Economy

The 1 Percent Have Gotten All The Income Gains From The Recovery

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Income inequality is a problem that has been growing for decades, but the recovery from the Great Recession seems to have sped it up.

Between 2009 and 2012, according to updated data from Emmanuel Saez, overall income per family grew 6.9 percent. The gains weren’t shared evenly, however. The top 1 percent saw their real income grow by 34.7 percent while the bottom 99 percent only saw a 0.8 percent gain, meaning that the 1 percent captured 91 percent of all real income.

Adjusting for inflation and excluding anything made from capital gains investments like stocks, however, shows that even that small gains for all but the richest disappears. According to Justin Wolfers, adjusted average income for the 1 percent without capital gains rose from $871,100 to $968,000 in that time period. For everyone else, average income actually fell from $44,000 to $43,900. Calculated this way, the 1 percent has captured all of the income gains.

Saez’s new data show that income for the 1 percent did actually decrease somewhat in 2013 as compared to 2012: its share of income fell from 22.8 percent to 20.1 percent. And total income dropped 14.9 percent while income for the bottom 99 percent of earners saw a very small 0.2 percent increase — nearly stagnant. Yet the 1 percent’s drop is not likely due to misfortune, but to taxes. In 2013, there were increases of about 6.5 percentage points in the top labor income tax rate and 9.5 percentage points for capital income, so the richest likely shifted their money around to avoid paying more. That would inflate their 2012 income figures and depress the 2013 ones, but they will likely rebound this year. And even so, the top 1 percent still got 20 percent of income in 2013, “more than twice as high as in the 1970s,” Saez notes.

While economic downturns like the financial crisis usually hurt the rich, that hit is temporary and income inequality roars back “unless drastic regulation and tax policy changes are implemented,” he writes. After the Great Depression, New Deal policies did just that and suppressed the growth of income inequality. But recent crises have looked different. The top 1 percent got 65 percent of income gains following the 2001 recession, for example. The richest 10 percent of earners have captured increasingly larger shares of income during growth expansions, even if they take a larger hit during contractions.

“The policy changes that took place coming out of the Great Recession (financial regulation and top tax rate increase in 2013) are not negligible but they are modest relative to the policy changes that took place coming out of the Great Depression,” Saez writes. “Therefore, it seems unlikely that US income concentration will fall much in the coming years.”

Wage income continues to be flat. Wages grew just 1.7 percent last year, the slowest rate since at least the 1960s. That’s not because American workers are slacking off, though. While they have seen an entire decade of stagnant or falling wages, they’ve increased their productivity by nearly 25 percent.

At the same time, the stock market has been reaching record highs, which mostly helps the wealthy who are much more likely to own stocks, thus exacerbating income inequality. Corporate profits have also hit records and boosted executive pay without trickling down to workers.