ON THE SIZE DISTRIBUTION OF WEALTH IN CANADA*

This paper is concerned with measurement of the size distribution of personal wealth in Canada. The only available estimates of this distribution are those provided on the occasions when Statistics Canada's Survey of Consumer Finance has surveyed assets and debts. Results of the latest “SCF” to do this, that of 1977, are not yet available. The paper shows that the previous study, conducted in 1970, indicated wealth-inequality as viewed by top quantile shares roughly of the same order as estimated by others for the U.S. and U.K. A comparison of asset and debt aggregates implied by the survey, however, with independent totals indicates that for almost all items the SCF likely under-estimated true holdings. The possible relative importance of sampling and non-sampling errors in explaining this distortion is considered, drawing on Monte Carlo evidence and American validation studies of survey response. It is concluded that sampling error is unlikely to provide the explanation for SCF discrepancies in aggregates, but that non-sampling error is capable of doing so. Finally the 1970 SCF distribution of wealth is re-estimated. First a correction is made for hypothetical differential response according to true net worth. Second an attempt is made to remove the effects of under-reporting by respondents. The “best-guess” re-estimated distribution exhibits mean net worth considerably greater than shown by the SCF but only a slightly greater degree of concentration. Under certain fundamental assumptions this result is surprisingly robust. The appropriate conclusion is not that survey estimates of the distribution of wealth are reliable, but that the strong non-sampling errors affecting the 1970 Canadian SCF wealth estimates may have been composed of almost completely offsetting sources of bias.     

TRENDS IN HOUSEHOLD WEALTH IN THE UNITED STATES, 1962–83 AND 1983–89

Using the 1983 and 1989 Surveys of Consumer Finances, I find evidence of sharply increasing house-hold wealth inequality over this period. Whereas mean wealth increased by 23 percent in real terms, median wealth grew by only 8 percent. The share of the top one-half percentile rose by five percentage points, while the wealth of the bottom two quintiles showed an absolute decline. The Gini coefficient increased from 0.80 to 0.84. Almost all the growth in real wealth accrued to the top 20 percent of wealthholders. In contrast, the degree of wealth inequality was almost identical in 1983 as in 1962, and real wealth growth was more evenly distributed across the wealth distribution. There is also evidence that the sharp increase in wealth inequality from 1983 to 1989 was due to a correspondingly sharp rise in income inequality, the increase of stock prices relative to housing prices, and relatively slow inflation.     

TRUE HOUSEHOLD EQUIVALENCE SCALES AND CHARACTERISTICS OF THE POOR IN THE UNITED STATES

In this paper we deal with the question of which measures of economic well-being are adequate to identify those groups of households in the U.S. whose economic conditions justify public concern and assistance. We derive a utility based measure of economic well-being from the estimation of a complete set of consumer demand equations. The demand system is Lluch's Extended Linear Expenditure System (Lluch, 1973). Household characteristics are incorporated using the scaling method proposed by Barten (1966). Using the welfare indicator derived, we study the composition of the poorest part of the population, using data from the 1972–73 Consumer Expenditure Survey. We compare our results with those obtained using various other welfare indicators, including the official U.S. poverty line. We show that using different family composition adjustments significantly and systematically affects just who are considered to be at the bottom of the welfare distribution. We finally suggest that program designers therefore can improve their target efficiency by carefully selecting from among the acceptable indices of welfare when defining program eligibility.     

TRENDS IN THE CONCENTRATION OF PERSONAL WEALTH IN THE UNITED STATES, 1958 TO 1976

The trend in the concentration of U.S. wealth from 1958 through 1976 is examined in some detail and summary data are used to extend the period over which the trend is observed back to 1922. The data suggests a long-run secular decline in the concentration of U.S. wealth with a rather sharp decline in 1976, the last year for which measurements were made. Although the secular decline in wealth concentration is supported by numerous observations across 50 years, the precipitous decline measured between 1972 and 1976 should be interpreted with caution because it undoubtedly reflects the substantial downward revaluation which occurred in the stock market from 1972 (most recent previous observation) to 1976. This is not to argue that wealth holders at the top of the distribution were not made significantly less affluent by the revaluation, but that the 1976 observation includes a large cyclical component. Future observations which include the subsequent upward revaluation in the stock market are expected to show levels of concentration comparable to or only slightly below those for 1958 through 1972.     

