By Chuck Collins • Betsy Leondar-Wright • Holly Sklar
Overview: The Growing Wealth Gap
Behind the hoopla of the booming nineties, most Americans have actually lost wealth. Most households have lower net worth (assets minus debt) than they did in 1983, when the stock market began its record-breaking climb. From 1983 to 1998, the stock market grew a cumulative 1,336 percent.1 The wealthiest households reaped most of the gains.
The top 1 percent of households have soared while most Americans have been working harder to stay in place, if they have not fallen further behind. Since the 1970s, the top 1 percent of households have doubled their share of the national wealth at the expense of everyone else. Using data from the Federal Reserve Survey of Consumer Finances, economist Edward Wolff of New York University says that the top 1 percent had 40 percent of the nation’s household wealth as of 1997. The top 1 percent of households have more wealth than the entire bottom 95 percent.
Financial wealth is even more concentrated. The top 1 percent of households have nearly half of all financial wealth (net worth minus net equity in owner-occupied housing).2 Wealth is further concentrated at the top of the top 1 percent. The richest 1/2 percent of households have 42 percent of the financial wealth.3
Between 1983 and 1995, the inflation-adjusted net worth of the top 1 percent swelled by 17 percent. The bottom 40 percent of households lost an astounding 80 percent. Their net worths shrunk from $4,400 to an even more meager $900. The middle fifth of Americans lost over 11 percent. Only the top 5 percent gained any net worth in this period. The top 5 percent now have more than 60 percent of all household wealth.4
Adjusting for inflation, the net worth of the household in the middle (the median household) fell from $54,600 in 1989 to $45,600 in 1995, before rising again to a projected $49,900 in 1997. That’s still $4,700 lower than the median net worth a decade ago. Median financial wealth has fallen from $13,000 in 1989 to a projected $11,700 in 1997.5
The percentage of households with zero or negative net worth (greater debts than assets) increased from 15.5 percent in 1983 to 18.5 percent in 1995—nearly one out of five households.6 That’s nearly double the rate in 1962, when the comparable figure was 9.8 percent—one out of ten households.7
Nine years into the longest peacetime expansion in U.S. history, average workers are still earning less, adjusting for inflation, than they did when Richard Nixon was president. No wonder many people have been working longer hours and going deeper into debt in an effort to keep up living standards and pay for college.
Many Americans can’t make ends meet. Food banks and homeless shelters have been seeing more people with jobs at wages too low to support themselves and their families. As we’ll see later, we can reduce the wealth gap and strengthen national prosperity, if we have the will.
1.Bloomberg L.P., Standard &
Poor’s. Return using capitalization weighted S&P 500 index, with dividends
reinvested. Back to text
Wolff’s net worth figures represent the current value of all marketable or fungible assets less the current value of debts. Fungible assets include assets that can be readily converted to cash (e.g., owner-occupied housing and other real estate; cash, savings and certificates of deposit; stocks, mutual funds, bonds and other financial securities; the cash surrender value of life insurance plans, IRAs, 401 (k) plans; etc.). Consumer durables such as automobiles, furniture and so on are excluded “since these items are not easily marketed or their resale value typically far understates the value of their consumption services to the household.”
For historical data and trends see Edward N. Wolff, Top
Heavy: The Increasing Inequality of Wealth in America and What Can Be Done about
It (New York: New Press, 1996). Back
4.Wolff, “Recent Trends in
Wealth Ownership,” Table 2, “The Size Distribution of Wealth and Income,
1983-1997.” Back to text.