September 4, 2014
WASHINGTON — Economic growth since the Great Recession has improved the fortunes of the most affluent Americans even as the incomes and wealth of most American families continue to decline, the Federal Reserve said Thursday.
For the most affluent 10 percent of American families, average incomes rose by 10 percent from 2010 to 2013. For the rest of the population, average incomes were flat or falling.
The least affluent families had the largest declines. Average incomes dropped by 8 percent for the bottom 20 percent of families, the Fed reported in its triennial Survey of Consumer Finances, one of the most comprehensive sources of data on the financial health of American families.
The new report, broadly consistent with other data on the aftermath of the Great Recession, underscores why so many Americans think the economy remains in poor health. While the pie has grown, most people are getting smaller slices.
The result is that wealth also is increasingly concentrated. While overall wealth barely changed during the survey period, the money sloshed from the bottom toward the top. For the top 10 percent of families, ranked by income, estimated average wealth increased by 2 percent to $3.3 million. For the bottom 20 percent of families, average wealth sharply declined by 21 percent to $65,000.
There is growing evidence that inequality may be weighing on economic growth by keeping money disproportionately in the hands of those who already have so much they are less inclined to spend it.
President Obama last year described income inequality as “the defining challenge of our time.” The Fed’s chairwoman, Janet L. Yellen, said earlier this year it was “one of the most important issues and one of the most disturbing trends facing the nation.”
But the trend so far has provoked little more than public outrage and political debate, in part because there is no agreement about the causes, let alone potential remedies. Some economists point to the impact of mechanization and foreign competition. Others say that legal changes have undermined the bargaining power of workers. Still others think the economy is suffering from a drought of lucrative innovations.
The French economist Thomas Piketty argued in his recent book that wealth concentration is a natural tendency in market economies.
The Fed’s report said the widening income gap represented a reversion to a long-term trend that was disrupted by the recession. It said that the top 3 percent of families collected 30.5 percent of all income in 2013, up from 27.7 percent in 2010, but still slightly below their 31.4 percent share in 2007.
The concentration of wealth continued without interruption, albeit at a slower pace during the recession. The Fed said that the top 3 percent of families held 44.8 percent of wealth in 1989, then 51.8 percent in 2007 and 54.4 percent in 2013.
One signal of the growing divide is a decline in the share of families that hold assets. The share of families that directly own stock fell to 13.8 percent from 15.1 percent, the Fed found. The share of families with retirement accounts, savings bonds and life insurance also declined. Likewise, the share of families that owned homes, owned rental properties or had a stake in a business declined.
In a more positive trend, debt burdens also fell. The debts of the average American family continued to exceed its annual income, but the ratio declined to 105 percent of income in 2013 from 125 percent of annual income in 2010. Importantly, the share of Americans probably struggling to pay those debts has also declined. Just 8.2 percent of households devoted more than 40 percent of income to debt payments in 2013, the lowest rate since the 1990s.