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May 30, 2019

America’s wealth gap continues to widen

America’s wealth gap continues to widen

New research from the Fed has revealed that a steady economic expansion and a low jobless rate have been masking deep income and wealth inequalities that have proven challenging for some American families. One of the findings from the report is that the poorest 50% of Americans are getting crushed by the weight of rising inequalities whilst the top 10% of the wealth distribution “hold a large and growing share of U.S. aggregate wealth.”

IZA World of Labor Editor-in-Chief Daniel S. Hamermesh has also examined the labor market in the US between 2000 and 2018. In his article, he writes: “Earnings inequality continues to rise, with the growth in earnings concentrated in, although not restricted to, workers in the upper half of the earnings distribution. Even though labor force participation rates of people aged 55 and over have been constant for the past decade, those of adult men aged 20–54 have dropped, continuing a trend. Surprisingly so too have those of women aged 20–54, sharply reversing the previous trend.”

According to the research "while the total net worth of U.S. households has more than quadrupled in nominal terms since 1989, this increase has clearly accrued more to the top of the distribution than the bottom." In 1989, the richest 10% held 60% of total household wealth but in 2018, that figure has increased to 70% of total household wealth. The paper reveals that the increase in wealth share of the top 10% has come at the expense of households in the 50th to 90th percentiles of the wealth distribution. Over the same period, their share dropped to 29% and the bottom 50% haven’t seen net gains in wealth over those 30 years, driving their small share of total wealth further down to just 1%.

According to Hamermesh: “The continuing rise in earnings inequality is the biggest difficulty in the US labor market; and the rise has been generated by the more rapid growth of earnings in the upper part of the earnings distribution. The solution to this problem is simple and would put the US economy more in line with those of other wealthy nations: raise tax rates on households in the upper third of the distribution of household incomes (since the American income tax system is household- rather than individual-based).”

Read more about the labor market in the US, 2000–2018 and economic inequality.