Income and Wealth Inequality in America, 1949–2016

Abstract

This paper introduces a new long-run dataset based on archival data from historical waves of the Survey of Consumer Finances. The household-level data allow us to study the joint distributions of household income and wealth since 1949. We expose the central importance of portfolio composition and asset prices for wealth dynamics in postwar America. Asset prices shift the wealth distribution because the composition and leverage of household portfolios differ systematically along the wealth distribution. Middle-class portfolios are dominated by housing, while rich households predominantly own equity. An important consequence is that the top and the middle of the distribution are affected differentially by changes in equity and house prices. Housing booms lead to substantial wealth gains for leveraged middle-class households and tend to decrease wealth inequality, all else equal. Stock market booms primarily boost the wealth of households at the top of the distribution. This race between the equity market and the housing market shaped wealth dynamics in postwar America and decoupled the income and wealth distribution over extended periods. The historical data also reveal that no progress has been made in reducing income and wealth inequalities between black and white households over the past 70 years, and that close to half of all American households have less wealth today in real terms than the median household had in 1970.

Trends in Household Portfolio Composition

“…The asset concentration plateau from about 1995 through 2010 is generally consistent with wealth concentration estimates from the SCF Kuhn, Schularick, and Steins 2018) and from estate tax data (Kopczuk and Saez 2004;Saez and Zucman 2016). The SCF also shows a notable increase in wealth concentration between 2010 and 2016; there are no recent estate tax data estimates, though.…”

“…Second, the time series dynamics of the aggregate portfolio-which has swung toward and from financial assetsdo not appear in the time series of most families, whose portfolios have always been composed mostly of housing. This is also the case when taking a longer view of household assets (Kuhn, Schularick, and Steins 2018).…”

The Housing Haves and Have-Nots

“…Or might problems in the data have concealed the changes? Contrary to the argument sketched in the first paragraphs of this article, a housing boom could reduce inequality (Davies, 2009;Crampton, 2016;Kuhn, Schularick and Stein, 2018). True, it is likely to increase the gap between the middle class and the poor, but it is also likely to reduce the gap between the middle class and the rich, much of whose wealth is in financial assets.…”

The Total Risk Premium Puzzle?

“…A graphical view of the long-run cross-section patterns in U.S. real estate and equity holdings by households can be gleaned from Survey of Consumer Finances, using newly collected data by Kuhn, Schularick, and Steins (2017). Some representative snapshots for the 1960s, 1980s, and today are shown in Figure 4, and these clearly makes the point that exposure to housing investment risk runs very far down the wealth distribution, but material exposure to equity investment risk is only a matter for the top quintile.…”