Serdar Ozkan

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Research DivisionFederal Reserve Bank of St. LouisP.O. Box 442St. Louis, MO 63166-0442
Fax: (314) 444-8731Email: Serdar.Ozkan(at)
Media Coverage and Blogs: Knowledge at Wharton

We use Norwegian administrative panel data on wealth and income and follow the same individuals for 23 years between 1993 and 2015 to empirically study their lifecycle wealth dynamics, focusing on the wealthiest.  On average, the wealthiest start their lives substantially richer than other households in the same cohort, own mostly private equity in their portfolios, earn higher returns, derive most of their income from dividends and capital gains, and save at higher rates.  We empirically decompose the roles of different factors behind their wealth. At age 50, the excess wealth accumulation of the top 0.1% group relative to mid-wealth households is accounted for in about equal terms by higher saving rates (34%), higher initial wealth (32%), and higher returns (27%), while higher labor income (5%) and inheritances (1%) account for the small residual. 
We also document significant heterogeneity among the wealthiest: around one-fourth of them—which we dub the “New Money”—start below median wealth but experience rapid wealth growth early in life. Relative to households who started their life rich—the “Old Money”—the New Money are characterized by even higher saving rates and returns and also by higher labor income. Their excess wealth at age 50 is mainly explained by higher saving rates (46%), followed by higher returns (34%) and higher labor income (16%).

Determinants of the Top 0.1% Wealth Accumulation

We follow the 50-year-old top 0.1% wealth owners over the past 22 years and decompose their excess wealth relative to the median households into several factors on Figure (A). Figure (B) shows the same decomposition for the New Money households, who start their working lives below median wealth and manage to join the top 0.1% group by age 50. The values on y-axes are in multiples of the economy-wide average wealth (AW). 

(A)   Top 0.1% Owners

(B)   "New Money" Households