RETIREMENT INCOME RIGHTS AS A COMPONENT OF WEALTH IN THE UNITED STATES*

Americans have accumulated a considerable amount of future purchasing power in the form of Social Security and employer pension rights. These rights are a form of wealth. In this paper, we ask how their inclusion alters the wealth portfolios of a sample of Americans at or nearing normal retirement age. Data from the 1973 wave of the longitudinal Retirement History Study suggest that, for many Americans, retirement income rights are the dominant component of wealth, and are often more important than all other entries combined, including home equity. We also find that this wealth can be seriously eroded during times of high inflation. Because of differences in marketability, pension and Social Security rights are not perfect substitutes for more liquid assets. Nonetheless, since they are so large in magnitude, and have been shown to be key determinants of the behavior of older workers, they should not be ignored.     

THE DISTRIBUTION OF PUBLIC EXPENDITURE AMONG HOUSEHOLDS IN THE UNITED STATES*

This paper presents an analysis of the distributive impact of government expenditures in the United States. The analysis uses a household-level microdata file drawn from the 1970 U.S. Census of Population, with additional income and tax variables drawn from the Internal Revenue Service 1969—70 Tax File. The results are presented at both federal and local levels and include analyses of the distribution of individual benefits, as well as of overall taxes and net benefits. Since a microdata file was used, distributional effects are examined with respect not only to the “traditional” variables of income class and household size, but also with regard to the number of earners in the household and the sex and race of the household head. In a further paper in a subsequent issue of this review we will present the results of a similar analysis for the United Kingdom, and compare the results for the two countries.     

THE STANDARD OF LIVING IN THE UNITED STATES

A common approach to the evaluation of the standard of living is based on a function of real income. In the United States this often takes the form of CPI-deflated mean household income. Material well-being is more appropriately evaluated using a consumption-based index. Using data from the Consumer Expenditure Surveys we find that real mean income provides an inaccurate representation of the level and trend of the standard of living relative to real per equivalent total expenditure in the postwar United States. The differences between real income and real total expenditure per household equivalent member are found at all levels of aggregation.     

THE DISTRIBUTION OF INCOME AND WEALTH IN JAPAN

This paper reviews research on the distribution of income and wealth in Japan, identifies sources of data on income and wealth, and describes limitations of these data. Evidence that Japan's poorest income groups are relatively well-off is convincing, but there is less evidence that the overall distribution of income in Japan is more equal than in other OECD countries. Agricultural policy, social welfare policy, the tax system, trends in earnings differentials, and the role of the Japanese family are among the many factors that have shaped Japan's income distribution. The rapid appreciation of the stock market and land prices during the late 1980s led to greater inequality in the distribution of wealth. Rapid population aging is expected to lead to an increase in total national wealth relative to national income which may have an adverse impact on the distribution of income.     

THE SIZE DISTRIBUTION OF PERSONAL WEALTH IN FRANCE (1977): A FIRST ATTEMPT AT THE ESTATE DUTY METHOD

This paper reports upon the first official application of the estate multiplier method of estimating the wealth distribution to French data. It is based upon a sample of estate duty returns filed during the period September-December 1977. The sampling rate was 5 percent for estates under one million francs, and 100 percent for estates over this level, giving a total of 5031 records. The data available did not permit a breakdown by type of asset. It did, however, permit classification of estates by age, sex, and occupation of decedent. Experiments were conducted using five different sets of mortality multipliers. The set of mortality multipliers judged most appropriate leads to an estimate of aggregate net wealth that is 77 percent of that given in the national balance sheet of the national accounts. Comparison of the distributions of wealth derived in these estimates suggest that the figures are consistent with those found in other countries.     

