The Great Recession fueled an explosion in income inequality and the economic recovery has carried on the trend. The numbers themselves are staggering, but the causes are also important. A new report from the Pew Research Center finds that not only did the wealth gap between the bottom and the top of the income ladder expand during the first two years of the recovery, but we can chalk most of it up to the improvement in the stock market during that time:
During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data. […]
These wide variances were driven by the fact that the stock and bond market rallied during the 2009 to 2011 period while the housing market remained flat.
Affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home.
From the end of the recession in 2009 through 2011 (the last year for which Census Bureau wealth data are available), the 8 million households in the U.S. with a net worth above $836,033 saw their aggregate wealth rise by an estimated $5.6 trillion, while the 111 million households with a net worth at or below that level saw their aggregate wealth decline by an estimated $0.6 trillion.
This astronomical rise in wealth at the top coincides with a frothy stock market. During the same two years, the S&P; 500 rose by 34 percent. Meanwhile, home prices kept falling: The S&P;/Case-Shiller home price index fell by 5 percent during that time.
The report notes, “The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period.” That’s because the wealthy hold more stocks and bonds and less of their wealth is tied to home price. Households with a net worth above $500,000 have 65 percent of their wealth in financial holdings. Lower income households, on the other hand, have half of their wealth in their home and just a third of comes from the stock market.
This trend isn’t unique to the recession, however. Income inequality has been growing over the past 30 years thanks to skyrocketing executive pay, stagnating pay for workers, the growth in low-wage jobs, and a tax code that often benefits the well off.