New research from the Fed shows incomes of the richest Americans are bouncing back strongly after the crisis while average incomes have fallen. After a contraction in inequality over the crisis it now seems to be firmly back on the rise since 2010 with “gains in income and wealth shares … concentrated among the top few percentiles of the distribution,” the Federal Reserve Bulletin says.
The data show that the benefits of the U.S.’s economic recovery have failed to find their way into the majority of people’s paychecks. Instead, the concentration of wealth among the top 3% of income earners have allowed them to start pulling away from the rest as asset prices have continued to drive upwards.
In essence, French economist Thomas Piketty’s contention that wealth breeds wealth — and that increasing inequality is part of capitalism’s inherent structure, rather than an occasional condition — looks largely correct, at least since the early 1990s. This trend has been exacerbated by the fact that stock ownership of the poorest households has fallen since the economic crisis of 2007, while holding of the top 10% of the income distribution has risen 3.9% over the same period. The average value of the top income group’s shares is almost 18 times the average of the bottom 50% of incomes and about 7 times that of the middle-income group.
The trend has been driven in large part by the fact that the wealth of middle-income households is dominated by housing, which was hit hard by the financial crisis. While housing has begun to recover it has fallen well behind stock and bond market gains and has allowed those in the top 3% to increase their advantage by capturing more of the available income from these assets.
In fact, since the onset of the crisis the share of wealth owned by the richest has been rising even faster than the pre-crisis trend. Meanwhile the total share held by the bottom 90% has fallen from 33.2% in 1989 to 24.7% in 2013.
On the positive side, with debate about the value of a college education heating up, the Fed’s research should provide some reassurance to prospective graduates. The authors found that households headed by someone with a college degree tended to earn substantially more than those with lower education levels. So don’t give up on that college dream just yet!
Yet while economists debate whether Piketty’s “law” that returns on capital always exceed economic growth holds, what is clear from recent years is that the aftermath of the financial crisis has disproportionately impacted those on middle incomes and allowed the gains of growth to be disproportionately taken by the wealthiest Americans.