Trends in the Distribution of Weath Are Even Scarier Than Trends in Income

Sunday, August 4, 2019 7:33

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“We have an economy in this country that is not working for working people,” says Sen. Kamala Harris, a Democratic candidate for President. It is a common refrain. As the following chart shows, when adjusted for inflation, average hourly earnings of ordinary U.S. workers have grown just 15 percent over the past 30 years. Weekly earnings of full-time employees have grown even less, just 10 percent.

Meanwhile, the pay of top earners has soared. According to a study from the Economic Policy Institute, in 1989, the pay of corporate CEOs was 59 times as high as that of production workers. By 2016, it had risen to 270 times higher than workers’ pay.

No wonder a lot of Americans are feeling left behind by a booming economy. But wages are not the whole story. Would you believe, there are other data that make the “left behind” narrative look even worse?

It’s not the wages, it’s the wealth

The trend that is even scarier than that of wages is the trend in wealth. “Wealth,” in this sense, means net worth, that is, total assets minus total debts. It’s not what you own that matters, but the difference between what you own and what you owe.

Here are the astonishing data on the net worth of American households since 1990, broken down by income percentiles. The chart is based on the latest data from the Federal Reserve. The total net worth of the super-rich — the top 1 percent of households — is more than three times higher than it was in 1990. The wealth of the merely rich — those in the 90th to 99th percentiles — is two and a half times higher. That of the upper middle class — the 50th to 89th percentiles — has almost doubled. Meanwhile, the net worth of the poor and working-class households who make up the bottom half of the distribution has actually fallen by 20 percent, when adjusted for inflation.

Now we see why so many people are feeling left behind. Their hourly and weekly pay, as shown in the first chart, has kept ahead of inflation, even if just barely. But their net worth has gone down.

How has this happened?

It’s not the assets, it’s the debt

We get a clearer picture of what is going on if we chart the relationship of assets to liabilities in a different way. The previous chart showed the difference between assets and liabilities — net worth. The next one shows the ratio of liabilities to assets, a concept known in the financial world as leverage.

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Anonymous

One take-away is that no-skilled, low-skilled, and even moderately skilled labor does not have much value. I do agree about the debt.

Aug 5, 2019, 1:17 pm 0 Reply

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