Speak out for those who cannot speak, for the rights of all the
destitute. Speak out, judge righteously, defend the rights of the poor
and needy.
- Proverbs 31:8-9
Poverty is the worst form of violence.
-Mahatma Gandhi
THOUGH she may lack the actual tools necessary to do much of anything about income inequality it is fiscally significant Federal Reserve Chairperson Janet Yellen has addressed the issue publicly and that she has also publicly brought up one of Sen Elizabeth Warren's major concerns, the problem of student loan debt. We can be sure wall street and corporate America took notice, and corporate boards will spend this weekend going over the power and authority of the Federal Reserve to find out how much of a threat she presents to their profit margins. From +Mother Jones followed by her full speech.....
AP/Michael Dwyer
On
Friday, Janet Yellen presented a thorough speech outlining the inherent
problems income inequality presents to the American ideology, proving
once again she is committed to using her role as Federal Reserve chair
to tackle widening income inequality rates.
"The extent of and continuing increase in inequality in the United
States greatly concern me," Yellen told the Federal Reserve of Boston.
"The past several decades have seen the most sustained rise in
inequality since the 19th century after more than 40 years of narrowing
inequality following the Great Depression."
“I think it is appropriate to ask whether this trend is compatible
with values rooted in our nation’s history, among them the high value
Americans have traditionally placed on equality of opportunity," she
added.
The speech, titled "Perspectives on Inequality and Opportunity from the Survey of Consumer Finances," follows several notable
instances
in which Yellen has indicated she would be actively working towards
reducing wealth inequality–a more pointed approach that distances her
from her predecessors, former chairs
Alan Greenspan and Ben Bernanke.
In Friday's speech, Yellen also echoed Sen. Elizabeth Warren's
(D-Mass.) calls to fix the burden of rising higher education costs.
As continued evidence has shown, income inequality rates have soared
over the last few decades, with the average income of the one percent
rising more than 175 percent since 1980, while the bottom 90 percent
hardly moved.
While Yellen's speech on Friday made no mention of any specific
policy changes the Federal Reserve may take on to combat inequality
rates, it did signal a significant shift in how the Federal Reserve
views inequality as a serious hindrance to the country's economic
health. To read Yellen's speech in its entirety,
click here.
Chair Janet L. Yellen
At the Conference on Economic Opportunity and Inequality, Federal Reserve Bank of Boston, Boston, Massachusetts
October 17, 2014
The distribution of income and wealth in the United States has
been widening more or less steadily for several decades, to a greater
extent than in most advanced countries.
1 This
trend paused during the Great Recession because of larger wealth losses
for those at the top of the distribution and because increased
safety-net spending helped offset some income losses for those below the
top. But widening inequality resumed in the recovery, as the stock
market rebounded, wage growth and the healing of the labor market have
been slow, and the increase in home prices has not fully restored the
housing wealth lost by the large majority of households for which it is
their primary asset.
The extent of and continuing increase in inequality in the United
States greatly concern me. The past several decades have seen the most
sustained rise in inequality since the 19th century after more than 40
years of narrowing inequality following the Great Depression. By some
estimates, income and wealth inequality are near their highest levels in
the past hundred years, much higher than the average during that time
span and probably higher than for much of American history before then.
2 It
is no secret that the past few decades of widening inequality can be
summed up as significant income and wealth gains for those at the very
top and stagnant living standards for the majority. I think it is
appropriate to ask whether this trend is compatible with values rooted
in our nation's history, among them the high value Americans have
traditionally placed on equality of opportunity.
Some degree of inequality in income and wealth, of course, would
occur even with completely equal opportunity because variations in
effort, skill, and luck will produce variations in outcomes. Indeed,
some variation in outcomes arguably contributes to economic growth
because it creates incentives to work hard, get an education, save,
invest, and undertake risk. However, to the extent that opportunity
itself is enhanced by access to economic resources, inequality of
outcomes can exacerbate inequality of opportunity, thereby perpetuating a
trend of increasing inequality. Such a link is suggested by the "Great
Gatsby Curve," the finding that, among advanced economies, greater
income inequality is associated with diminished intergenerational
mobility.
3 In
such circumstances, society faces difficult questions of how best to
fairly and justly promote equal opportunity. My purpose today is not to
provide answers to these contentious questions, but rather to provide a
factual basis for further discussion. I am pleased that this conference
will focus on equality of economic opportunity and on ways to better
promote it.
