Study: Wealth gap wider in recovery
Only richest 7 percent saw net worth go up from ’09-11
WASHINGTON – The richest 7 percent of American families saw their average wealth soar 28 percent from 2009 to 2011, while the remaining 93 percent of households lost 4 percent of their net worth over that same period, according to a new report.
The analysis of Census Bureau data by the Pew Research Center draws on the most recent statistics on wealth. The findings throw into stark relief the uneven nature of the recovery.
The economy officially emerged from recession in 2009, and since then affluent families have benefited handsomely from recovering stock prices and surging gains in bonds. Six out of 10 households with a net worth – assets minus debts – of $500,000 or more directly owned stocks and mutual funds in 2011, compared with just 13 percent for everybody else.
The report found that the average wealth of the upper 7 percent of households jumped to $3.17 million in 2011 from $2.48 million two years earlier. The mean wealth for the remaining 93 percent dipped to $133,817 from $139,896, as their fortunes were tied up in their homes. From 2009 to 2011, property values sank 5 percent, based on the Case-Shiller index.
The housing market has since bottomed and is growing again, but not nearly as fast as stocks and other financial assets. And that means the country’s wealth gap is likely to have widened further in the past 16 months.
“This recovery is sort of unique in that the housing market, rather than leading, has lagged,” said Richard Fry, a co-author of the Pew report, in explaining part of the wide variance between the upper 7 percent and the lower 93 percent. The 7 percent share was drawn because of certain limitations in the tabulated data from the Census Bureau’s Survey of Income and Program Participation.
This Census data set is not used as much by scholars as the Federal Reserve’s Survey of Consumer Finances, which compiles comprehensive statistics on the financial health of American families every three years. But the latest data are for 2010, and comparing those figures with 2007 makes it difficult to assess the magnitude of the wealth gains made in the recovery, given that the downturn ended in the middle of that 2007-2010 period.
Edward Wolff, an economist at New York University who has written extensively on wealth distribution, said the new Pew report is helpful in understanding how “very sensitive wealth is to the housing market.” Close to two-thirds of American households own their homes. But of more concern than unrecovered home values, Wolff said, is the declining and stagnant incomes of Americans.
Economists attributed the varying recovery in wealth partly to Fed policies that supported gains in stock and bond markets.
“The Fed has kept things pretty good for the wealthy,” Wolff said.
Fed officials, from time to time addressing issues of growing inequality, have stated that their stimulus policies are aimed at promoting economic and job growth that would benefit families with lower income and wealth as well.
But Sarah Raskin, a Fed governor, said in a speech last week that given the long-running trends of income and wealth inequality, “it is unlikely that cyclical improvements in the labor markets will do much to reverse these trends.”
She added: “It strikes me that macroeconomists are far from a comprehensive understanding of how wealth and income inequality may affect business cycle dynamics.”