Median net worth in the United States reached its lowest point since 1969 in 2010, according to a new study by Professor Edward Wolff at New York University. Moreover, according to Wolff’s research, inequality skyrocketed as a consequence of the Great Recession, taking resources away from middle class, minority, and young families while the wealthy made significant gains.
Wolff’s study tracked changes in overall household wealth by race, class, and age from 1962 to 2012. He found that in the past 20 years, average wealth among wealthy families rose substantially whereas the middle class and poor lost out. Indeed, the average family in the bottom 40 percent of Americans had a substantially negative net worth as a consequence of indebtedness:
Over this period [1983 to 2010], the largest gains in relative terms were made by the wealthiest households. The top one percent saw their average wealth (in 2010 dollars) rise by almost seven million dollars or by 71 percent. The remaining part of the top quintile experienced increases from 52 to 101 percent and the fourth quintile by 21 percent, while the middle quintile lost 18 percent and the poorest 40 percent lost 270 percent! By 2010, the average wealth of the bottom 40 percent had fallen to -$10,600.
The most recent and most significant spike in wealth inequality over the course of the period Wolff studied, from 2007 to 2010, was in large part consequence of the collapse in home prices after the housing bubble collapsed. Middle class families often had invested substantially in their homes, taking on significant debt to do so. When home values collapsed, the debt-to-asset ratio for those families skyrocketed, while wealthy families with less debt were comparatively unaffected.
Home price collapse also explained why young, black, and Hispanic families each lost substantial wealth relative to older and whiter families. Such families tended to have more debt and much more, as a percentage of wealth, invested in houses. Hispanic families were the hardest hit — according to Wolff, “the mean net worth in 2010 dollars of Hispanics fell almost in half, and the ratio of this to the mean net worth of white households plummeted from 0.26 to 0.15.”
Wolff analyzes household wealth, rather than annual income, for six reasons, including the fact that “the availability of financial assets can provide liquidity to a family in times of economic stress, such as occasioned by unemployment, sickness, or family break-up.” However, studies of income inequality also support Wolff’s pessimistic account of growing inequality: they’ve found income inequality has risen in almost every state over the last 30 years and that the middle class has just suffered its “worst decade in modern history.” Unfortunately, many of the jobs created since the Recession don’t pay well enough to make up for the collapse.