Sunday, February 1, 2015

Getting Rich: You Have a One in Nine Chance of Making It to the Top 1%. If You're White, That Is.

The bad news? Research out of Washington University in St. Louis shows you'll only stay in the top 1% of earners for a year or so.

According to new research, there's a 1 in 9 chance that the typical American (you) will hit the jackpot and join the wealthiest 1 percent for at least one year in her or his working life.
  • Only an elite few get to stay in that economic stratosphere -- and 
  • nonwhite workers remain among those who face far longer odds.
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This, according to Mark Rank, PhD, the Herbert S. Hadley Professor of Social Welfare at the Brown School and co-author of the influential book 'Chasing the American Dream: Understanding What Shapes Our Fortunes.'

According to the authors, "Education, marriage and race are among the strongest predictors of top-level income, and in particular the race effect suggests persistent patterns of social inequality."

Relying on data collected regularly since 1968 as part of the University of Michigan's Panel Study of Income Dynamics, this life-course approach analyzed thousands of people from ages 25-60, and examined long stretches of their work lives to track economic movement.

This large-scale, long-term observation provided some surprising results:
  • By age 60, almost 70 percent of the working population will experience at least one year in the top 20 percent of income earners.
  • More than half (53 percent) will have at least one year among the top 10 percent.
  • Slightly more than 11 percent or one in nine will spend at least one year as members of the top 1 percent of income earners.
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While Rank and Hirschl found substantial fluidity among the ranks of America's wealthiest, they also noticed that very few get to stay among the ranks of the super rich for very long.

While 70 percent of the working population may hit the top 20 percent of earners, barely 20 percent will stay for 10 consecutive years or more. At the very top, while 1 in 9 Americans may at some time in their careers be among the top 1 percent, fewer than one in 160 (0.6 percent) will stay for a decade or more.

"Attaining 10 consecutive years at the top is rare, and reflects the idea that only a few persist at this elite level," the authors write. They also found this higher-than-expected fluidity to be a double-edged sword -- while it demonstrates relatively widespread opportunity for top-level income, it also creates a very real insecurity among those who reach those heights.

Lastly, Rank and Hirschl uncovered another "contentious social implication" in their research: When looking at demographic patterns among the people whose data was analyzed,
  • being educated, 
  • being married and 
  • being white are among the strongest predictors of reaching the economic peak.
"It would be misguided to presume that top-level income attainment is solely a function of hard work, diligence and equality of opportunity," they write. "A more nuanced interpretation includes the proposition that access to top-level income is influenced by historic patterns of race and class inequality."

If you have a chance to make the top 1% of incomes during your working life, but can expect to remain there but a year, this clearly indicates you have a strategy in mind to put this wealth aside inside some sort of investment where your good fortune can work for you for the long term.

Related stories:


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Story Source: materials provided by Washington University in St. Louis. Thomas A. Hirschl, Mark R. Rank. The Life Course Dynamics of Affluence. PLOS ONE, 2015.

Monday, October 6, 2014

4 Important Tips to Prepare for Success


An interesting post by Srini Pillay on a blog at the Harvard Business Review that I recommend you read and think about.  As the author points out: People often prepare for failure, but rarely prepare for what they will do when they succeed.  And this can cause you unexpected problems.

Here is the gist of the article, with a link to the original.
  1. "Don’t do victory laps.
  2. "Focus on the value you bring, not on winning per se.
  3. "Stay in the “here and now”.
  4. "Reach higher.
"People often prepare for failure, but rarely prepare for what they will do when they succeed. Even when we consciously want to be successful, enjoying that success can be a challenge. By following the suggestions above, you can create a framework for managing success so that you can more reliably sustain your success when it occurs. If you are conscious about these factors, you will create far more opportunities to sustain your success over time."

Click here to read the full HBR article:

The Unexpected Consequences of Success


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Srini Pillay, M.D. is the CEO of NeuroBusiness Group and award-winning author of numerous books, including Life Unlocked: 7 Revolutionary Lessons to Overcome Fear, as well as Your Brain and Business: The Neuroscience of Great Leaders. He is also Assistant Clinical Professor at Harvard Medical School and teaches in the Executive Education Program at Harvard Business School.

Thursday, September 18, 2014

Entrepreneurs Are Not Overconfident Gamblers

next-invest.ru

One facet of the mythology about today's entrepreneurs is that they are major risk takers.  But are they?  This study goes against this stereotype, pointing out that many entrepreneurs take very reasonable risks after considering the costs to their lives.

Over the years I've read studies that point out that many true entrepreneurs are cautious about their decisions to go into business, often working full and part time jobs for the first year or two of their enterprise.

Here's the report on the study:


Entrepreneurs Are Not Overconfident Gamblers
Leaving one's job to become an entrepreneur is inarguably risky. But it may not be the fear of risk that makes entrepreneurs more determined to succeed. A new study finds entrepreneurs are also concerned about what they might lose in the transition from steady employment to startup.