In my remarks, I will review trends in income and wealth
inequality over the past several decades, then identify and discuss four
sources of economic opportunity in America--think of them as "building
blocks" for the gains in income and wealth that most Americans hope are
within reach of those who strive for them. The first two are widely
recognized as important sources of opportunity: resources available for
children and affordable higher education. The second two may come as
more of a surprise: business ownership and inheritances. Like most
sources of wealth, family ownership of businesses and inheritances are
concentrated among households at the top of the distribution. But both
of these are less concentrated and more broadly distributed than other
forms of wealth, and there is some basis for thinking that they may also
play a role in providing economic opportunities to a considerable
number of families below the top.
In focusing on these four building blocks, I do not mean to
suggest that they account for all economic opportunity, but I do believe
they are all significant sources of opportunity for individuals and
their families to improve their economic circumstances.
Income and Wealth Inequality in the Survey of Consumer Finances
I will start with the basics about widening inequality, drawing
heavily on a trove of data generated by the Federal Reserve's triennial
Survey of Consumer Finances (SCF), the latest of which was conducted in
2013 and published last month.
4 The
SCF is broadly consistent with other data that show widening wealth and
income inequality over the past several decades, but I am employing the
SCF because it offers the added advantage of specific detail on income,
wealth, and debt for each of 6,000 households surveyed.
5 This
detail from family balance sheets provides a glimpse of the relative
access to the four sources of opportunity I will discuss.
While the recent trend of widening income and wealth inequality
is clear, the implications for a particular family partly depend on
whether that family's living standards are rising or not as its relative
position changes. There have been some times of relative prosperity
when income has grown for most households but inequality widened because
the gains were proportionally larger for those at the top; widening
inequality might not be as great a concern if living standards improve
for most families. That was the case for much of the 1990s, when real
incomes were rising for most households. At other times, however,
inequality has widened because income and wealth grew for those at the
top and stagnated or fell for others. And at still other times,
inequality has widened when incomes were falling for most households,
but the declines toward the bottom were proportionally larger.
Unfortunately, the past several decades of widening inequality has often
involved stagnant or falling living standards for many families.
Since the survey began in its current form in 1989, the SCF has
shown a rise in the concentration of income in the top few percent of
households, as shown in figure 1.
6 By
definition, of course, the share of all income held by the rest, the
vast majority of households, has fallen by the same amount.
7 This
concentration was the result of income and living standards rising much
more quickly for those at the top. After adjusting for inflation, the
average income of the top 5 percent of households grew by 38 percent
from 1989 to 2013, as we can see in figure 2. By comparison, the average
real income of the other 95 percent of households grew less than 10
percent. Income inequality narrowed slightly during the Great Recession,
as income fell more for the top than for others, but resumed widening
in the recovery, and by 2013 it had nearly returned to the pre-recession
peak.
8
The distribution of wealth is even more unequal than that of
income, and the SCF shows that wealth inequality has increased more than
income inequality since 1989. As shown in figure 3, the wealthiest 5
percent of American households held 54 percent of all wealth reported in
the 1989 survey. Their share rose to 61 percent in 2010 and reached 63
percent in 2013. By contrast, the rest of those in the top half of the
wealth distribution--families that in 2013 had a net worth between
$81,000 and $1.9 million--held 43 percent of wealth in 1989 and only 36
percent in 2013.
The lower half of households by wealth held just 3 percent of
wealth in 1989 and only 1 percent in 2013. To put that in perspective,
figure 4 shows that the average net worth of the lower half of the
distribution, representing 62 million households, was $11,000 in 2013.
9 About
one-fourth of these families reported zero wealth or negative net
worth, and a significant fraction of those said they were "underwater"
on their home mortgages, owing more than the value of the home.
10 This
$11,000 average is 50 percent lower than the average wealth of the
lower half of families in 1989, adjusted for inflation. Average real
wealth rose gradually for these families for most of those years, then
dropped sharply after 2007. Figure 5 shows that average wealth also grew
steadily for the "next 45" percent of households before the crisis but
didn't fall nearly as much afterward. Those next 45 households saw their
wealth, measured in 2013 dollars, grow from an average of $323,000 in
1989 to $516,000 in 2007 and then fall to $424,000 in 2013, a net gain
of about one-third over 24 years. Meanwhile, the average real wealth of
families in the top 5 percent has nearly doubled, on net--from $3.6
million in 1989 to $6.8 million in 2013.
Housing wealth--the net equity held by households, consisting of
the value of their homes minus their mortgage debt--is the most
important source of wealth for all but those at the very top.
11 It
accounted for three-fifths of wealth in 2013 for the lower half of
families and two-fifths of wealth for the next 45. But housing wealth
was only one-fifth of total wealth for the top 5 percent of families.
The share of housing in total net worth for all three groups has not
changed much since 1989.
