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Income and Wealth Inequality in America, 1949-2016

Journal: Journal of Political Economy

Date: 20200901

Author: Kuhn, Mortiz; Schularick, Mortiz; Steins, Ulrike I.

Abstract:
This paper introduces a new long-run data set based on archival data from historical waves of the Survey of Consumer Finances. Studying the joint distribution of household income and wealth, we expose the central importance of portfolio composition and asset prices for wealth dynamics in postwar America. Asset prices shift the wealth distribution because of systematic differences in household portfolios along the wealth distribution. Middle-class portfolios are dominated by housing, while rich households predominantly own business equity. Differential changes in equity and house prices shaped wealth dynamics in postwar America and decoupled the income and wealth distribution over extended periods.

Link: Google Scholar

Key Findings

Portfolio Composition Affects Wealth Inequality

Middle-class portfolios are dominated by housing assets, while wealthy households primarily own business equity and stocks. These systematic differences drive wealth dynamics through asset price changes.

Asset Prices Shape Wealth Distribution

House price increases tend to reduce wealth inequality by benefiting the middle class, while stock market booms primarily benefit the top 10%, leading to increased inequality.

Persistent Racial Wealth Gap

The median black household has maintained only about 12% of the wealth of the median white household from 1950-2016, with little progress in reducing this disparity.

Portfolio Composition by Wealth Group (2016)

  • Bottom 50% households primarily hold housing assets with high leverage
  • Middle class (50-90%) portfolios dominated by housing (⅔ of assets)
  • Top 10% mainly hold stocks and business equity with low leverage

Wealth Growth by Group (1971-2007)

  • Bottom 50% wealth grew 90% solely from asset price effects
  • Middle class and top 10% saw ~60% wealth growth from price changes
  • Housing gains dominated for bottom 90%, stock gains for top 10%

Racial Wealth Gap (1950-2016)

  • Median black household wealth remains at ~12% of median white household
  • Gap temporarily narrowed in 1970s before widening again
  • 2008 financial crisis disproportionately impacted black households

Contribution and Implications

  • First comprehensive dataset (SCF+) tracking joint distribution of income and wealth since 1949
  • Portfolio differences between wealth groups create systematic exposure to asset price changes
  • Asset price dynamics can decouple wealth and income inequality trends over extended periods

Data Sources

  • Portfolio composition visualization based on Figure 14 showing asset and debt holdings by wealth group
  • Wealth growth chart constructed from data in Figure 18 showing wealth growth from asset prices 1971-2007
  • Racial wealth gap visualization derived from Figure 10 tracking median wealth ratios between black and white households