have started their businesses and to have grown up upper-middle class, not wealthy. Today’s Forbes 400 were able to access education while young, and apply their skills to the most scalable industries: technology, finance, and mass retail. Most of the change occurred by 2001. ... We find that the Forbes 400 in recent years did not grow up as advantaged as in decades past. Those in the Forbes 400 today are less likely to have inherited their wealth or to have grown up wealthy. They are equally likely to have grown up with no wealth as in the 1980s The biggest change is that they are more likely to have started their businesses having grown up with some wealth, what we consider to be the equivalent of upper middle class. The Forbes 400 of today also are those who were able to access education while young and apply their skills to the most scalable industries: technology, finance, and mass retail.
... We collected these lists approximately every ten years, in 1982, 1992, 2001, and 2011. ...
The generation is usually an integer but if the individual inherited a relatively small business and built it into a much larger one we coded it as a 1.5, as for example David and Charles Koch of Koch Industries. ...
We separately code the extent to which the individual grew up wealthy, defining three categories: little or no wealth in the family, some wealth in the family, or wealthy. For example, the Koch Brothers grew up wealthy. Bill Gates, whose father co-founded a successful law firm, grew up with some wealth, as did, for example, sons and daughters of U.S. Congressmen (Warren Buffet), factory owners (James Simons), newspaper publishers (Philip Knight), retail owners (Stephen Schwarzman), and psychiatrists (Dustin Moskovitz). We view the “some wealth” category as the equivalent of an upper middle class upbringing. ...
The Forbes 400 represent $92 billion of wealth in 1982, $301 billion in 1992, $943 billion in 2001, and $1.525 trillion in 2011. In constant 2011 dollars, the wealth amounted to $214 billion in 1982, $483 billion in 1992, $1.197 trillion in 2001, and $1.525 trillion in 2011. ...
Figure 1 shows that in the U.S., the share of Forbes 400 individuals who are the first generation in their family to run their businesses has risen dramatically from 40% in 1982 to 69% in 2011. Figure 2 illustrates that the percent that grew up wealthy fell from 60% to 32% while the percent that grew up with some money in the family rose by a similar amount. The share that grew up poor remained constant at roughly 20%. The Forbes 400 of recent years therefore did not grow up nearly as advantaged as those in decades past.
I'm going to raise the methodological quibble that their starting point of the first Forbes 400 in 1982 may have been overly biased toward famous Old Family Money names like Rockefeller and Ford. It would have been natural for the Forbes researchers to first check off all the scions whom readers would expect to find on the list, and then over the years find more obscure self-made men.
After all these years, the media is still stumbling upon zillionaires who haven't been in the public eye before because they keep a low profile and mind their own business (very, very well). For example, not until August 2013 did the press discover New Hampshire grocery wholesaler Richard B. Cohen, who may be about as rich as Mark Zuckerberg, but who hasn't had a hit movie made about his life, and probably doesn't feel an aching hole in his soul over that fact, either.
So, it's not all that unlikely that the very first Forbes 400 simply missed some self-made rich guys.
But, overall, there weren't all that many great fortunes made in the 1930-1982 era, so the descendants of the pre-1929 rich remained more significant among the richest than they are today. For example, the only sizable personal golf course I can recall being built in that time was Walter Annenberg's Sunnylands in Palm Springs that Obama now uses to meet foreign dignitaries.
By the way, this would predict that heirs will increasingly fill up the Forbes 400 in the future as the big money makers of the late 20th Century die off and leave their money to their descendants. Right now we're in a lull period when most of the guys who made it hugely rich in the last quarter of the 20th Century are still alive. But they'll be dying off in increasing numbers and being replaced by their heirs as time goes by. For example, the various Waltons take up a lot of space on the Forbes 400 ever since Sam Walton died in 1992, and there will be more such heirs on the list in the future.
In general, I think it's likely that more of the new fortunes today come out of the upper middle class than in the past, but it should be investigated carefully.
Those who grew up with some wealth in the family were far more likely to start their own businesses rather than inherit family businesses. Furthermore, these findings about generation and wealth in the family are very similar when the results are weighted by wealth. These results suggest that there has been an increase, not a decrease, in wealth mobility at the very top. ...
As we show in Kaplan and Rauh (2013), some of these patterns are reflected globally but others are not. The share of global billionaires who are first-generation in the business rose by a similar amount abroad as in the US. The technology component has become more important globally, but nowhere has it become as important as in the US. Computer technology and money management are increasingly represented among billionaires globally, but the category that gained the most is mining/metals. Energy also saw substantial gains globally, whereas it fell in the US.
The 1982 Forbes 400 was full of J.R. Ewing-type oilmen, but many were gone by the mid-1980s, when the list was suddenly full of Donald Trump-types who had bought Manhattan office buildings in the 1970s. By picking only one year per decade, it's a little hard for the researchers to disentangle short term swings like that from the long-term trends (finance and tech uber alles).
This paper makes no mention of the ethnicity of the billionaires, but here's an estimate.
There is clearly a greater increase in wealth being derived from natural resources outside than within the U.S.
Perhaps the most striking difference between the wealthiest individuals in the US and around the world is that the share of non-US billionaires who grew up without any wealth at all has risen from under 30% in 1987 to over 50% in 2012. The share that grew up with some but not large wealth has hovered around 20%, whereas the share that grew up wealthy plummeted.
A large fraction of these global billionaires grew up under communism (China, Russia, Ukraine) or socialism (India, etc.).