Wealth Inequality Gaps Widen
Slogging through but enjoying Capital in the Twenty First Century by Thomas Piketty, I naturally picked up on the Census Bureau’s release today of a report on trends in the distribution of American household wealth between 2000 and 2011. That period, of course, covers the run-up to the Great Recession and the following two years. Piketty’s extensive historical treatise on wealth notes that Nobel laureate economist Simon Kuznets was the first to use decent data to assess changes in the distribution of household wealth in the U.S. through 1948. Kuznets painted a rosy scenario of decreasing inequality during the first half of the 20th Century. Piketty writes that while two world wars and the Great Depression likely accounted for that decline, the trends are more nuanced in the second half of the century.
The Census Bureau’s report, based on data from the ongoing Survey of Income and Program Participation (SIPP), is a timely release of information on U.S. household wealth. Note that today’s report focuses on the “distribution” of wealth (wealth inequality) not the overall magnitude of wealth. An earlier report based on the same SIPP data noted that from 2000 to 2005 median household wealth grew by 44 percent from $73,874 to $106,585 in constant 2011 dollars which factor out inflation. But from its 2005 peak, median household wealth fell to $68,828 in 2011, a drop of 35 percent. The last data points in this study shows a small drop from 2009 (the technical end of the Great Recession) to 2010 and a negligible change from 2010 to 2011. Conclusion: there has been no rebound in median wealth since the economic downturn.
It’s worth noting that another data source on this topic – the Panel Study of Income Dynamics (PSID) – shows increasing wealth inequality from 2003 to 2013. According to a working paper published by the Joint initiative of Russell Sage Foundation/Stanford Center for Poverty and Inequality, there was a clear loss of average wealth at the top of the distribution, but because the losses in the middle were greater the gap between the middle and the top increased. For example, according to my calculations, in 2003 mean wealth in the 90th percentile was 3.4 times median wealth (50th percentile); by 2013 the 90th percentile mean was 4.6 times the median. Mean wealth in the top 5 percent (95th percentile was 13.6 times the median in 2003. By 2013, that ratio had nearly doubled to 24.2. Conclusion: the top of the wealth distribution experienced some absolute and relative declines in wealth but the gap between the top and the middle continues to widen.
Another respected data source on U.S. household wealth is the Federal Reserve Board’s Survey of Consumer Finances, based on a national sample taken every three years, although with a 2009 panel follow-up to assess recession impacts. A report on the 2009 data by U. of Wisconsin professor Timothy Smeeding concluded that the Great Recession did not produce a massive “compression” of wealth inequality similar to what Kuznets found after the Great Depression.
So, what does the SIPP say about recent trends in inequality? Today’s Census Bureau report concludes that median wealth of the top 40 percent of U.S. households (the wealthiest 40 percent) grew between 2000 and 2011, while the other 60 percent of households had a lower median net worth in 2011 than they had in 2000. Interestingly, inequality gaps widened within groups with the same age, race and Hispanic origin, and educational attainment. Although, the well-documented gaps between non-Hispanic whites and blacks and between non-Hispanic whites and Hispanics persist as well.
Household net worth or wealth is measured by several excellent and ongoing surveys. Stay tuned; the last word has not been uttered on this topic.