ESTIMATES OF HOUSEHOLD WEALTH INEQUALITY IN THE U.S., 1962–1983

The study has two major objectives. The first is to determine time trends in household wealth inequality in the U.S. over the 1962–83 period. Four concepts of wealth are analyzed: (i) total household wealth, defined as total household assets less liabilities; (ii) fungible wealth, defined as total household wealth less consumer durables and household inventories; (iii) financial wealth, defined as fungible wealth less equity in owner-occupied housing; and (iv) capital wealth, defined as financial wealth less currency, checking accounts, and time deposits. Relying on a variety of data sources, I find that wealth inequality remained relatively constant from about 1962 to 1973, fell sharply from about 1973 to about 1979, and then rose sharply between 1979 and 1983. Concentration in 1983 was greater than that in 1962 for financial and capital wealth but of similar magnitude for total and fungible wealth. The second, methodological in nature, is to analyze the effect on measured inequality of the alignment of raw survey data to national balance sheet totals. I find that the alignment process can significantly affect point estimates of household wealth distribution but does not generally affect the direction of inequality trends.     

TRENDS IN AGGREGATE HOUSEHOLD WEALTH IN THE US., 1900–83

New estimates of aggregate household wealth for the U S. covering selected years in the period from 1900 to 1983 are presented. I find that marketable wealth per capita grew at 1.46 percent per year in real terms over the 1900–83 period, while real wealth per household grew at 0.81 percent per year. However, the growth rate was not uniform over the period, with the rates high during the 1900–29 and the 1949–69 periods, and slow during the other years. Moreover, real per capita wealth actually increased more slowly than real per capita disposable income and real per capita GNP over the century. I also find dramatic changes in the composition of household wealth over the century. In particular, both tangibles and fixed claim assets increased relative to total assets over the period from 1900 to 1983, while equities fell from about half to a quarter. Owner-occupied housing increased only moderately as a proportion of assets, from 17 percent in 1900 to 20 percent in 1983. Unincorporated business equity fell from over a third of total assets to 12 percent. Among financial assets, the biggest relative growth occurred in deposits in financial institutions, which grew from 8 percent in 1900 to 22 percent in 1983. Corporate stock had the most volatile behavior in the household portfolio, growing from 13 percent of total assets in 1900 to 27 percent in 1929, falling to 10 percent in 1949, rising to 22 percent in 1965, and then falling to 11 percent by 1983. Debt as a proportion of total assets rose from 5 percent in 1900 to 16 percent in 1983. Finally, both pension reserves and social security wealth increased relative to marketable assets from virtually zero in 1900 to 12 and 48 percent, respectively.     

THE RATE OF CHANGE IN THE SIZE DISTRIBUTION OF WAGES AS A VECTOR

This paper attempts to measure the rate of change in the size distribution of wages over time in a rigorous, analytic way, and to relate that change to the business cycle. The basic problem for which this paper provides a solution is to relate changes in a size distribution to levels of and changes in single-dimensioned variables (unemployment, Gross National Product, and the consumers price index). Let F stand for the cumulative relative size distribution of wages, a function of wages. F takes on values zero through one. Let be a given value of F , e.g., = 0.25. The proposed solution to the basic problem is to measure the rate of change in consecutive F 's at . The composite of such measurements at over time forms a vector, the length of which depends upon the number of time periods observed. The number of vectors thus derived depends upon the number of values of selected. The various vectors are then related to the general economic conditions and the respective values of . The general economic conditions have a differential effect on the various vectors; e.g., those wage earners with relatively low wages are affected differently by a given turn of the business cycle than are those with high wages.
The paper includes several supplementary investigations: (a) estimating each of the annual cumulative relative size distributions of wages for a specific analytic function, (b) relating analytically the size distribution construct to the Lorenz curve concept and the Gini coefficient, (c) predicting and simulating size distributions for various economic conditions, (d) formulating tax trade-offs, and (e) suggesting further uses and extensions.     

