In an ideal world what one person pays another would be determined freely by both parties, and unless both were satisfied there would be no deal. In practice that freedom may be constrained by law. Indeed, those legal constraints may extend to what type of person you can employ and what wages you can pay. For those reasons, wages are a imperfect indication of earning capacity, but they are by far the best available.
Wages are only one part of income, since the latter may include tips, payments in kind and a whole host of benefits. These social transfers and outright payments tend to inflate the incomes of those who otherwise command only low wages in the open market. People like university teachers, who need all the help they can get from the public. These provisos need to be borne in mind when we look at contemporary data linking IQ, income and wealth.
Steve Hsu posted up interesting data from the Bureau of Labor Statistics on the NLSY79 sample, a group brought to wider prominence by Charles Murray. Steve points out that the income figures at low ability levels appear to include benefit payments, so are probably not pure earnings.
Indeed, the NLSY79 website shows that Child Support, Alimony, AFDC Payments, Food Stamps, Other Welfare and SSI, Education Benefit/Grant, Disability, and VA Benefits are included. Since respondents often refused to answer financial questions, later surveys encouraged them by asking for a range of figures, and accepted estimates to the nearest $10,000. This will probably inflate lower wage levels and wealth estimates. There are larger problems due to stating household income without revealing whether the figures include the wife’s earnings, or those of other working household members. Per capita incomes can be low if the household has many children.
Nonetheless, accepting the imperfections which are part of any survey, we can at least put forward a rough estimate of the link between IQ and income and in the US in 2008.
Clearly, even at the 1st decile, US men in middle age are getting a good return on their abilities, better than the returns obtained by most citizens in most countries of the world. No wonder people want to make a life in A m e r i c a. To my eye the pattern looks like a straight line function, with perhaps an upturn for the 10th decile, which will include some very bright and men. As the Lubinski and Benbow data show, the very bright are very productive, and often very rich. Even among billionaires the brighter ones have more billions, so the benefits play through into the highest levels of ability.
Wealth by IQ has very different shape to it. Since these are middle aged men the estimates reflect about 27 years of accumulated spending and saving decisions. It is the real life acid test of deferred gratification. At first glance the brightest have become the richest, thus showing that the “IQ leads to wealth” argument has considerable support. That silly little pencil and paper test has revealed its full power three decades later. A “school far” test (at a distance from any particular school curriculum) has been shown to have very high “reality near” predictive value. Continuing that first glance, even the 2nd and 3rd deciles have little to their name, the next 5 deciles far more, and only the 9th and 10th have riches.
Now consider the picture from the point of view of relative accumulation, proportional to income. I am sure that the US tax system will have an impact on how much of the income remains for actual use, but I will skip that. Despite compensatory benefits, 1st decile men have only about 2 and bit years of income saved up. Average intellects in the 4th to 8th deciles are stuck on a plateau of about 4 years of income. To my surprise, 9th decile men are also at about 4 years worth of their somewhat higher incomes, and 10th decile men also at about 4 years of their even higher incomes.
So, here is a little factoid: by middle age most American men have no more than four years of income in assets. Post retirement lifespans may be 20 years. This is a poor show, unless the estimates have ignored personal and state pensions. However, you may think that 4 years of savings is enough. That is up to you.
Life is an IQ and Personality test.