NYT: Fueled by Recession, U.S. Wealth Gap Is Widest in Decades, Study Finds

http://www.nytimes.com/2014/12/18/business/economy/us-wealth-gap-widest-in-at-least-30-years-pew-study-says.html

DEC. 17, 2014

Fueled by Recession, U.S. Wealth Gap Is Widest in Decades, Study Finds

By PATRICIA COHEN

The wealthy are getting wealthier. As for everyone else, no such luck.

A report released on Wednesday [1] by the Pew Research Center found that the wealth gap between the country's top 20 percent of earners and the rest of America had stretched to its widest point in at least three decades.

Last year, the median net worth of upper-income families reached $639,400, nearly seven times as much of those in the middle, and nearly 70 times the level of those at the bottom of the income ladder.

There has been growing attention to the issue of income inequality, particularly the plight of those earning the federal minimum wage of $7.25 an hour or close to it.

But while income and wealth are related (the more you make, the more you can save and invest), the wealth gap zeros in on a different aspect of financial well-being: how much money and other assets you have accumulated over time, including the value of your home and car plus any investments in stocks, bonds and the like.

Think of it as "a measure of the family 'nest egg,' " as Pew calls it -- a hoard that can sustain a household during an emergency, like the loss of a job, and in the long run can see someone through retirement.

The wealth gap "exposes varying degrees of vulnerability," said Valerie Wilson, an economist at the Economic Policy Institute, a left-of-center research group in Washington, adding that it also was passed down through the generations.

While those at the top have managed to recoup much of the wealth lost during the economic downturn, middle-income families have not made any gains.

"The Great Recession destroyed a significant amount of middle-income and lower-income families' wealth, and the economic 'recovery' has yet to be felt for them," the report concluded.

Pew, which used data from the Federal Reserve, defined middle income as $44,000 a year for a family of four, while a yearly income of $132,000 for the same-size family pushed a household into the upper ranks. About one in five families qualifies for that higher status, while 46 percent occupy the middle range.

The median household net worth last year for those in the middle was $96,500, only slightly above the $94,300 mark it hit in 1983 (after being adjusted for inflation). A poor household actually had a higher median net worth 30 years ago ($11,400 in 1983) than it counted last year ($9,300). Compare those results with the top fifth of income earners. In 1983, when the Fed began collecting the data, that group had a median wealth of $318,000; in 2013 it owned more than twice that.

Other economists have traced the growing wealth gap to a much narrower slice of the population. In a working paper [2] recently released by the National Bureau of Economic Research, Emmanuel Saez and Gabriel Zucman argued, "The rise in wealth inequality is almost entirely due to the rise of the top 0.1 percent wealth share, from 7 percent in 1979 to 22 percent in 2012."

The share of wealth controlled by the bottom 90 percent of Americans, they concluded, has steadily declined since the mid-1980s.

The Nobel laureate Joseph Stiglitz is part of a growing group of economists who argue that wealth inequality hurts economic growth. The latest increases in wealth, Mr. Stiglitz said, are the result of existing assets ballooning in value -- like a penthouse apartment with a river view -- rather than productive investment.

"If more of the savings of the economy leads to an increase in the value of land rather than the stock of capital goods, then worker productivity won't go up," Mr. Stiglitz explained on the blog [3] for the Institute for New Economic Thinking, where he serves on the board. "Wages won't go up. So some of what is going on is that we haven't been doing the kind of investment that we should be doing."

The report on Wednesday is the second in recent days from Pew detailing how different groups of Americans are faring financially more than five years after the recession ended. The earlier study [4] found a growing racial and ethnic wealth gap, with whites registering a median wealth of nearly $142,000, 13 times the net worth of blacks and 10 times that of Hispanics.

The evidence from the report, Pew said, "could help explain why, by other measures, the majority of Americans are not feeling the impact of the economic recovery, despite an improvement in the unemployment rate, stock market and housing prices."

[1] http://www.pewresearch.org/fact-tank/2014/12/17/wealth-gap-upper-middle-income/

[2] http://gabriel-zucman.eu/files/SaezZucman2014.pdf

[3] http://ineteconomics.org/institute-blog/joseph-stiglitz-economics-has-come-terms-wealth-and-income-inequality

[4] http://www.nytimes.com/2014/12/13/us/pew-research-finds-growing-net-worth-gap.html