Since housing accounts for a larger share of wealth for those in
the bottom half of the wealth distribution, their overall wealth is
affected more by changes in home prices. Furthermore, homeowners in the
bottom half have been more highly leveraged on their homes, amplifying
this difference. As a result, while the SCF shows that all three groups
saw proportionally similar increases and subsequent declines in home
prices from 1989 to 2013, the effects on net worth were greater for
those in the bottom half of households by wealth. Foreclosures and the
dramatic fall in house prices affected many of these families severely,
pushing them well down the wealth distribution. Figure 6 shows that
homeowners in the bottom half of households by wealth reported 61
percent less home equity in 2013 than in 2007. The next 45 reported a 29
percent loss of housing wealth, and the top 5 lost 20 percent.
Fortunately, rebounding housing prices in 2013 and 2014 have
restored a good deal of the loss in housing wealth, with the largest
gains for those toward the bottom. Based on rising home prices alone and
not counting possible changes in mortgage debt or other factors,
Federal Reserve staff estimate that between 2013 and mid-2014, average
home equity rose 49 percent for the lowest half of families by wealth
that own homes.
12 The estimated gains are somewhat less for those with greater wealth.
13 Homeowners
in the bottom 50, which had an average overall net worth of $25,000 in
2013, would have seen their net worth increase to an average of $33,000
due solely to home price gains since 2013, a 32 percent increase.
Another major source of wealth for many families is financial
assets, including stocks, bonds, mutual funds, and private pensions.
14 Figure
7 shows that the wealthiest 5 percent of households held nearly
two-thirds of all such assets in 2013, the next 45 percent of families
held about one-third, and the bottom half of households, just 2 percent.
This figure may look familiar, since the distribution of financial
wealth has concentrated at the top since 1989 at rates similar to those
for overall wealth, which we saw in figure 3.
15
Those are the basics on wealth and income inequality from the
SCF. Other research tells us that inequality tends to persist from one
generation to the next. For example, one study that divides households
by income found that 4 in 10 children raised in families in the
lowest-income fifth of households remain in that quintile as adults.
16 Fewer
than 1 in 10 children of families at the bottom later reach the top
quintile. The story is flipped for children raised in the highest-income
households: When they grow up, 4 in 10 stay at the top and fewer than 1
in 10 fall to the bottom.
Research also indicates that economic mobility in the United
States has not changed much in the last several decades; that mobility
is lower in the United States than in most other advanced countries;
and, as I noted earlier, that economic mobility and income inequality
among advanced countries are negatively correlated.
17
Four Building Blocks of Opportunity
An important factor influencing intergenerational mobility and
trends in inequality over time is economic opportunity. While we can
measure overall mobility and inequality, summarizing opportunity is
harder, which is why I intend to focus on some important sources of
opportunity--the four building blocks I mentioned earlier.
Two of those are so significant that you might call them
"cornerstones" of opportunity, and you will not be surprised to hear
that both are largely related to education. The first of these
cornerstones I would describe more fully as "resources available to
children in their most formative years." The second is higher education
that students and their families can afford.
Two additional sources of opportunity are evident in the SCF.
They affect fewer families than the two cornerstones I have just
identified, but enough families and to a sufficient extent that I
believe they are also important sources of economic opportunity.
The third building block of opportunity, as shown by the SCF, is ownership of a private business.
18 This
usually means ownership and sometimes direct management of a family
business. The fourth source of opportunity is inherited wealth. As one
would expect, inheritances are concentrated among the wealthiest
families, but the SCF indicates they may also play an important role in
the opportunities available to others.
Resources Available for Children
For households with children, family resources can pay for things
that research shows enhance future earnings and other economic
outcomes--homes in safer neighborhoods with good schools, for example,
better nutrition and health care, early childhood education,
intervention for learning disabilities, travel and other potentially
enriching experiences.
19 Affluent
families have significant resources for things that give children
economic advantages as adults, and the SCF data I have cited indicate
that many other households have very little to spare for this purpose.
These disparities extend to other household characteristics associated
with better economic outcomes for offspring, such as homeownership
rates, educational attainment of parents, and a stable family structure.
20
According to the SCF, the gap in wealth between families with
children at the bottom and the top of the distribution has been growing
steadily over the past 24 years, but that pace has accelerated recently.
Figure 8 shows that the median wealth for families with children in the
lower half of the wealth distribution fell from $13,000 in 2007 to
$8,000 in 2013, after adjusting for inflation, a loss of 40 percent.
21 These
wealth levels look small alongside the much higher wealth of the next
45 percent of households with children. But these families also saw
their median wealth fall dramatically--by one-third in real terms--from
$344,000 in 2007 to $229,000 in 2013. The top 5 percent of families with
children saw their median wealth fall only 9 percent, from $3.5 million
in 2007 to $3.2 million in 2013, after inflation.
