The Importance of Private Equity Supermanagers among Top Income Earners
A new data interactive published today by the Washington Center for Equitable Growth should help elevate discussion about the growth of incomes at the very high end of the U.S. income ladder and how that growth affects economic inequality and growth. To help inform that debate about who the people in the 0.1 percent are, we here at the Washington Center for Equitable Growth have produced a data interactive about who is in the top 0.1 percent of the income distribution, based on a 2012 white paper by economists Jon Bakija of Williams College, Adam Cole of the Office of Tax Analysis at the U.S. Department of the Treasury, and Bradley Heim of Indiana University. Looking at tax data, their report looked at the types of jobs held by the top earners in the United States between 1979 and 2005..
Their work provides a great window into how our economy has been changing at the top end of the income spectrum. The data in their study indicate that “supermangers” (as economist Thomas Piketty of the Paris School of Economics refers to business executives and managers in his book “Capital in the 21st Century”) constituted about 60 percent of the top 0.1 percent of the income distribution over that period. While this level did not changed substantially over time, the nature of the supermanager definitely did. People working in finance in 2005 claimed 18 percent of that 0.1 percent, up from 11 percent of the 0.1 percent in 1979. And the types of executives in this mix went from being 20 percent private equity or closely held firms in 1979 to more than half in 2005.
This mirrors the trend in corporate structure in the United States toward more private ownership, most likely because of the elevated role of private equity investing over this period. Big Wall Street private equity firms and financial institutions are huge players in in private equity investing.
James Manzi, a senior fellow at the Manhattan Institute for Policy Research, wrote a piece attacking Piketty’s discussion of supermangers by arguing about the decline in the share of the 0.1 percent that work in publically held companies. But Manzi fails to discuss the rise of those in private equity and closely held firms—which is particularly odd because he cites the Bakija, Cole, and Heim white paper and even found the correct table in the document to find these observations. By missing this point, both his number crunching and critique of Piketty fall way off the mark.
That said, understanding the changing nature of the top 0.1 percent is important for understanding the changes that have been driving our economy. Piketty’s work on the supermanagers is interesting, but only serves to highlight how little we know about this extremely high-income group.