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« Household Finance and Consumption Survey » : nos suggestions à la Banque centrale européenne

jeudi 12 octobre 2017

Irdeme a répondu à l’enquête de la Banque centrale européenne destinée aux utilisateurs de la base de données Household Finance and Consumption Survey concernant son expérience avec cette base de données et a apporté ses suggestions permettant d’améliorer et d’enrichir cette base. Nous communiquons à nos lecteurs la copie de notre réponse (en anglais).

Income and wealth inequalities are accused to be the main problem affecting developed countries. The very high salaries of the executive managers, the inheritances and the automatic rise of capital thanks to the interest received are assumed to be the guilty party.

Our analysis of the data provided by the Survey of Consumer Finances (SCF) for the United States shows that, on the contrary, we become rich because we create lots of jobs.

When we penalize the rich by taxing them, we inevitably decrease the job creation and therefore penalize the poor which leads to unemployment.

Similarly to SCF, Household Finance and Consumption Survey (HFCS) is the only European survey where job creation could be crossed with income and wealth parameters. Therefore, it appears to us to be the only one that could show the linkage between wealth and jobs creation, and that the jobs creation leads to the wealth accumulation and not vice versa.

The Forbes magazine’s billionaire surveys show that 67% of billionaires are business owners, or even 90% of them if we include their parents. But billionaires represent a tiny minority of all business owners. The SCF covers the entire population and measures the role played in job creation by those who are among the richest 0.1%, 1%, and so on. Also it allows us to know how jobs are created and therefore wealth.

We have discovered that active entrepreneurs constitute more than 50% of the US population in the three richest percentiles and even reach 90% in the last richest percentile.

But the highest percentiles are not only those where the density of entrepreneurs is overwhelming, they are also those for which the job creation is the most important. For instance, we have discovered with the SCF data that the 0.1% of the richest Americans employs 8%, and the 1% – 34% of the total employment of these enterprises.

As the SCF survey does not cover all American businesses but only unlisted companies, which are approximately 13 million, not only jobs in government or defense are excluded from our study but also jobs in about 8,000 companies listed on a stock market. To our knowledge, there are no official statistics giving employment in listed companies, only suggestions that would give them about half the total US employment. Therefore, we can get an idea of approximate number of jobs in listed and unlisted companies by using the Department of Labor databases, which uses the same definition as the SCF, but includes not only employees but family members or unpaid volunteers in employment, while the Census statistics include only employees, about one third less (91 million compared to 124 in 1988).

In 2013, the share of total employment of unlisted companies, controlled by active entrepreneurs, is 76.8 million and is increased by about 20% to take account of the share held by non-active entrepreneurs. The jobs of unlisted companies would therefore be approximately 92 million, or 60% of the DOL’s 2012 employment figure at 154.9 million. The creation of jobs by unlisted companies is therefore a major challenge for American society.

Moreover, the SCF survey includes several important questions to understand the process of job creation : not only are you yourself or someone in your household an active entrepreneur, but how did you become one, creating your company, by buying, inheriting or receiving shares.

These questions were already remarkably exploited in a 2006 publication by Marco Cagetty and Mariacristina De Nardi (Entrepreneurship, Frictions and Wealth) and in a later publication of 2007 (Evidence on Entrepreneurs in the United States by De Nardi and Krane).

Among the wealthiest Americans, the rate of entrepreneurs in the population not only exceeds 80%, but the share of entrepreneurs who have set up their business is by far the majority, at about 45% on 80%. Acquisition-rich entrepreneurs account for 15% and less than 10% for those who become wealthy by inheritance.

To conclude, our study based on the SCF data has enabled us to discover a fundamental link between income and wealth accumulation and employment. The rich get rich because they create businesses and jobs, not the other way around. This makes all the polemic that exists around the growing inequalities in developed countries, and in particular the role of the rich and their punishment by taxation, false.

By having the unique data from the SCF study on households that are active entrepreneurs, their incomes, wealth, investment and jobs created by these companies, we have been able to show that they have created the bulk of US private employment.

We would like to verify these results of the European data for several countries like France and Germany in order to conclude about the importance of the rich people and their investment and job creation in order to reduce the unemployment problem. Therefore, the accurate data to the HFCS question about the number of jobs created by the households who are entrepreneurs is crucial for us. At the present, the data for these countries is unfortunately not sufficient as there are no absolute values and only intervals.

References to our Irdeme publications in English :

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