Suggested reading
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In "Entrepreneurship and Loss-Aversion in a Winner-Take-All Society," Professor John Morgan at UC Berkeley's Haas School of Business and co-author Dana Sisak, assistant professor at the Erasmus University Rotterdam, focused on the powerful impact of loss aversion.

Loss aversion, or the fear of losing one's salary at a full-time job, along with its prestige, is directly linked to the amount of effort an entrepreneur puts into a startup. Loss aversion, the researchers found, is what drives most entrepreneurs, not a love of risk.

"There is a view that entrepreneurs are often overconfident gamblers, who thrive on risk, yet there is little evidence to support this view," says Morgan, who studies competition in online markets at the University of California, Berkeley's Haas School of Business. "Entrepreneurs aren't Steve Jobs. They're just ordinary people who want to start a business. I wanted to try to understand a little better what motivated those individuals."

Many studies focus on what makes a successful entrepreneur different than the rest of us. Morgan sought to learn what motivates individuals to sacrifice a secure job, and what determines an entrepreneur's effort to succeed.

The study is based on a theoretical model the researchers developed and was inspired by the dramatic stories people like to tell about risk-taking entrepreneurs.

All entrepreneurs have a "reference point," which defines how they feel about their salary or, say, happiness level, compared to others, Morgan says. That reference point is not connected to profits and losses, but is directly linked to how much or little the entrepreneurs are willing to lose when starting a company.

Morgan and Sisak found an entrepreneur's level of ongoing concern about loss aversion correlates with entrepreneurial effort. In other words, entrepreneurs who put a high stake on avoiding loss -- more so than acquiring new gains -- worked harder.

Morgan used a winner-take-all framework, which is common within the Internet startup environment, for his study of entrepreneurs. Startups such as Facebook or Twitter might not offer the best platforms, but still dominate their markets. In markets such as real estate, where there is no clear single winner, this model would be less appropriate, Morgan says. "For every Facebook, there were hundreds of failed ventures," he says. "We model this aspect of entrepreneurial markets explicitly." This research can help entrepreneurs gain self-knowledge so they make better decisions and have a clear understanding of "why they're doing what they're doing," Morgan says.

"One of the most important traps entrepreneurs fall into is when they're not experiencing success and they become increasingly willing to take risks because of where they are psychologically," he says. "One lesson from the research is to be careful when you are behind. It's not necessarily the best decision to double down."

In other words, risk aversion can be a good thing.

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Story Source:  Materials provided by University of California - Berkeley Haas School of Business. University of California - Berkeley Haas School of Business. "Entrepreneurs aren't overconfident gamblers, researchers say." ScienceDaily, 17 September 2014.

Tuesday, August 26, 2014

Humble Leaders Get More Employee Commitment

Source: mpiweb.org

Those business owners or managers who are more critical of their own leadership style than their employees have the greatest success.  Why?  Leaders with self-insight, who are humble and act as credible role models, are rewarded with committed and service-minded employees.

This is the conclusion in a study conducted among 1500 leaders and their employees.

The leaders were asked to assess their own leadership style, while their employees were asked to assess the same style. The eye of the beholder is in fact important for a leader's ability to create job commitment and a good service climate.

The organisation researchers compared the employees' assessments and the leader's assessments of his or her leadership style, and found that the responses were by no means identical -- rather the opposite.
Suggested reading
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The employees decide
Leaders can think whatever they like about their own leadership style. The study shows that leaders' assessments of themselves have little direct impact on the employees' commitment to work.
"It is only when we compare the employees' and the leader's assessments of the same leadership style that we see how leadership affects commitment and service climate," says organisation researcher Karoline Hofslett Kopperud, who conducted the study with Professor √ėyvind Martinsen and Associate Professor Sut I. Wong Humborstad at BI Norwegian Business School.

Transformational leadership.
When employees feel a leader conducts this type of leadership, it has a positive effect on the perceived service climate in the organisation. It is particularly true when the leader is humble and has a lower opinion of his leadership than his employees have.

"The extent of agreement between the leader and the employees concerning his/her leadership style can both enhance and negate the positive effects of leadership," says Hofslett Kopperud.

Training in self-insight
The extent of agreement between a leader's assessment of herself and the employees' assessment of the same leadership is an expression of the leader's self-insight. Leaders with a strong self-insight demonstrate a good understanding of their own needs, emotions, abilities and behavior. On top of that, they are proactive in the face of challenges.

The researchers recommend that leadership development programs should also contribute to greater correlation between a leader's own assessment of leadership and the employees' assessment. This can be achieved by including training in self-reflection and role clarification with one's nearest staff in the development program.

"It will give the leader a better understanding of how his or her behaviour is perceived and interpreted by the employees," says Hofslett Kopperud.
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Story Source:  Materials provided by BI Norwegian Business School, written by Audun Farbrot.  K. H. Kopperud, O. Martinsen, S. I. W. Humborstad. Engaging Leaders in the Eyes of the Beholder: On the Relationship Between Transformational Leadership, Work Engagement, Service Climate, and Self-Other Agreement. Journal of Leadership & Organizational Studies, 2013