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Cited by 263Income, Poverty, and InequalityLabor market dynamics and wage inequalityCorporate Taxation and Avoidance

“Capitalists in the Twenty-First Century”

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Smith, Matthew, Yagan, Danny, Zidar, Owen, Zwick, Eric·2019·The Quarterly Journal of Economics
DOI 10.1093/qje/qjz020
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Abstract

How important is human capital at the top of the U.S. income distribution? A primary source of top income is private “pass-through” business profit, which can include entrepreneurial labor income for tax reasons. This article asks whether top pass-through profit mostly reflects human capital, defined as all inalienable factors embodied in business owners, rather than financial capital. Tax data linking 11 million firms to their owners show that top pass-through profit accrues to working-age owners of closely held mid-market firms in skill-intensive industries. Pass-through profit falls by three-quarters after owner retirement or premature death. Classifying three-quarters of pass-through profit as human capital income, we find that the typical top earner derives most of her income from human capital, not financial capital. Growth in pass-through profit is explained by both rising productivity and a rising share of value added accruing to owners.

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  • Business owner income allocation can account for only an eighth of the decline in the labor share.

    “There remains an issue of how business owners allocate income, butSmith, Yagan, Zidar and Zwick (2019) show that this can account for only an eighth of the decline in the labor share.”

    From The Fall of the Labor Share and the Rise of Superstar Firms* (2020) · cites this paper as Smith, Yagan, Zidar and Zwick (2019)

    Section 5.2 reports that owners of top-owned pass-through firms paid themselves less in wages and more in profits from 2001 to 2014, and says this recharacterization accounts for some of the apparent decline in the labor share. It does not establish that business owners’ income allocation accounts for only one-eighth of the decline in the labor share generally; its reported 1.9-percentage-point change concerns owner wages at top-owned firms. (LLM, conf=0.86)

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Cited by

Sorted by citations

Authors
Smith, M., Yagan, D., Zidar, O., & Zwick, E.
Affiliations
  • United States Department of the Treasury (US)
  • National Bureau of Economic Research (US)
ORCID
Venue
The Quarterly Journal of Economics
Publisher
Oxford University Press (OUP)
Published
2019-07-31
Volume
134
Issue
4
Pages
1675-1745
ISSN
  • 0033-5533 (ISSN-L)
  • 1531-4650
DOI
10.1093/qje/qjz020
OpenAlex
W2910995501
Cited by
263
References
2
Citations by year
2026: 22 · 2025: 41 · 2024: 35 · 2023: 39 · 2022: 42 · 2021: 37 · 2020: 31 · 2019: 4 · 2018: 4 · 2017: 5 · 2015: 1 · 2014: 1
FWCI
57.35
Type
journal article
Language
en
Open access
Licence
academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model (vor)
Locations
  • The Quarterly Journal of Economics (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
  • Econstor (Econstor) (submittedVersion)
Funders
  • Ewing Marion Kauffman Foundation
  • Laura and John Arnold Foundation
Topics
  • Social Sciences › Sociology and Political Science › Income, Poverty, and Inequality
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Labor market dynamics and wage inequality
  • Social Sciences › Business, Management and Accounting › Accounting › Corporate Taxation and Avoidance
Keywords
human capital, closely held corporations, skill-intensive industries, financial capital, income distribution, productivity growth, business owners

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