USA: concentration of wealth and income grow again after pandemic

The wealthiest Americans are emerging from the coronavirus pandemic with a share of the wealth and incomes on the rise again, even though some thought that a tight labor market and strong salary gains generated by the crisis could reduce the gap between rich and poor.

Recent data from the Federal Reserve shows that the top 1% of households owned about 26.5% of household net worth at the end of June, up 1.5 percentage points from 2019, the previous year. to the pandemic, in which the economy oscillated between recession, massive government stimulus and high inflation.

New estimates from the US Census Bureau, similarly, show that the share of income going to the top 5% grew from 2019 to 2022 – to 23.5% from 23% – extending a trend dating back to the 1990s. 1980 that has given the highest earners greater resources to build even more wealth.

For the bottom 40%, that means a smaller slice of the pie, even as their net worth has increased at the fastest pace in years.

While the collective net worth of the bottom quintile increased 27% to US$4.2 trillion at the end of the second quarter, up from US$3.3 trillion in 2019, their share of the country’s wealth fell to 6.7% from 7% during that time.

After a tumultuous period in which labor market influence appeared to favor lower-income families and less-educated workers, with double-digit pay increases offered by companies struggling to fill lower-skilled positions, the latest data shows a different light on what that has meant.

“If they are thought to have any influence, it is an influence for what purpose?”said Elise Gould, senior economist at the Economic Policy Institute, a Washington-based think tank focused on labor issues. “Distribution matters because if profits have been so high, wages could have gone up even more.”

In fact, distributional issues have figured prominently in the current United Auto Workers strike, as union members try to demand a larger share of automakers’ profits. They have also been one of the axes of President Joe Biden’s government’s efforts to improve wages for the middle class.

Cracks on the edges

The economic pandemic began with a deep recession and an unemployment rate of 14.5% in the spring of 2020.

But a historic fiscal response boosted stock prices, home values ​​and savings to produce a record nearly $153 trillion in household net worth – the difference between everything you own and everything you owe. – at the beginning of 2022.

A bear market for stocks when the Federal Reserve began an aggressive campaign to raise interest rates in 2022 briefly cut that figure by about $8 trillion, but a rally this year returned it to a new high of $154 trillion.

The most recent data suggest that trends toward greater concentration of wealth and income remain largely intact.

According to Karen Dynan, an economics professor at Harvard University, the rapid increase in wealth in the poorest quintile of households was “surprising in a period in which there was enormous job loss”which would normally harm the finances of the less fortunate.

However, Dynan observed that the increase in wealth during that period was 30% for families between the 80th and 99th income percentiles, and more than 40% for the richest 1%.

Given inflation, slowing wage growth and the depletion of pandemic-era savings for many households, “We are seeing some cracks around the edges,” Dynan said. “Delinquency rates on subprime mortgages are rising. “We are seeing people borrowing more on their credit cards.”

The Federal Reserve’s quarterly data on the distribution of wealth calculates asset and liability holdings by racial, educational, age, and income groups, as well as their share of national totals.

The last publication, for example, shows that the participation of the generation “baby boomer” in household net worth probably peaked at 55.9% in the third quarter of 2016, and is now on an inevitable slide towards zero. Meanwhile, the group just behind, Generation X, reached a record 28.8% this year.

Quarter-on-quarter and even year-on-year comparisons can be misleading, as the pandemic demonstrated. The share of net worth held by the richest 1% of families, for example, peaked at 27.4% in mid-2021, so the latest reading of 26.5% is a decline from that level.

The increase in the proportion of income going to the top 5% of earners to 23.5%, for example, appears to prolong a trend toward income concentration that began around 1980, when the best-paid households received around 16.5 % of all income.

At that time, the poorest 40% received around 14.4% of income, compared to 11.2% today, while those between the 40th and 80th percentiles saw their share reduced from 41.5% to 36.5%.

Although the bottom quintile has seen robust net worth growth since 2019, there have been times when that group has done better.

Over a comparable period from mid-2016 to the pandemic, his share of net worth rose 67% as the slow rebound from the 2007-2009 recession gave way to an era of low unemployment, low interest rates, low inflation and rising wages at the bottom of the scale.

What had been outsize gains for that group, exceeding 20% ​​in some quarters early in the pandemic, roughly double that of other quintiles, have now slowed to relative stagnation.

“The Federal Reserve “It was able to keep the demand for labor quite strong in a way that was beginning to be noticeable at the bottom of the income distribution.”Dynan said.

“The legitimate fear is that we are entering a world where supply shocks are going to be more on the inflationary side (…) which means that the Fed is going to have to take its policy on the restrictive side.”

Source: Reuters