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Friday, September 26, 2014
Income Inequality in the US
(Comments due by Oct. 4, 2014)
The income disparity between the richest and poorest Americans has grown wider in recent years, according to a report released Thursday by the Federal Reserve, data that should add fuel to the growing political debate over income inequality.
In effect, the report titled the Fed’s Survey of Consumer Finance said what many economists have been saying for years: the richest Americans are getting richer while the poorest are getting poorer. And the middle-classes, meanwhile, are standing still.
The results of the survey are released every three years.
Families with the lowest incomes saw “continued substantial declines” in average real incomes between 2010 and 2013, according to the Fed’s survey, which continues a pattern established between the central bank’s 2007 and 2010 surveys.
Families defined as middle to upper-middle class (which fall between the 40th and 90th income percentiles) “saw little change in average real incomes” between 2010 and 2013 and consequently have failed to recover the losses experienced between 2007 and 2010, the report said.
“Only families at the very top of the income distribution saw widespread income gains between 2010 and 2013, although mean and median incomes were still below 2007 levels,” the Fed survey found.
The political debate over income inequality has led some -- mostly Democrats -- to call for higher taxes on the wealthy, while others -- mostly Republicans -- argue that higher taxes ultimately lead to economic stagnation and could act as another obstacle to the ongoing economic recovery.
The central bank’s report described “substantial disparities in the evolution of income and net worth” since 2010 despite improvements in U.S. labor markets and gradual economic growth since the 2008 financial crisis and recession that followed.
Overall, average income rose 4% from 2010 while median -- the midpoint with half higher and half lower -- income fell 5%, “consistent with increasing income concentration during this period,” according to the Fed’s report.
Meanwhile, the top 3% of families saw their share of U.S. income rise to 30.5% in 2013 from 27.7% in 2010. Fed economists said the data reflect a return to the economy's prerecession trend, after the income distribution narrowed during the recession when top-earning families saw their incomes fall. The top 3% had held 31.4% of all income in 2007.
“Overall, between 2010 and 2013 there was little movement in median and mean net worth, as the median fell a modest 2% and the mean increased slightly. Consistent with income trends and differential holdings of housing and corporate equities, families at the bottom of the income distribution saw continued substantial declines in real net worth between 2010 and 2013, while those in the top half saw, on average, modest gains,” the report found.
In addition, ownership rates of housing and businesses fell substantially between 2010 and 2013.
And retirement plan participation in 2013 continued to decline, following a pattern established between the 2007 and 2010 surveys for families in the lower half of the income percentile. Participation rebounded slightly for upper-middle income families, but it did not move back to the levels observed in 2007, the Fed said.
Ownership rates for most assets -- from stocks to retirement accounts, cars to homes -- fell from 2010 to 2013, which “indicates that while most families continue to hold some type of asset, many more families now hold fewer different types of assets,” the report said. Some 65.2% of families owned their primary residence in 2013, the lowest homeownership rate since 1995.