For families below the top, public funding plays an important
role in providing resources to children that influence future levels of
income and wealth. Such funding has the potential to help equalize these
resources and the opportunities they confer.
Social safety-net spending is an important form of public funding
that helps offset disparities in family resources for children.
Spending for income security programs since 1989 and until recently was
fairly stable, ranging between 1.2 and 1.7 percent of gross domestic
product (GDP), with higher levels in this range related to recessions.
However, such spending rose to 2.4 percent of GDP in 2009 and 3 percent
in 2010.
22 Researchers
estimate that the increase in the poverty rate because of the recession
would have been much larger without the effects of income security
programs.
23
Public funding of education is another way that governments can
help offset the advantages some households have in resources available
for children. One of the most consequential examples is early childhood
education. Research shows that children from lower-income households who
get good-quality pre-Kindergarten education are more likely to graduate
from high school and attend college as well as hold a job and have
higher earnings, and they are less likely to be incarcerated or receive
public assistance.
24 Figure
9 shows that access to quality early childhood education has improved
since the 1990s, but it remains limited--41 percent of children were
enrolled in state or federally supported programs in 2013. Gains in
enrollment have stalled since 2010, as has growth in funding, in both
cases because of budget cuts related to the Great Recession. These cuts
have reduced per-pupil spending in state-funded programs by 12 percent
after inflation, and access to such programs, most of which are limited
to lower-income families, varies considerably from state to state and
within states, since local funding is often important.
25 In
2010, the United States ranked 28th out of 38 advanced countries in the
share of four-year-olds enrolled in public or private early childhood
education.
26
Similarly, the quality and the funding levels of public education
at the primary and secondary levels vary widely, and this unevenness
limits public education's equalizing effect. The United States is one of
the few advanced economies in which public education spending is often
lower for students in lower-income households than for students in
higher-income households.
27 Some
countries strive for more or less equal funding, and others actually
require higher funding in schools serving students from lower-income
families, expressly for the purpose of reducing inequality in resources
for children.
A major reason the United States is different is that we are one
of the few advanced nations that funds primary and secondary public
education mainly through subnational taxation. Half of U.S. public
school funding comes from local property taxes, a much higher share than
in other advanced countries, and thus the inequalities in housing
wealth and income I have described enhance the ability of more-affluent
school districts to spend more on public schools. Some states have acted
to equalize spending to some extent in recent years, but there is still
significant variation among and within states. Even after adjusting for
regional differences in costs and student needs, there is wide
variation in public school funding in the United States.
28
Spending is not the only determinant of outcomes in public
education. Research shows that higher-quality teachers raise the
educational attainment and the future earnings of students.
29 Better-quality
teachers can help equalize some of the disadvantages in opportunity
faced by students from lower-income households, but here, too, there are
forces that work against raising teacher quality for these students.
Research shows that, for a variety of reasons, including inequality in
teacher pay, the best teachers tend to migrate to and concentrate in
schools in higher-income areas.
30 Even
within districts and in individual schools, where teacher pay is often
uniform based on experience, factors beyond pay tend to lead more
experienced and better-performing teachers to migrate to schools and to
classrooms with more-advantaged students.
31
Higher Education that Families Can Afford
For many individuals and families, higher education is the other
cornerstone of economic opportunity. The premium in lifetime earnings
because of higher education has increased over the past few decades,
reflecting greater demand for college-educated workers. By one measure,
the median annual earnings of full-time workers with a four-year
bachelor's degree are 79 percent higher than the median for those with
only a high school diploma.
32 The
wage premium for a graduate degree is significantly higher than the
premium for a college degree. Despite escalating costs for college, the
net returns for a degree are high enough that college still offers a
considerable economic opportunity to most people.
33
Along with other data, the SCF shows that most students and their
families are having a harder time affording college. College costs have
risen much faster than income for the large majority of households
since 2001 and have become especially burdensome for households in the
bottom half of the earnings distribution.
Rising college costs, the greater numbers of students pursuing
higher education, and the recent trends in income and wealth have led to
a dramatic increase in student loan debt. Outstanding student loan debt
quadrupled from $260 billion in 2004 to $1.1 trillion this year.
Sorting families by wealth, the SCF shows that the relative burden of
education debt has long been higher for families with lower net worth,
and that this disparity has grown much wider in the past couple decades.
Figure 10 shows that from 1995 to 2013, outstanding education debt grew
from 26 percent of average yearly income for the lower half of
households to 58 percent of income.
34 The
education debt burden was lower and grew a little less sharply for the
next 45 percent of families and was much lower and grew not at all for
the top 5 percent.
