Rich and Ever Richer? Differential Returns Across Socioeconomic Groups

This paper estimates rates of return across the gross wealth distribution in eight European countries. Like differential saving rates, differential rates of return matter for post Keynesian theory, because they impact the income and wealth distribution and add an explosive element to growth models. We show that differential rates of return matter empirically by merging data on household balance sheets with long-run returns for individual asset categories. We find that first, the composition of wealth differentiates three socioeconomic groups: 30 percent are asset-poor, 65 percent are middle-class home-owners, and the top 5 percent are business-owning capitalists. Second, rates of return rise across all groups, and third, rates of return broadly follow a log-shaped function across the distribution, where inequality in the lower half of the distribution is higher than in the upper half. If socioeconomic groups are collapsed into the bottom 95 percent workers and top 5 percent capitalists, then rates of return are 5.6 percent for the former and 7.2 percent for the latter.