The Capital Advantage: Comparing Returns to Ability in the Labor and Capital Markets

Bastani, Spencer,Docent,1982-Research Institute of Industrial Economics (IFN), Sweden:Uppsala University, Sweden;CESIfo, Germany (author)

The Capital Advantage : Comparing Returns to Ability in the Labor and Capital Markets

Working paper
Using administrative tax and military records, we show that cognitive ability is more strongly associated with capital income than with labor income. This result holds across intensive and extensive margins, across different income types, and after controlling for education, occupation, inheritance, and parental background. Higher ability individuals save more, are better at selecting high-return stocks, hold more risky assets, and are less likely to live hand-to-mouth. Capital market returns are higher for cognitive ability than for non-cognitive skills, and the difference is stable over time. Rising capital shares, fueled by technological progress, could therefore exacerbate cognitive ability-based economic inequality.

Karlsson, KristinaUppsala University, Sweden;Research Institute of Industrial Economics (IFN), Sweden (author)
Kolsrud, JonasLinnéuniversitetet,Institutionen för nationalekonomi och statistik (NS)(Swepub:lnu)jokoaa (author)
Waldenström, DanielResearch Institute of Industrial Economics (IFN), Sweden (author)
Research Institute of Industrial Economics (IFN), Sweden:Uppsala University, Sweden;CESIfo, GermanyUppsala University, Sweden;Research Institute of Industrial Economics (IFN), Sweden (creator_code:org_t)

By the author/editor: Bastani, Spencer ...; Karlsson, Kristi ...; Kolsrud, Jonas; Waldenström, Dan ...

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