26-02-2013, 01:49 PM
Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007
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ABSTRACT
I find here that the early and mid-aughts (2001 to 2007) witnessed both exploding debt and a
consequent “middle-class squeeze.” Median wealth grew briskly in the late 1990s. It grew even
faster in the aughts, while the inequality of net worth was up slightly. Indebtedness, which fell
substantially during the late 1990s, skyrocketed in the early and mid-aughts; among the middle
class, the debt-to-income ratio reached its highest level in 24 years. The concentration of
investment-type assets generally remained as high in 2007 as during the previous two decades.
The racial and ethnic disparity in wealth holdings, after stabilizing throughout most of the 1990s,
widened in the years between 1998 and 2001, but then narrowed during the early and midaughts.
Wealth also shifted in relative terms, away from young households (particularly those
under age 45) and toward those in the 55–74 age group. Projections to July 2009, made on the
basis of changes in stock and housing prices, indicate that median wealth plunged by 36 percent
and there was a fairly steep rise in wealth inequality, with the Gini coefficient advancing from
0.834 to 0.865.
INTRODUCTION
The 1990s witnessed some remarkable events. The stock market boomed. On the basis of the
Standard & Poor (S&P) 500 index, stock prices surged 171 percent between 1989 and 2001.
Stock ownership spread and by 2001 (as we shall see below) over half of U.S. households owned
stock either directly or indirectly. Real wages, after stagnating for many years, finally grew in
the late 1990s. According to BLS figures, real mean hourly earnings gained 8.3 percent between
1995 and 2001.1
However, 2001 saw a recession (albeit a short one). Moreover, the stock market peaked
in 2000 and dropped steeply from 2000 to 2003, but recovered in 2004, so that between 2001 and
2004 the S&P 500 was down by only 5.3 percent in nominal terms, but 12.0 percent in real
terms.2 Real wages rose very slowly from 2001 to 2004, with the BLS real mean hourly earnings
up by only 1.5 percent, and median household income dropped in real terms by 1.5 percent.3 On
the other hand, housing prices rose steeply. The median sales price of existing one-family homes
rose by 17.9 percent in real terms nationwide.4 The other big story was household debt,
particularly that of the middle class, which skyrocketed during these years, as we shall see
below.
DATA SOURCES AND METHODS
The data sources used for this study are the 1983, 1989, 1992, 1995, 1998, 2001, 2004, and 2007
Survey of Consumer Finances (SCF) conducted by the Federal Reserve Board. Each survey
consists of a core representative sample combined with a high-income supplement. In 1983, for
example, the supplement was drawn from the Internal Revenue Service’s Statistics of Income
data file. For the 1983 SCF, an income cut-off of $100,000 of adjusted gross income was used as
the criterion for inclusion in the supplemental sample. Individuals were randomly selected for
the sample within predesignated income strata. In later years, the high-income supplement was
selected as a list sample from statistical records (the Individual Tax File) derived from tax data
by the Statistics of Income Division of the Internal Revenue Service (SOI).
MEDIAN WEALTH ROSE BRISKLY DURING THE 2000s
Table 1 documents a robust growth in wealth during the 1990s. Median wealth (the wealth of the
households in the middle of the distribution) was 16 percent greater in 2001 than in 1989. After
rising by 7 percent between 1983 and 1989, median wealth fell by 17 percent from 1989 to 1995
and then rose by 39 percent from 1995 to 2001. As a result, median wealth grew slightly faster
between 1989 and 2001, 1.32 percent per year, than between 1983 and 1989, at 1.13 percent per
year. However, between 2001 and 2004, median wealth fell by 0.7 percent, a result of the 2001
recession. Such a drop is not unprecedented. Indeed, it occurred during the last recession in
1992, when median wealth fell by a staggering 15 percent from 1989 to 1992. It was not until
1998 that median wealth surpassed its previous high in 1989. However, from 2004 to 2007 there
was a sharp recovery in median wealth, which grew by a sizeable 19.9 percent. Thus, over the
2001–2007 period it increased by 19.1 percent, even faster than during the 1990s (and 1980s).
WEALTH INEQUALITY SHOWS A MODEST INCREASE OVER THE EARLY 2000s
The figures in table 2 also show that wealth inequality, after rising steeply between 1983 and
1989, remained virtually unchanged from 1989 to 2007. The share of wealth held by the top 1
percent rose by 3.6 percentage points from 1983 to 1989 and the Gini coefficient increased from
0.80 to 0.83. Between 1989 and 2007, the share of the top percentile actually declined sharply,
from 37.4 to 34.6 percent, though this was more than compensated for by an increase in the share
of the next four percentiles. As a result, the share of the top five percent increased from 58.9
percent in 1989 to 61.8 percent in 2007, and the share of the top quintile rose from 83.5 to 85.0
percent. The share of the fourth and middle quintiles each declined by about a percentage point
from 1989 to 2007, while that of the bottom 40 percent increased by almost 1 percentage point.
Overall, the Gini coefficient was virtually unchanged—0.832 in 1989 and 0.834 in 2007.
Non-home wealth was even more concentrated than net worth, with the richest 1 percent
(as ranked by non-home wealth) owning 43 percent of total household non-home wealth in 2007
(compared to 35 percent for net worth) and the top 20 percent owning 93 percent (compared to
85 percent for net worth). The inequality of non-home wealth shows a different time trend than
net worth. The share of the top 1 percent gained 4.0 percentage points and the Gini coefficient
increased from 0.89 to 0.93 between 1983 and 1989—trends mirroring those of net worth.
However, in the ensuing twelve years (from 1989 to 2001) the share of the richest 1 percent
plummeted by seven percentage points, the share of the top 5 percent fell by 3 percentage points,
and that of the top quintile by 2 percentage points. The share of the fourth quintile increased by
0.4 percentage points, the share of the middle quintile held its own, and that of the bottom two
quintiles rose. As a result, the Gini coefficient fell from 0.93 in 1989 to 0.89 in 2001 and was
actually slightly lower in 2001 than in 1983. However, the trend reversed between 2001 and
2007, with the share of the top 1 percent rising by 3.0 percentage points, that of the top quintile
up by 1.7 percentage points, and the shares of the third and fourth quintiles