Want to be successful? Learn to help others.

What profession do you think has the largest share in the “One Percent”? Is Wall St or finance the first thing that comes to mind? That’s understandable, but incorrect.

Actually, it doesn’t matter whether you explicitly want to get rich. Maybe you want the financial flexibility to take more professional risks or to “earn to give” to charitable causes or just to take a stretch of time off with family.

The problem is that it’s hard to find reliable information on achieving financial success. If you read the news, you may have an inaccurate view as I described in What you read is mostly wrong. The internets and press do a good job of covering exceptional stories that drive clicks or become the “most emailed” story–the 20-somethings who started a killer photo-sharing app and got acquired, the physicist who used fancy math at a hedge fund to make millions, the venture capital investor who invested in the hottest tech companies, and so on.

Compared to these human-interest stories, the “typical” story of financial success is “too boring” to write about. Unfortunately, typical also means most common or most likely.

To answer this question, I went hunting for data on the breakdown by profession of those with the highest incomes, the 1% in other words. My hunch was that there would be roughly two groups:
– one group who created value or contributed to society through specialized formal knowledge, like in medicine, law, engineering, and (parts of) finance;
– a second group who created value through leadership and the ability to help others succeed and work together towards shared goals, like in management in any industry.
But I had no idea what to expect in terms of the relative share of each of those groups.

Fortunately, 3 researchers took on this question just last year, one of whom is in the office of tax analysis at the US Department of Treasury. Bakija et. al. found the following top 5 occupations by percentage of the 1% in 2005 and 1979:

Top 5 Occupations by Percentage of the “One Percent”

2005 1979
Executives, managers, supervisors (non-finance) 30 35
Medical 14 16
Financial professions, including management 13 8
Lawyers 8 7
Computer, math, engineering, technical (non-finance) 4 4

* Percentage of primary taxpayers in top one percent of the distribution of income (including capital gains) that are in each occupation in 2005 and in 1979. [Bakija et. al.]

Here are a few obvious conclusions from the table. First, it shows that the largest share in the 1% is actually non-finance leadership professions like executives and managers, which make up 30%.[1] Second, it shows that this group is 2X as big as finance and medicine, nearly 4X as big as law, and nearly 8X as big as engineering or technical (non-management) professions. Third, it shows that the professions in the 1% have been fairly constant between 1979 and 2005, with the most noticeable change being finance making up 5% more of the 1% group and leadership roles making up 5% less.[2]

Interestingly, despite this huge disparity, young professionals graduating college seem to be more familiar with the finance, law, and medicine “tracks” than about the leadership track. I started covering the latter in two earlier pieces, 4 paths for becoming CEO and Hidden industries, and I’ll dig in further in future pieces. And while the first of these was about CEOs because the data were available, the insights apply to a range of mid to senior leadership roles across various industries.

So there you have it, if you want financial success, don’t assume that you have to work in finance or law or medicine. Your chances could be much better in becoming a leader and helping others succeed.[3]

[1] This particular analysis is helpful since it groups leadership roles in finance into the finance category and separately from leadership roles in general.

[2] The substantial downsizing in finance in 2008 likely washed away some of these gains.

[3] The whole essay covers success primarily in the form of financial success. In the business world, how successful you are professionally, i.e. how accomplished, respected, and sought after, is often correlated to what level of financial compensation you can expect in the marketplace of talent.

Advertisements

2 comments

  1. Praveen Ghanta

    Interesting. I would have expected medicine to be a bit higher. I’d be interested to find out what the last 31% of the puzzle looks like, since quite a lot of the picture is missing, and also to see what the breakdown is within the 30% executive group. What percentage of these are entrepreneurs or SMB owners versus Fortune 500 rank-and-file?

    • Vivek

      Here’s the detailed breakdown on executives, managers, and supervisors for 2005:

      Salaried
      10.7 – Executive
      7.2 – Manager
      1.8 – Supervisor

      Closely held business
      4.9 – Executive
      4.0 – Manager
      1.5 – Supervisor

      Here’s the long-tail of occupations that range from 4% to 0%:
      Skilled sales (except finance or real estate)
      Blue collar or low-skill service
      Real estate
      Business operations (non finance)
      Entrepreneur not elsewhere classified*
      Professors and scientists
      Arts, media, sports
      Unknown
      Government, teachers, social services
      Farmers & ranchers
      Pilots

      * This is only when the occupation is not assigned an SOC code, but the taxpayer reports self-employment income on return. The management category includes most private business owners and managers.

      A related question I got via email was the cut-off for the 1%. The study looked at 2004 income distribution by IRS return. At that time, $295k was the cutoff for top 1%, excluding capital gains. (The charts I had of percentage shares included capital gains, but the results are pretty similar.) For 2011 income distribution by Census household (not IRS return), $250k was cutoff for top 2.3%: http://en.wikipedia.org/wiki/Household_income_in_the_United_States

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s