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The Great Recession fueled American wealth inequalities, researchers say

Posted June 26, 2014

The period of economical decline between 2007 and 2009, commonly referred to as the Great Recession, caused an unprecedented drop in American household wealth. The housing prices fell by almost one-third during this period, with the addition of stock market collapse and the doubling of unemployment from 5 to 10 percent.

Although 2013 has shown signs of significant improvement in household, stock and job markets, the full effect of the Great Recession has not been adequately grasped. One of the reasons for that is the fact that both the decline in net wealth, as well as the recent improvements, have been happening at very different rates for different parts of the American society.

Fabian T. Pfeffer, Sheldon Danziger and Robert F. Shoeni – a group of researchers funded by the Russell Sage Foundation – have surveyed the recent data from the Panel Study of Income Dynamics in order to compare how the changes in net worth have affected different social groups.

The graph shows changes in wealth for various percentiles since 1984 in 2013 US dollars. Image courtesy of the researchers.

The graph shows changes in wealth for various percentiles since 1984 in 2013 US dollars. Image courtesy of the researchers.

The surveyed data showed that even before the recession, net worth had been steadily in decline for the bottom 25% of the American population since 2003. For those above the median, the drops began only after the beginning of the Great Recession in 2007.

However, even there the shock wave has hit unequaly: the 95th percentile suffered a 12.8% decline in wealth, compared to 28.4% for the median and more than 60% for the 25th percentile. What this amounts to is that those below the median suffered from double to at least five times as much loss as those above the 95th percentile.

The post-recession recovery also shows that improvements for some are stronger that for others: wealth at the 90th and 95th percentiles was higher by 2013 than it was ten years before, compared to ten year decline of 36% at the median.

These data show that although those at the top of the wealth distribution have suffered great loss, households at the bottom lost the largest share of their wealth. “As a result, wealth inequality increased significantly from 2003 through 2013; by some metrics inequality roughly doubled. […] It is possible that the very slow recovery from the Great Recession will continue to generate increased wealth inequality in the coming years as those hardest hit may still be drawing down the few assets they have left to cover current consumption and the housing market continues to grow at a modest pace,” the researchers conclude. 

Original research article: Fabian T. Pfeffer, Sheldon Danziger and Robert F. Shoeni Wealth Levels, Wealth Inequality, and the Great Recession, source link.

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