Wealth

The 1 Percent Club: Why the Price of Entry Keeps Changing


With all the talk about the “1 percent” in the last few years, it’s good to go back and see the data on what level of income qualifies to reach that number.

Mark Rank and Thomas Hirschl, authors of a new book called Chasing the American Dream, presented a paper last week featuring historical data on 1 percent income thresholds. In the last decade, that number has hovered near $350,000. That’s double the $172,000 level from 1967. More specifically, we can chart the growth of the 1 percent threshold with the changes in the Standard & Poor’s 500-stock index.

You can see that the growth patterns of both lines are nearly identical. Small and steady gains in the 1970s and ’80s were followed by rapid growth in the 1990s. Then we saw peaks around the 2000 dot-com bubble, leading to a decade of volatile ups and downs. It’s a reminder that the stock market is the main source of changes in wealth for America’s wealthiest citizens.

In fact, the ending level of the S&P 500 predicts 87 percent of the variance in the household income needed to reach the 1 percent level:

The displayed equation tells us that we can expect the 1 percent threshold to rise by $144 for every additional point in the S&P 500, starting with a benchmark level of $204,701. For example, if the S&P were to end 2014 at its current level of 1885, we could see the 1 percent entry point at $476,000.

Rank and Hirschl remind us about the fluidity of membership in the 1 percent. They estimate that “12.4 percent of individuals attain the top one percent in family income between age 25 and 60.”

Eric-chemi
Chemi is head of research for Businessweek and Bloomberg TV.

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