September 4, 2014 7:47 pm
Inequality rises in US despite recovery
Inequality in the US rose sharply in the past three years as a recovery in growth failed to turn around one of the defining trends of the modern economy.
According to one of the most definitive sources of data on inequality – the US Federal Reserve’s triennial survey of consumer finances – median family incomes fell 5 per cent from 2010 to 2013.
The boom in the stock market and a recovery in house prices fuelled large gains in the wealth of the richest, with the share held by the top 3 per cent of households rising from 51.8 per cent in 2007 to 54.4 per cent in 2013.
The release of the data is likely to reignite a furious political debate about rising inequality in the US, inflamed earlier this year by Thomas Piketty’s book Capital in the Twenty-First Century.
Based on in-depth interviews with more than 6,000 families, the SCF is one of the principle sources of data used by researchers on inequality.
According to the survey, real pre-tax incomes fell in every part of the income distribution except the very top, as income was redistributed upwards. Average incomes for the decile of households rose by 10 per cent from $361,500 to $397,500.
Families at the bottom of the income distribution saw continued substantial declines in average real incomes between 2010 and 2013, continuing the trend observed between the 2007 and 2010 surveys– Federal Reserve
Federal Reserve economists said that part of it was a bounce back from falling top incomes due to the financial crisis but not all.
“Families at the bottom of the income distribution saw continued substantial declines in average real incomes between 2010 and 2013, continuing the trend observed between the 2007 and 2010 surveys,” says the report. The survey does not look at after-tax income, which can be more equal because of redistribution.
For wealth, the Fed survey reported a slightly different trend than recent studies saying all gains have gone to the top one per cent – it finds that they are all going to the top three per cent instead.
From the start of the survey in 1989 until today, the share of wealth held by the top 3 per cent has risen from 44.8 per cent to 54.4 per cent; the share held by the next 7 per cent has changed very little; while the share held by the bottom 90 per cent has fallen from 33.2 per cent in 1989 to 24.7 per cent.
An important reason for the rising wealth share of the richest was the surge in asset prices that has seen the S&P 500 rally by more than 100 per cent from its trough to trade above 2,000.
But again, Fed economists said that is not the whole story, noting the falling share of families in the bottom half of the income distribution who own assets.
The Fed said that ownership rates of housing and businesses fell substantially between 2010 and 2013. For families in the bottom 50 per cent, participation in retirement plans kept falling, further reducing their asset ownership.