The Minneapolis Federal Reserve Bank has a new take on growing gap between America’s wealthiest 10 percent and the bottom 50 percent that confirms worst fears about econonomic inequality.
A June 2018 working paper from the Minneapolis Fed’s Opportunity & Inclusive Growth Institute addresses that imbalance with new findings that confirms that wealth—specifically, ownership of stocks and homes— in addition to income - has been a central force behind U.S. inequality trends for 70 years.
The study’s authors analyzed decades of data on earnings, savings, home values, equity holdings and other assets, along with related demographics, to develop a portrait of American inequality, according to an article by Douglas Clement in the Fed’s most recent “The Region” publication. The analysis confirms: increased income polarization since the 1970s, with distinct damage to the middle-class. It also sheds new light on economic inequality between blacks and whites by quantifying vast differences in wealth as well as income, and no progress in closing gaps.
In short, the median household income in the United States is around $60,000 according to the U.S. Census Bureau. The wages of the working-to-middle class have not risen, after inflation, for 40 years, not keeping pace with cost of housing, education and health care. It’s tough to build wealth without owning stocks (equity), a business, or a value-appreciated house.
“Because the primary source of middle-class American wealth is homeownership, and the main asset holding of the top 10 percent is equity, the relative prices of the two assets have set the path for wealth distribution and driven a wedge between the evolution of income and wealth,” Clement wrote. “In brief, as home prices climbed from 1950 until the mid-2000s, middle-class wealth held its own relative to upper-class wealth even as middle-class incomes stagnated. But after the financial crisis, the stock market’s quick recovery and slow turnaround of housing prices meant soaring wealth inequality that even exceeded the last decade’s climb in income inequality.
“Income and Wealth Inequality in America, 1949-2016,” by Fed researchers substantiates the dramatic rise in U.S. income inequality from 1970 to the late 1980s, with the share of total income earned by the bottom 50 percent dropping from 21.6 percent to 16.2 percent, while the top 10 percent share climbed from 30.7 percent to 39.9 percent. By 2016, these shares had diverged further, down to 14.5 percent for the bottom half and up to 47.6 percent for the top 10th.
“The racial gap in wealth is even wider, and similarly stagnant,” according to the Minneapolis Fed. “The median black household has less than 11 percent the wealth of the median white household (about $15,000 versus $140,000 in 2016 prices). The economists also find that the financial crisis hit black households particularly hard.
“The overall summary is bleak,” they write. “Over seven decades, next to no progress has been made in closing the black-white income gap. The racial wealth gap is equally persistent. … The typical black household remains poorer than 80% of white households.”