Income and Wealth Distribution

Despite the Great Recession and slow recovery, the American dream of working hard, saving more, and becoming wealthier than one's parents holds true for many. Unless you're under 40. Stagnant wages, diminishing job opportunities, and lost home values may be painting a vastly different future for Gen X and Gen Y. Today's political discussions often focus on preserving the wealth and benefits of older Americans and the baby boomers. Often lost in this debate is attention to younger generations whose wealth losses, or lack of long-term gains, have been even greater.

When it comes to saving, owning a home, paring down debt, and growing a retirement nest egg, those under age 40 have stagnated as their parents' generation accumulated, new research from the Urban Institute's Opportunity and Ownership Project demonstrates. Average household net worth, even with the fallout from the Great Recession, nearly doubled from 1983 to 2010, but not for those born after 1970. Their average inflation-adjusted wealth in 2010 was 7 percent below similarly aged individuals in 1983.

An increasing number of Americans are entering old age with outstanding debt, forcing many retirees to devote some income to servicing their debt and leaving them with less to cover daily living expenses. Using Health and Retirement Study (HRS) data, this brief reports that the share of adults ages 65 and older with outstanding debt increased from 30 to 46 percent between 1998 and 2010. The inflation-adjusted median value of debt grew 56 percent over the period and the average ratio of total household debt over total household assets more than doubled.

Did the Great Recession hit poor neighborhoods especially hard? Surprisingly, between 2007 and 2009, residents in the poorest neighborhoods did not suffer worse losses in employment and wages than did other neighborhoods. Poor neighborhoods saw unusually high job losses among men but not among women. Because residents in poor neighborhoods had especially low homeownership rates, they were less likely to face big losses in home equity. Homeowners in poor neighborhoods were slightly less likely to sustain homeownership, but they weren’t locked out of jobs because of immobility. In fact, these homeowners fared better in the job market than renters.

High marginal tax rates can make moving above poverty very difficult for low-income families. These high tax rates result from increasing direct taxes and decreasing transfer payments. A single parent with two children who increases her wages from poverty-level to 150 percent of poverty-level can face a tax rate between 26.6 percent and over 100 percent, depending on which state she lives in. In addition, her marginal tax rate can vary radically, depending on her earning pattern. This paper shows how sensitive marginal tax rates are to assumptions about state of residence, earning patterns, and program participation.

How has family economic security, as measured by the net worth asset-poverty rate, changed since the onset of the Great Recession? Data from the 2007 and 2010 Survey of Consumer Finances show that one out of every five U.S. families (19.6 percent) was asset poor in 2010, up from 16.1 percent in 2007, which represents over 4 million additional asset-poor families in 2010. The Great Recession’s impact was widespread, the asset-poverty rate increased across the income spectrum, and increased for both white and minority families. Mid-aged families experienced relatively large increases in asset poverty.

U.S. household economic instability, as measured by the Economic Security Index (ESI), fell 1.3 percentage points from 2010 (20.2 percent) to 2011 (18.9 percent), the largest year-over-year decline in the last quarter century. States in the west saw decreases in measured instability, while some central states saw increases in measured instability.

The official U.S. Poverty rate was 15 percent in 2011, roughly unchanged since 2010, but the 2011 American Community Survey (ACS) says the poverty rate is 15.9 percent in 2011, up from 15.3 percent in 2010. The ACS rates are more precisely estimated, but the 2011 rate reflects poverty in boht 2010 and 2011; the 2010 rate reflects poverty in both 2009 and 2010. Poverty has fallen during 2011 so the official poverty rate better reflects improved circumstances toward the end of 2011, relative to 2010 and early 2011.

The poverty rate of the long-term unemployed was more than three times the rate of those with no unemployment in 2011. Nearly three out of four single parents with long-term unemployment were poor in 2011.

Poverty, at 15 percent, has not risen from 2010 to 2011, while long-term unemployment has remained at record levels. Monthly data indicate poverty may have been falling through 2011. However, poverty is still as high as it has been in any year since 1965, and the safety net that protected families during the Great Recession is likely to be cut as fiscal pressure increases.