35
Higher education has been and remains a potent source of economic
opportunity in America, but I fear the large and growing burden of
paying for it may make it harder for many young people to take advantage
of the opportunity higher education offers.
Opportunities to Build Wealth through Business Ownership
For many people, the opportunity to build a business has long
been an important part of the American dream. In addition to housing and
financial assets, the SCF shows that ownership of private businesses is
a significant source of wealth and can be a vital source of opportunity
for many households to improve their economic circumstances and
position in the wealth distribution.
While business wealth is highly concentrated at the top of the
distribution, it also represents a significant component of wealth for
some other households.
36 Figure
11 shows that slightly more than half of the top 5 percent of
households have a share in a private business. The average value of
these holdings is nearly $4 million. Only 14 percent of families in the
next 45 have ownership in a private business, but for those that do,
this type of wealth constitutes a substantial portion of their
assets--the average amount of this business equity is nearly $200,000,
representing more than one-third of their net worth. Only 3 percent of
the bottom half of households hold equity in a private business, but it
is a big share of wealth for those few.
37 The average amount of this wealth is close to $20,000, 60 percent of the average net worth for these households.
38
Owning a business is risky, and most new businesses close within a
few years. But research shows that business ownership is associated
with higher levels of economic mobility.
39 However,
it appears that it has become harder to start and build businesses. The
pace of new business creation has gradually declined over the past
couple of decades, and the number of new firms declined sharply from
2006 through 2009.
40 The
latest SCF shows that the percentage of the next 45 that own a business
has fallen to a 25-year low, and equity in those businesses, adjusted
for inflation, is at its lowest point since the mid-1990s. One reason to
be concerned about the apparent decline in new business formation is
that it may serve to depress the pace of productivity, real wage growth,
and employment.
41 Another
reason is that a slowdown in business formation may threaten what I
believe likely has been a significant source of economic opportunity for
many families below the very top in income and wealth.
Inheritances
Along with other economic advantages, it is likely that large
inheritances play a role in the fairly limited intergenerational
mobility that I described earlier.
42 But
inheritances are also common among households below the top of the
wealth distribution and sizable enough that I believe they may well play
a role in helping these families economically.
Figure 12 shows that half of the top 5 percent of households by
wealth reported receiving an inheritance at some time, but a
considerable number of others did as well--almost 30 percent of the next
45 percent and 12 percent of the bottom 50. Inheritances are
concentrated at the top of the wealth distribution but less so than
total wealth. Just over half of the total value of inheritances went to
the top 5 percent and 40 percent went to households in the next 45.
Seven percent of inheritances were shared among households in the bottom
50 percent, a group that together held only 1 percent of all wealth in
2013.
43
The average inheritance reported by those in the top 5 percent
who had received them was $1.1 million. That amount dwarfs the $183,000
average among the next 45 percent and the $68,000 reported among the
bottom half of households. But compared with the typical wealth of these
households, the additive effect of bequests of this size is significant
for the millions of households below the top 5 that receive them.
The average age for receiving an inheritance is 40, when many
parents are trying to save for and secure the opportunities of higher
education for their children, move up to a larger home or one in a
better neighborhood, launch a business, switch careers, or perhaps
relocate to seek more opportunity. Considering the overall picture of
limited resources for most families that I have described today, I think
the effects of inheritances for the sizable minority below the top that
receive one are likely a significant source of economic opportunity.
Conclusion
In closing, let me say that, with these examples, I have only
just touched the surface of the important topic of economic opportunity,
and I look forward to learning more from the work presented at this
conference. As I noted at the outset, research about the causes and
implications of inequality is ongoing, and I hope that this conference
helps spur further study of economic opportunity and its effects on
economic mobility. Using the SCF and other sources, I have tried to
offer some observations about how access to four specific sources of
opportunity may vary across households, but I cannot offer any
conclusions about how much these factors influence income and wealth
inequality. I do believe that these are important questions, and I hope
that further research will help answer them.
1. See Salvatore Morelli, Timothy Smeeding, and Jeffrey Thompson (2014), "
Post-1970 Trends in Within-Country Inequality and Poverty: Rich and Middle Income Countries (PDF) 
," IRP Discussion Paper Series 1419-14 (Madison, Wis.: Institute for Research on Poverty, March).
Return to text
2. For income inequality in the past 100 years, see Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez (2011), "
Top Incomes in the Long Run of History (PDF) ,"
Journal of Economic Literature, vol. 49 (March), pp.3-71. For wealth inequality, see Emmanuel Saez and Gabriel Zucman (2014), "
Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data ,"
working paper and slides (October, 14, 2014). For income inequality
before 1913, see Peter H. Lindert and Jeffrey G. Williamson (2012), "
American Incomes 1774-1860 ," NBER Working Paper Series 18396 (Cambridge, Mass.: National Bureau of Economic Research, September).
