America will need time to recover economically from the pandemic and lockdowns no matter who wins the election. And the Americans with the most at stake are middle- and low-income earners who have benefitted tremendously over the last three years.
The Federal Reserve on Monday published its Survey of Consumer Finances as it does every three years. The report provides a snapshot of American household debt, income and wealth across demographic groups. Median real incomes grew 5% from 2016 to 2019, the Fed reports, but it buries the lead.
Lo, “families at the top of the income and wealth distributions experienced very little, if any, growth” in net worth between 2016 and 2019 “after experiencing large gains between 2013 and 2016,” while “families near the bottom of the income and wealth distributions generally continued to experience substantial gains.” That’s a long way of saying wealth inequality declined.
Between 2016 and 2019, white, wealthy and college-educated households had relatively less income growth than other groups, the Fed notes, adding that “more broadly, the income gaps between families with a college degree and those without one decreased.” Real median incomes grew 9% for Americans who haven’t completed high school and 6.3% for those with only a high-school diploma while declining 2.3% among those with a college degree.
This is one result of a tighter labor market that drew more low-skilled Americans into the workforce and spurred higher wages. The return on a college degree, however, hasn’t dropped. It appears instead that older professionals with college degrees are retiring and being replaced by younger workers who make less at the outset of their careers.
Yet the report shows that incomes rose significantly among younger people as they gained more experience—13.4% among those under age 35. As a comparison, between 2010 and 2016 Americans under age 35 saw a 5.8% increase in median incomes and those without a high-school degree only 1.7%.
Employment and wages after the 2008-2009 recession rebounded faster for professionals than for low-skilled and entry-level workers. This is normal during the early years of an economic recovery, but what was unusual was how long it took for low-skilled Americans to experience income gains. From 2001 to 2004, incomes for Americans without a high-school degree increased 11.2%.
The Fed also reports growing wealth among lower-income Americans. Net worth (assets minus debt) increased 32.5% among the lowest income quintile and 30.7% among the second lowest, while declining modestly for the upper crust. The latter may be due to older Americans with more financial assets shifting to bonds from equities as they near retirement. Net worth also increased among blacks (32.1%) and Hispanics (63.6%) compared to whites (4%).
One explanation is that lower-income Americans are saving more. The share of families that saved increased to 59% from 55% from 2016 to 2019. Savings took a variety of forms, but Americans in the lower rungs notably invested in stocks and their own businesses.
About 14.5% of Americans in the lowest income quintile owned corporate stocks in 2019, up from 11.5% in 2016 and 12.3% in 2010. Give credit to competition in financial markets for a proliferation of low- and no-income brokerage accounts.
Rising incomes also made home ownership more affordable, even with tighter mortgage underwriting. Home ownership declined across the socioeconomic spectrum during the Obama Presidency despite near-zero interest rates, but it ticked up 1.4 percentage points overall from 2016 to 2019, including among Hispanics (1.8 points) and blacks (2.3 points). The Fed reports that “for families that own a home, the median net housing value (the value of a home minus home-secured debt) rose to about $120,000 from about $106,000 in 2016.”
As significant was the growth in business equity, especially among blacks (138%), Hispanics (63%) and Americans without a high-school diploma (104%). The gig economy and online platforms like
have made starting a business easier, but so have the Trump Administration’s deregulation and the 2017 tax reform.
The Fed’s Debbie-Downers lament that “Although wealth concentration did not increase between 2016 and 2019, the gains that accrued to the rest of the distribution did little to reduce the large existing disparities.”
But surely it’s important that before the pandemic less affluent Americans were sharing more in the country’s growing wealth. That’s the economy Americans should want to return to, not the slow growth and widening wealth gap of the Obama years.
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