Market power turns unequal earnings into gains for the wealthy
Rising earnings inequality raises asset values disproportionately for wealthy households when firms have market power, Banque de France research finds. Its U.S. model puts the price-driven wealth gain for the top 0.1 percent at 25 percent by 2020.
Extra saving rewards existing owners
Eustache Elina of Banque de France and Raphaël Huleux of the University of Copenhagen model the U.S. economy from 1970, feeding in observed earnings inequality through 2019 as annual surprises.
High permanent earners save more, lowering interest rates.
With market power, lower discount rates raise the value of monopoly rents, directing saving into asset valuations rather than new capital.
By 2020, these price effects raise average wealth by 25 percent for the top 0.1 percent, 18 percent for the top 1 percent and 8 percent overall, relative to 1970 and net of trend growth.
Without market power, price effects reduce wealth by 4–5 percent above the median and 9 percent for the bottom half.
In the long run, lower returns narrow wealth gaps.
Growth governs the valuation channel
The mechanism explains about a quarter of the observed increase in the top 1 percent wealth share.
Rising earnings inequality generates two fifths of the wealth-to-output ratio increase and a quarter of the rise in Tobin's Q. The baseline markup is 1.2; taxes, markups and risk premia remain fixed.
For the top 0.1 percent, the 2020 price-driven gain falls from 24.8 percent to 14.5 percent under perfect foresight and 1.1 percent without productivity growth.
Portfolio exposures follow an estimated rule rather than household optimization.
The abstract breaks ranks
The abstract reports a 9 percent gain for the top 0.1 percent and 0.2 percent overall over 1970–2020.
These differ from the main text's rounded 25 percent and 8 percent, used above.
The document does not reconcile the discrepancy, and its results reflect the authors' views rather than necessarily those of Banque de France.