Return to text
3. See Alan B. Krueger (2012), "
The Rise and Consequences of Inequality in the United States (PDF)," speech delivered at the Center for American Progress, Washington, January 12.
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4. Asset questions in the SCF are
based on the value at the time of the survey. Since most interviews were
completed between April and December 2013, some of the asset values do
not reflect price increases experienced in late 2013, and none reflect
increases in 2014. Income questions in the SCF refer to the prior
calendar year, so the 2013 survey reports 2012 income. See Jesse
Bricker, Lisa J. Dettling, Alice Henriques, Joanne W. Hsu, Kevin B.
Moore, John Sabelhaus, Jeffrey Thompson, and Richard A. Windle (2014), "
Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances,"
Federal Reserve Bulletin, vol. 100 (September), pp. 1-41.
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5. "Households" and "families" are
used interchangeably in these remarks because the SCF uses both
interchangeably to describe its respondents.
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6. The share of income that went to
the top 5 percent of households--a threshold of $230,000 in gross income
in 2013--rose from 31 percent of income reported by all respondents in
1989 to 37 percent in 2007. The income share for this group fell in the
financial crisis, to 34 percent in 2010, then rose in the recovery,
regaining a 37 percent share in 2013.
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7. The top half of the distribution,
except for the top 5 percent, earned 53 percent of all income in 1989
but only 51 percent in 2010. In 2013, households in the "next 45
percent" had incomes between $47,000 and $230,000. While income has
rebounded for the top 5 percent in the recovery, the share that went to
the next 45 percent declined further to 49 percent in 2013. The bottom
half of the distribution saw their share of income fall from 16 percent
in 1989 to 15 percent in 2007, edge up in 2010, and then reach a new low
for the survey last year at 14 percent.
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8. Largely because of losses in income
from financial holdings, the share of total income received by the top 5
percent of households fell 3 percentage points from 2007 to 2010, with
the next 45 percent and lower half of households each gaining about half
of that share. Some of the nominal income losses for households below
the top 5 percent were offset by larger-than-normal transfer payments
during the recession.
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9. All SCF income and wealth data prior to the 2013 survey are adjusted for inflation by expressing the values in 2013 dollars.
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10. In the 2013 SCF, 17 percent of
all families reporting zero or negative net worth also reported they
were underwater on their home mortgages.
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11. Housing wealth includes the net equity in primary residences and other residential real estate.
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12. The house price data used are
from CoreLogic, and data track price changes at the Core Based
Statistical Area level between the survey month in 2013 and June 2014.
The average increase in home prices over this period was 8 percent. No
adjustments are made to account for possible changes in mortgage
leverage.
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13. Home price gains in 2013 and
2014 are estimated to have raised the home equity of home-owning
households in the next 45 percent of households in the wealth
distribution by 12 percent, and by 9 percent for home-owning households
in the top 5 percent of the wealth distribution.
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14. The SCF defines financial assets
as liquid assets, certificates of deposit, directly held pooled
investment funds, stocks, bonds, quasi-liquid assets (including
retirement accounts), savings bonds, whole life insurance, other managed
assets, and other financial assets.
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15. In 1989, the top 5 percent of
households held 54 percent of financial assets, the next 45 percent
(that is, home-owning households in the 50th through 95th percentiles of
the wealth distribution) held 42 percent, and the bottom half held 4
percent.
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16. See Pew Charitable Trusts (2012),
Pursuing the American Dream: Economic Mobility across Generations (PDF) (Washington: PCT, July).
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17. See Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner (2014), "
Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility ,"
NBER Working Paper Series 19844 (Cambridge, Mass.: National Bureau of
Economic Research, January (revised May 2014)). See also Organisation
for Economic Co-operation and Development (2010), "
A Family Affair: Intergenerational Social Mobility across OECD Countries (PDF) ," in
Economic Policy Reforms: Going for Growth 2010, pp.183-200 (Paris: OECD); and Alan B. Krueger (2012), "
The Rise and Consequences of Inequality in the United States (PDF)," speech delivered at the Center for American Progress, Washington, January 12.
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18. Business assets in the SCF
include both actively and "non-actively" managed businesses but do not
include ownership of publicly traded stock.
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19. See, for example, Janet Currie
and Douglas Almond (2011), "Human Capital Development before Age Five,"
ch. 15 in David Card and Orley Ashenfelter, eds.,
Handbook of Labor Economics, vol. 4 (Holland: Elsevier), pp. 1315-1486.
