Do the Wealthy Earn Higher Returns? Evidence from U.S. Survey Data

Abstract

Do wealthy households earn higher returns? Studies using the Panel Study of Income Dynamics (PSID) and the Survey of Consumer Finances (SCF) disagree on the return gradient, the return at the top of the wealth distribution minus the return in the middle. Their estimates differ by up to 36.5 percentage points. I replicate these studies and recompute the return gradient for 817,377 combinations of thirteen measurement choices. I obtain three results. First, measurement choices alone can reverse the sign of the return gradient. Second, under a baseline close to the most common measurement choices, the wealthy earn no higher gross return on assets than the middle. The median return gradient is −2.3 points in the PSID and 0.0 in the SCF. In the PSID, ranking households on end-of-period wealth turns the median positive, because that wealth already includes the capital gain. Third, the return gradient depends on debt. Middle-wealth households pay the most interest per dollar of assets and are the most leveraged, so the return gradient rises net of interest payments and drops when divided by net worth.