A new paper challenges Thomas Piketty’s portrayal of an income distribution dominated at the top by passive rentiers who do nothing to earn their money, arguing that income inequality in America today is driven by the working rich.

In 2014—two years before the United States elected its first billionaire president and the same year that the English translation of French economist Thomas Piketty’s seminal book Capital in the 21st Century was released—the Center for Responsive Politics found that for the first time in history a majority of Congressional seats (268 out of 534) were occupied by millionaires.

Back in 2011, Occupy Wall Street had styled itself as the voice of the 99 percent (though their actual support among the public in fact came in at some 59 percent) against the top 1 percent, conceived of as a rapacious global financial elite for which “Wall Street” served as a handy synecdoche. Around the same time anti-poverty NGOs like Oxfam were repeatedly sounding the alarm on the extraordinary concentration of global wealth into a few dozen pairs of hands and calling for an “economy for the 99 percent.”

In the meantime Piketty was putting the final touches on his data on the ratio of capital to income in developed countries throughout history and writing up the sobering implications of what he framed as a grand law of capitalism: in the absence of secular shocks to capital holders (such as the French Revolution or the World Wars), the rate of return to capital has tended to be higher than the rate of economic growth, inevitably leading to extraordinary concentrations of money.

And today, as in the old days of Europe’s landed gentry—Piketty argues—that money appears to be a return garnered without human effort: “‘Non-human’ capital,” he wrote in Capital, “seems almost as indispensable in the twenty-first century as it was in the eighteenth or nineteenth, and there is no reason why it may not become even more so.”

It’s with this quote that a team of economists from the US Treasury Department, UC Berkeley, and Chicago Booth preface their new working paper, “Capitalists in the Twenty-First Century” (Smith et al. 2017). They then proceed to challenge, using administrative tax data from the United States, Piketty’s portrayal of an income distribution dominated at the top by passive rentiers who do nothing to earn their money. They find that a significant chunk of the income accruing to the top 1 percent of earners in the United States today goes to the owners of mid-market firms in a broad range of non-financial industries around the country. In other words, it’s not Wall Street; it appears not to even be capital at all (or not just capital) that’s driving income inequality in America today. It’s the working rich.

Much recent research (e.g. Barkai 2016, De Loecker and Eeckhout 2017) on the labor share in the United States has overlooked one important detail: the bulk of recent increases to the incomes of the top 1 percent has come in the form not of wages or of capital income but of business income from so-called pass-through businesses. Unlike C corporations that are taxed at the organizational level, income from businesses of this sort is taxed when it “passes through” to the firms’ owners. Smith et al. match nearly 10 million owners of S corporations (the most popular form of pass-through business) to their firms and use their findings to construct a novel portrait of the top 1 percent:

“Typical firms owned by the top 1-0.1 percent are single-establishment firms in professional services (e.g., consultants, lawyers, specialty tradespeople) or health services (e.g., physicians, dentists),” Smith et al. write. “A typical firm owned by the top 0.1 percent might be a regional business with $30M in sales and 150 employees, such as an auto dealer, beverage distributor, or a large law firm.”

Their story is in general consistent with Barkai’s (2016) finding that a declining capital share has been accompanied by skyrocketing profits—which reached some $1.1 trillion, that is, $14,000 per employee, in 2014. Where Smith et al. diverge from Barkai and other researchers studying the labor share is that they re-class much of the flow of profits as “disguised wages” going to owner-workers, and hence argue that the decline of the labor share has been overstated by some 19 percent.

Having documented these basic facts—and while insisting they remain agnostic on the social optimality of the dynamics they document—Smith et al. take a stab at showing that the incomes of top 1 percent business owners are in fact returns to scarce human capital. But while their “death of a salesman” research design shows that owners are important for firm profits, it doesn’t succeed in isolating the role of human capital as the main causal mechanism. Their finding that premature deaths among owners of top 1 percent firms result in an average decline in profitability of 54 percent does not necessarily disentangle a potential contribution to this profitability from, say, the owners’ capacity to extract rents from their social networks or barriers to entry in their particular tranche of the labor market. And given that a top owner takes home a large chunk of his firm’s profitability in his own pocketbook (Smith et al. find that some 85 percent of the increase between 2001 and 2014 in S-corp income to owners in the top 1 percent came from rising profitability), it makes sense that much of the incentive to generate profits might disappear when the owner himself does.

In general, in their eagerness to build a story of inequality as a function of high returns to scarce human capital among S-corp owners, Smith et al. skip over some implications of their results about the income distribution in the United States. Firstly, the fact that the top 1 percent are working for their money rather than idly living off interest payments from capital doesn’t alleviate concerns about the political distortions of an extremely top-heavy income distribution in a democracy. Secondly—and relatedly—S-corp owners are getting rich because so much of the revenue being generated by their enterprises is going into their own, rather than their staffs’, pockets. This may be occurring even in the absence of any nefarious Dickensian scraping of value out of exploited workers. It may simply represent the returns to a political economy that gives special regard to the preferences of the working rich—or even one in which the preferences of policymakers are conflated with those of the working rich, considering that most representatives and senators are extracted from the same class.

To what extent, then, might pass-through owners in the United States be benefitting from a political economy characterized by unprotected labor markets, limited bargaining power of labor, and even an increasingly feminized (and secularly underpaid) labor force? (The health care industry, for instance, is overwhelmingly staffed by women and generates some 15 percent of the total profits accruing to S-corporations with owners in the top 1-0.1 percent in the United States.) Could it be that these factors, in conjunction with the limited scale that Smith et al. emphasize is a primary feature of S-corporations, provide a natural cap on wage bills and allow business owners to get rich off their enterprises’ rising profits? Eric Zwick, one of the paper’s co-authors and a professor of finance at Chicago Booth, waves away this concern: “There’s probably higher wages per worker in these firms than in some other parts of the economy because they’re more skilled workers typically.”

Nonetheless, Zwick concedes that anti-competitive forces may indeed be at work in driving up the incomes of pass-through owners in the form of structural barriers to human capital development. “A lot of these professions require a certain set of skills, training, educational background,” he says. “If those opportunities are not available to everyone, or are increasingly expensive, so people are rationed out by financial constraints that’s a pretty obvious area [to help reduce income concentration].” Ironically, it is precisely the top-heavy income distribution in the United States that may serve to prevent less-well-off workers from acquiring the human capital needed to compete with top earners.

Thus it would appear that—off-base as Piketty may have been in his portrayal of today’s capitalists as passive rentiers—he may well prove justified in his pessimism about the long-term dynamics of inequality. “There is no natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently,” he wrote in Capital. While today’s working rich are certainly no landed gentry, an economy for the 99 percent appears set to remain little more than a distant dream of Occupy sign-wavers and Oxfam report-writers.

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