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20. Homeownership by parents is
strongly associated with economic success for children; see Thomas P.
Boehm and Alan M. Schlottmann (1999), "
Does Home Ownership by Parents Have an Economic Impact on Their Children? "
Journal of Housing Economics,
vol. 8 (September), pp. 217-32. Ninety-seven percent of top-earning
families with children own a home, compared with fewer than half of the
bottom 50 percent of families with children; educational attainment of
parents is strongly predictive of outcomes for children that determine
earnings. See Ayana Douglas-Hall and Michelle Chau (2007), "
Parents' Low Education Leads to Low Income, Despite Full-Time Employment "
(New York: National Center for Children in Poverty, Columbia
University, November). A considerable body of literature establishes the
correlation between educational attainment of parents and their
children. Other research has identified that this relationship is
causal; see, for example, Philip Oreopoulos, Marianne E. Page, and Ann
Huff Stevens (2006), "The Intergenerational Effects of Compulsory
Schooling,"
Journal of Labor Economics, vol. 24 (October), pp.
729-60. Eighty-six percent of top-earning households in the SCF with
children are headed by a college graduate, compared with 12 percent in
the bottom half of households with children; children raised by a single
parent earn less as adults. See Mary Ann Powell and Toby L. Parcel
(1997), "Effects of Family Structure on the Earnings Attainment Process:
Differences by Gender,"
Journal of Marriage and Family, vol.
59 (May), pp. 419-33. Only 4 percent of top-earning households with
children are headed by unmarried parents, compared with 47 percent for
the lower half of households with children.
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21. Distributional statistics for families with children are based on a sorting of only families with children.
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22. Congressional Budget Office
historic budget data. Income security programs include UI, SSI, SNAP
EITC, and other family support and nutrition programs.
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23. See Jeffrey P. Thompson and Timothy M. Smeeding (2013), "
Inequality and Poverty in the United States: The Aftermath of the Great Recession (PDF)," Finance and Economics Discussion Series 2013-51 (Washington: Board of Governors of the Federal Reserve System, July).
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24. See James J. Heckman, Seong
Hyeok Moon, Rodrigo Pinto, Peter A. Savelyev, and Adam Yavitz (2010),
"The Rate of Return to the HighScope Perry Preschool Program,"
Journal of Public Economics, vol. 94
(1-2), pp. 114-28; and Clive R. Belfield, Milagros Nores, Steve
Barnett, and Lawrence Schweinhart (2006), "The High/Scope Perry
Preschool Program: Cost-Benefit Analysis Using Data from the Age-40
Followup,"
Journal of Human Resources, vol. 41 (Winter), pp. 162-90.
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25. The share of four-year-olds in
state-funded pre-K programs increased from 14 percent in 2002 to 27
percent in 2010 but has been 28 percent since. Head Start enrollments
have been fairly steady since 2005. Forty-one percent of four-year-olds
were enrolled in federally funded Head Start or state-funded pre-K
education programs in 2013. See National Institute for Early Education
Research (2013),
The State of Preschool 2013: State Preschool Yearbook (PDF) (New Brunswick, N.J.: Rutgers Graduate School of Education). For analysis of Head Start enrollment by age, see the
Annie E. Casey Foundation KIDS COUNT Data Center .
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26. See Organisation for Economic Co-operation and Development (2013), "
How Do Early Childhood Education and Care (ECEC) Policies, Systems and Quality Vary across OECD Countries? (PDF) " Education Indicators in Focus Series 11 (Paris: OECD, February).
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27. See Organisation for Economic Co-operation and Development (2013),
Education at a Glance 2013: OECD Indicators (PDF) (Paris: OECD).
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28. See
Education Week (2014),
Quality Counts 2014: District Disruption and Revival (Bethesda, Md.: Editorial Projects in Education, January).
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29. See Eric A. Hanushek (2011), "The Economic Value of Higher Teacher Quality,"
Economics of Education Review,
vol. 30 (June), pp. 466-79; or, for estimates of the future earnings
students gain by having a better teacher, see Raj Chetty, John N.
Friedman, and Jonah E. Rockoff, "
The Long-Term Impacts of Teachers: Teacher Value-Added and Student Outcomes in Adulthood,"
unpublished paper, Harvard University.
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30. See Eric Isenberg, Jeffrey Max, Philip Gleason, Liz Potamites, Robert Santillano, Heinrich Hock, and Michael Hansen (2013),
Access to Effective Teaching for Disadvantaged Students (PDF) ,
report NCEE 2014-4001, prepared for the Institute of Education Sciences
(Washington: U.S. Department of Education, Institute of Education
Sciences, National Center for Education Evaluation and Regional
Assistance); and Kati Haycock and Eric A. Hanushek (2010), "
An Effective Teacher in Every Classroom: A Lofty Goal, But How to Do It? (PDF)"
Education Next, vol. 10 (Summer), pp. 46-52.
