The wealthiest Americans are emerging from the coronavirus epidemic with their proportion of wealth and income rising again, despite some speculation that the crisis’s tight job market and significant salary gains would lessen the gap between affluent and poor.
According to recent Federal Reserve data, the wealthiest 1% of families by income held approximately 26.5% of household net worth at the end of June, an increase of almost 1.5 percentage points from 2019, the year before the pandemic threw the economy into recession, significant government stimulus, and severe inflation.
What are the effects of the post-pandemic era on wealth and income concentration in the US Wealth?
The percentage of income going to the top 5% increased from 2019 to 2022, from 23% to 23.5%, according to new projections from the U.S. Census Bureau. This continues a trend that began in the 1980s and has provided the wealthiest individuals with additional opportunities to amass even more money.
Even if the bottom 40% of earners have seen their net worth increase at the fastest rate in years, they will still receive a lower share of the pie. When compared to $3.3 trillion in 2019, the bottom one-fifth of the population had a 27% increase in net worth to $4.2 trillion at the end of the second quarter. However, over that same period, their percentage of the nation’s wealth decreased to 6.7% from 7%.
After a turbulent period in which labor market leverage appeared to swell among lower-income families and less educated workers, with double-digit wage increases offered by companies struggling to fill less-skilled positions amid a broad worker shortage, the most recent data shed a different light on what that has meant.
“If you believe they have any leverage, to what end?” asked Elise Gould, senior economist at the Economic Policy Institute, a Washington-based think tank that focuses on labor issues. “Share matters because if profits have been so high, wages could have done even better.”
Indeed, distributional issues have factored strongly in the present United Auto Workers strike, as union members seek a larger portion of automakers’ profits. They have also been key to the Biden administration’s efforts to boost middle-class salaries.
CRACKS AROUND THE EDGES
The pandemic economy began in the spring of 2020 with a deep recession and a 14.5% unemployment rate. However, a historic fiscal reaction lifted stock prices, real estate values, and savings, resulting in a record of roughly $153 trillion in household net worth (the difference between what is owned and what is owed) by early 2022. A bad market for equities as the Fed began an aggressive effort to raise interest rates in 2022 reduced that by almost $8 trillion, but a comeback this year returned it to a new high of $154 trillion.
According to the most recent data, trends toward greater wealth and income concentration have largely persisted.
The rapid gain in wealth among the bottom one-fifth of households was “striking for a period when we had this enormous job loss,” which would normally harm the finances of those who were less well off, according to Karen Dynan, an economics professor at Harvard University.
However, Dynan stated that the gain in wealth over that period was 30% for families in the 80th to 99th income percentiles and more than 40% for the top 1%.
Given inflation, decreasing wage growth, and many households’ depleted pandemic-era savings, “we are seeing some cracks around the edges,” Dynan said. “We’re seeing an increase in subprime mortgage default rates. We are noticing an increase in credit card borrowing.
OLD traditions HOLD FAST
The Federal Reserve’s quarterly wealth distribution data assesses asset holdings and liabilities across racial, educational, age, and income groups, as well as their share of national totals.
According to the most recent data, the baby boomer generation’s proportion of household net worth likely peaked at 55.9% in the third quarter of 2016 and is currently on a steady decline to zero. Meanwhile, Generation X, the group directly behind it, achieved a record 28.8% this year.
Quarter-to-quarter and even year-to-year comparisons can be misleading, as the pandemic demonstrated. The richest 1% of families’ net worth, for example, peaked at 27.4% in the middle of 2021, so the current reading of 26.5% represents a decrease from that level.
However, as the dust settles, economists are examining which pre-pandemic trends have returned, which have changed, and which new ones are forming.
The increase to 23.5% in the share of income going to the top 5% of earners, for example, appears to continue an income-concentration trend that began around 1980, when the highest-paid households earned approximately 16.5% of total income. At that time, the bottom 40% received approximately 14.4% of wages, compared to 11.2% now, while those in the 40th to 80th percentiles saw their share fall to 36.5% from 41.5%.
Despite the fact that the bottom one-fifth has witnessed a significant growth in net worth since 2019, there have been occasions when that group has performed better: Over a comparable period from mid-2016 to the pandemic, its share of net worth increased by 67%, as the slow recovery from the 2007–2009 recession gave way to an era of low unemployment, low interest rates, low inflation, and rising salaries at the bottom of the scale.
The past rapid growth of that group during the pandemic, which was significantly higher than other groups, has now slowed down significantly. The concern, as Dynan explains, is that if unpredictable inflation continues and the US central bank becomes more strict than before the pandemic, it may pose greater risks to those who are not well-off. The economist also mentions that previously, the Federal Reserve was successful in maintaining strong labor demand, particularly for lower-income individuals. However, there is a legitimate fear that we are entering a period where supply shocks may lead to inflation, requiring the Federal Reserve to implement tighter policies.
What is the comparison of Americans’ net worth to that of other countries?
The United States continues to be the world’s richest country, accounting for about 30% of global net worth ($105.99 trillion). The average wealth per adult in the United States is $531,286, much greater than the global average.
The United States has the second-highest mean wealth per adult, valued at $551,347, and is home to 38% of global millionaires.
The median net worth of American families increased considerably between 2019 and 2022, hitting $192,900, the highest rise on record.
When comparing the net worth of Americans to other countries, it is clear that the U.S. has a substantially greater average and median net worth, reflecting its status as the wealthiest nation in the world.
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