The Statistical Realities of Economic Inequality

A new briefing paper by the Economic Policy Institute (EPI) sheds light on the vast disparities in wealth — assets such as real estate, stocks and bonds — held by Americans. Key findings include:

  • [From 2007 to 2009, t]he share of wealth held by the richest fifth of American households increased by 2.2 percentage points to 87.2%, while the remaining four-fifths gave up those 2.2 percentage points and held onto just 12.8% of all wealth.
  • The wealthiest 1% of U.S. households had net worth that was 225 times greater than the median or typical household’s net worth in 2009. This is the highest ratio on record.
  • In 2009, approximately one in four U.S. households had zero or negative net worth, up from 18.6% in 2007. For black households the figure was about 40%.
  • The median net worth of black households was $2,200 in 2009, the lowest ever recorded; the median among white households was $97,900.

The paper explains that much of the wealth held by American households in the middle- and lower-income brackets is in the form of home equity (e.g. the market value of a house or property minus the outstanding balance of a mortgage).

“The updated figures for 2009 reflect the enormous destruction of wealth due to the bursting of the housing bubble. As a general rule, households with less wealth have a greater share of their wealth embedded in their homes. Thus, it is not surprising that the fallout from the deflating housing bubble disproportionally affected them.”

As EPI notes, during the housing bubble, many Americans in the middle class felt financially secure as they saw the value of their homes rising substantially from year to year. And that illusion also helped soften the blow of declining incomes and wages for workers in the middle class.

The rising tide that lifts all boats is a classic American storyline, and one that has often blunted concerns about the rich getting richer. But today there is ample evidence that over the last 30 years, the rising tide is mostly making a few people richer and leaving everyone else behind.

The causes of this decline are varied.  For the high-school educated workforce, the decline of industries — steel, auto, textiles — where workers typically organized into labor unions has given way to a service economy that provides low-wage jobs with no benefits. For most people, gone are the days of getting a decent paying union job at the local factory after 12th grade. And without collective bargaining power and the protection of a union, workers have very little leverage for grabbing a bigger piece of the profits they are helping to produce.

Highly-skilled and educated workers are certainly better positioned in the current economy. And stressing the need for education is without a doubt essential.

But while well-paying jobs such as biomedical engineers ($77,400) and network systems and data communications analysts ($71,100) that require a degree are among the fastest growing occupations, they will still employ significantly fewer people than lower-wage jobs such as home health aides ($20,460) and food service workers ($16,430).

Given these realities,  laws and policies that make it harder for workers to join a union or receive a quality education will only ensure that income equality deepens and that the hope of achieving the American dream continues to fade for the more than 70% of the population that is not holding a college degree.