THE ACCUMULATION OF HOUSEHOLD WEALTH OVER THE LIFE-CYCLE: A MICRODATA ANALYSIS*

In this paper, I investigate the validity of the Modigliani-Brumberg (M-B) model as an explanation of the variation of wealth holdings among households. The model as such, even with the inclusion of estimates of household lifetime earnings, explains only a minute portion of the variation in household wealth. Indeed, for certain groups such as non-white, rural residents, and the low educated, the coefficients of the regression model are insignificant. Moreover, when the top wealth holders are removed from the sample and when non-cash financial and business assets are eliminated from the household portfolios, the explanatory power of the M-B model increases markedly. Essentially, the validity of life-cycle wealth accumulation models must be restricted to the white, urban, educated middle classes and their accumulation of housing, durables, and cash. The rich have very different motives for saving and very different sources of saving, while the poor do not earn sufficient income over their lifetime to accumulate any non-negligible wealth.     

FOREIGN TAKEOVERS AND NEW INVESTMENTS IN THE UNITED STATES

This study is unique in several respects. First, it reviews the characteristics of the top 10 industries targeted for foreign direct investment (FDI) activity in the United States between 1979 and 1987. It analyzes both overall FDI activity and new plant and expansion FDI activity. The study summarizes and tests alternative hypotheses regarding the determinants of FDI in the United States by all countries, by the United Kingdom, by the European Community, by Japan, and by Canada.
Large and growing product markets in an expanding economy have attracted FDI in the United States. Exchange rate movements have prompted opportunistic decisions to invest in U.S. production facilities. Investors' superior management skills appear to have prompted takeovers, while efforts to realize technological advantages of new physical capital and of relatively large operating plants have fostered plant and expansion investments.
Evidence exists that a desire to circumvent current—but not potential—trade restrictions has motivated foreign direct investment. FDI activities are not associated with concentrated or heavily unionized industries. Highly protected industries have attracted heavier equity FDI by Japan and heavier new plant FDI by all sources and Canada. No evidence exists that FDI in the United States by Japan or anyone else is targeted to undercut union-dominated firms or to arrest the spread of protectionist trade policies.     

FOREIGN TAKEOVERS AND NEW INVESTMENTS IN THE UNITED STATES

This study is unique in several respects. First, it reviews the characteristics of the top 10 industries targeted for foreign direct investment (FDI) activity in the United States between 1979 and 1987. It analyzes both overall FDI activity and new plant and expansion FDI activity. The study summarizes and tests alternative hypotheses regarding the determinants of FDI in the United States by all countries, by the United Kingdom, by the European Community, by Japan, and by Canada.
Large and growing product markets in an expanding economy have attracted FDI in the United States. Exchange rate movements have prompted opportunistic decisions to invest in U.S. production facilities. Investors' superior management skills appear to have prompted takeovers, while efforts to realize technological advantages of new physical capital and of relatively large operating plants have fostered plant and expansion investments.
Evidence exists that a desire to circumvent current—but not potential—trade restrictions has motivated foreign direct investment. FDI activities are not associated with concentrated or heavily unionized industries. Highly protected industries have attracted heavier equity FDI by Japan and heavier new plant FDI by all sources and Canada. No evidence exists that FDI in the United States by Japan or anyone else is targeted to undercut union-dominated firms or to arrest the spread of protectionist trade policies.     

HOUSEHOLD SAVING IN THE '90s: EVIDENCE FROM CROSS-SECTION WEALTH SURVEYS

This paper uses a series of cross-section surveys to measure how wealth accumulation and active saving rates varied across cohort-groups during the early and mid 1990s. Our estimated rates of saving and wealth change across cohorts show a somewhat more dramatic life-cycle pattern than found in previous studies, in part because we use a new technique, and in part because the cross-section wealth surveys we use oversample the wealthiest families whose behavior dominates aggregate changes. Adjusting the wealth-change rates for bequests and subtracting out the capital gains component of wealth change move the estimates in the direction of results from previous studies, but the biggest changes in that direction result from excluding the top of the wealth distribution in each year.     

THE DEMAND FOR BEVERAGES AND INTERBEVERAGE SUBSTITUTION IN THE UNITED STATES

The analysis in this paper is directed at measuring the substitution between seven beverages consumed in the United States with the objective of shedding some light on just what is the relevant market for antitrust purposes. With regard to the overall beverage market considerations, there is a clear indication that consumers do substitute between different types of beverages. What must be subjectively resolved, however, is whether the extent of the indicated substitution is of significant enough magnitude to infer that two different beverages are in the same product market.