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31. Better and more-experienced
teachers tend to move to better-resourced schools, including those with
more active outside funding, or those with more-advantaged students,
such as magnet schools. Even within schools, more experienced and higher
performing teachers are more likely to teach Advanced Placement classes
which tend to serve more advantaged students. The result is that lower
income and lower achieving students are more likely to be taught by less
experienced and lower performing teachers. See Charles Clotfelter,
Helen Ladd, Jacob Vigdor, and Justin Wheeler (2007), "High Poverty
Schools and the Distribution of Teachers and Principals,"
North Carolina Law Review,
vol. 85 (2), pp. 1345-79; Charles Clotfelter, Helen Ladd, and Jacob
Vigdor (2005), "Who Teaches Whom? Race and the Distribution of Novice
Teachers,"
Economics of Education Review, vol. 24 (August), pp.
377-92; and Hamilton Lankford, Susanna Loeb, and James Wyckoff (2002),
"Teacher Sorting and the Plight of Urban Schools: A Descriptive
Analysis,"
Education Evaluation and Policy Analysis, vol. 37 (Spring), pp. 37-62.
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32. See Sandy Baum (2014),
Higher Education Earnings Premium: Value, Variation, and Trends (PDF) (Washington: Urban Institute, February).
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33. Taking into account the cost of
paying for education and years spent in college and not working,
economists at the Federal Reserve Bank of New York estimate that the
lifetime return to a college degree is 15 percent. See Jaison R. Abel
and Richard Deitz (2014), "
Do the Benefits of College Still Outweigh the Costs? (PDF)"
Federal Reserve Bank of New York,
Current Issues in Economics and Finance, vol. 20 (3).
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34. Education debt in the SCF reflects the total amount of debt outstanding at the time of the survey.
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35. Education debt-to-income ratio
is calculated based on what SCF respondents reported as their usual
income. Numbers are for families with education debt.
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36. The SCF does not ask households
whether they started businesses that closed, so reported business
ownership and wealth is largely related only to those businesses that
succeed.
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37. Distributional statistics for business ownership and assets exclude outliers with large negative net worth.
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38. Business wealth took a big hit
due to the recession and has only partly recovered for most families.
For the bottom half of the distribution, the $20,000 average in business
wealth in 2013 was down from $29,000, after adjusting for inflation, in
2007. The nearly $200,000 held by the next 45 percent with businesses
was down from $228,000 in 2007. The $4 million in business wealth of the
top 5 percent in 2013 was down, in real terms, from $4.4 million in
2007.
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39. See, for example, Robert Fairlie (2004), "Earnings Growth among Young Less-Educated Business Owners,"
Industrial Relations,
vol. 43 (July), pp. 634-59; Douglas Holtz-Eakin, Harvey S. Rosen, and
Robert Weathers (2000), "Horatio Alger Meets the Mobility Tables,"
Small Business Economics, vol. 14, pp. 243-74; and Vincenzo Quadrini (2000), "Entrepreneurship, Saving, and Social Mobility,"
Review of Economic Dynamics, vol. 3 (January), pp. 1-40.
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40. See
Business Dynamics Statistics,
U.S. Census Bureau. For analysis documenting the decline in new and
young firms, see John Haltiwanger, Ron Jarmin, and Javier Miranda
(2012),
Where Have All the Young Firms Gone? (PDF)
Business Dynamics Statistics Briefing, May. For a discussion of the
link between a decline in young firms and constrained credit access, see
Michael Siemer (2014), "
Firm Entry and Employment Dynamics in the Great Recession (PDF)," Finance and Economics Discussion Series 2014-56 (Washington: Board of Governors of the Federal Reserve System, July).
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41. See Steven J. Davis and John Haltiwanger (2014), "
Labor Market Fluidity and Economic Performance (PDF),"
paper prepared for "Re-Evaluating Labor Market Dynamics," a symposium
sponsored by the Federal Reserve Bank of Kansas City, held in Jackson
Hole, Wyo., August 21-23.
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42. This topic is discussed extensively in Thomas Piketty (2014),
Capital in the 21st Century, trans. Arthur Goldhammer (Cambridge, Mass.: Belknap Press).
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43. Reported inheritances can have
been received at any point in the respondent's life. As with other forms
of wealth cited in these remarks, inheritances have been adjusted for
inflation and are expressed in 2013 dollars.
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plenty of things for Bernie supporters to like about him.
