International comparisons of household asset holdings
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Wolff finds that African Americans would have gained significant ground relative to whites in the past 30 years if they had inherited similar amounts, comparable levels of family income, and more similar portfolio compositions. Therefore, even if the income gap between whites and African Americans were immediately eliminated, it may take another two generations for the wealth gap to close.
However, certain policies could help speed up the process. Using both time-series and pooled cross-section, time-series data for 44 industries in the United States over the period —97, the authors find no evidence to support the idea that the growth of skills or educational attainment had any statistically significant effect on growth of earnings. However, earnings growth is found to be positively related to overall productivity growth and equipment investment, while computerization and international trade both had a retardant effect on earnings. Recent work has documented a rising degree of wealth inequality in the United States between and In this paper we look at another dimension of the distribution: polarization.
Using techniques developed by Esteban and Ray and extended by D'Ambrosia , we examine whether a similar pattern exists with regard to trends in wealth polarization over this period. The approach followed provides a decomposition method, based on counterfactual distributions, that allows one to monitor which factors modified the entire distribution and precisely where on the distribution these factors had an effect.
Household accounts - Household financial assets - OECD Data
An index of polarization is provided, as are summary statistics of the observed movements and of distance and divergence among the estimated and the counterfactual distributions. The decomposition method is applied to US data on the distribution of wealth between and We find that polarization between homeowners and tenants and among different educational groups continuously increased from to , while polarization by income class continuously decreased.
In contrast, polarization by racial group increased from to and then declined from to , while polarization by age group followed the opposite pattern. We also find that most of the observed variation in the overall wealth density over the period can be attributed to changes in the within-group wealth densities rather than changes in household characteristics. A vast literature in economics has examined the economic progress of African Americans during this century.
Most of these studies have focused on income--or on even narrower measures of economic well-being, such as earnings--to assess the extent to which any gains made relative to other racial groups can be attributed to such factors as declining racial discrimination, affirmative action policies, changes in industrial composition, or a narrowing gap between the educational levels of African Americans and the rest of the population. However, studies of earnings and income, while important for assessing the extent to which labor market discrimination exists and the ability of African Americans to move closer to whites in terms of acquiring the skills and connections that are currently rewarded by the markets, provide an incomplete picture.
U.S. Household Wealth Is Experiencing An Unsustainable Bubble
This paper therefore explores how African Americans have fared in terms of wealth, a less well-known factor and an important measure of economic well-being. Using data from the Survey of Consumer Finances, I find that wealth inequality continued to rise in the United States after , though at a reduced rate.
The share of the wealthiest 1 percent of households rose by 3. Between and , 53 percent of the total growth in net worth accrued to the top 1 percent of households and 91 percent to the top 20 percent. Another disturbing trend is that median net worth in constant dollars , after growing by 7 percent from to , increased by only another 4 percent by Moreover, the financial resources accumulated by families in the bottom three income quintiles were very meager and dwindled between and The new figures also point to the growing indebtedness of the American family, with the overall debt-equity ratio climbing from 0.
The ownership of investment assets was still highly concentrated in the hands of the rich in About 90 percent of the total value of stocks, bonds, trusts, and business equity were held by the top 10 percent. Despite the widening ownership of stock 48 percent of households owned stock shares either directly or indirectly in , the richest 10 percent still accounted for 78 percent of their total value. With regard to racial and ethnic differences, the results show that over the period to non-Hispanic African American households made some gains relative to whites in median net worth and home ownership but remained the same in terms of mean net worth.
Hispanic households made significant gains on non-Hispanic white households in terms of mean net worth and home ownership but not in terms of median wealth. Second, EVS does not cover cash, checking accounts, and the cash value of whole life insurance and private pension claims, which would represent about 33 percent of all financial assets held by private households. Third, stocks reported by EVS appear to include only Undoubtedly, this is due largely to the fact that the top 2 percent of the income distribution is not represented in EVS.
EVS appears to overestimate home ownership as well. Official United Kingdom data on wealth stem from two fiscal sources: wealth tax and inheritance tax. Estimation of the wealth distribution on the basis of this information is wrought with obvious problems. Since the microdata for the United Kingdom are relatively weak, a comparison of the two sources is likely to be unreliable. As mentioned above, Kitamura and Takayama compare the NSFIE data with both flow-of-funds and national accounts data and find a difference of about 40 percent. As in the other four research domains addressed in this report, cross-national research on savings and wealth is an important tool for understanding why households save at such varying rates and why they have such different levels of household wealth.
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There are two reasons for the importance of such research on wealth. First, countries differ across many dimensions in their observed patterns of household savings and wealth. Even with similar national incomes, some countries have high levels of household wealth, while others exhibit little evidence of much private wealth accumulation. Second, there is also a great deal of variation across countries in the constraints, incentives, and institutions that affect the private savings decisions of households. For example, an important public policy question is how government programs that provide income security during retirement affect household savings and wealth accumulation.
This is a difficult question to answer using data from a single country, since variation among the individual components of a country's public program are relatively rare, and within-country changes tend not to be dramatic. In addition, there is a legitimate question about the extent to which within-country changes in program parameters are exogenous.
In contrast, variations across countries in the way income security during retirement is provided are much larger, and thus offer considerable statistical power in testing how the design of public income security programs affects household wealth accumulation. This section first describes what the panel believes are the most salient patterns of household wealth accumulation in the United States. These are the basic facts that theories of household wealth accumulation and savings must be able to explain if they are to be taken seriously as keys to understanding household savings.
We next present a parallel summary of the most salient patterns observed in Europe and Japan, based largely on research results summarized in the papers commissioned for this study. We then examine cross-country variations in wealth levels and wealth inequality and explore some of the explanations for these variations.
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Figure highlights some of the more salient attributes of wealth distribution in the United States. The figures shown are based on PSID data, which span the entire age distribution. It is clear, first, that wealth distribution is extremely unequal in the United States. In sharp contrast, the top 5 percent of households typically have more than 10 times that amount, while the bottom third have virtually no net worth at all.
If anything, indeed, reliance on PSID leads to a substantial understatement of the extent of wealth inequality since it excludes the super-rich. Distribution of net worth in the United States: Inequality is even more dramatic in financial assets alone see Figure Most American households have very few financial assets, but a few have a great deal. Median financial wealth is only a few thousand dollars. Distribution of financial wealth in the United States: It is important to understand two basic patterns in household wealth holdings—the age profile and the relation of wealth to household income.
Household wealth and household income have distinctive age gradients, but the gradient is much sharper for wealth than for income, so that wealth-income ratios increase over the life cycle. For example, wealth at age 50 is about twice as high as population wealth and about 10 times higher than the wealth of those household heads under age A critical question about the age-wealth gradient concerns whether wealth declines at older ages. A principal implication of the life-cycle model is that households will eventually dissave during the postretirement period as their consumption exceeds their income.
Whether this is in fact the case is much in dispute, in part because of the small samples at this phase of the life cycle and the existence of other contaminating factors, including across-cohort increases in wealth and differential mortality by wealth. There is no dispute that just before and during retirement, the general pattern of extreme heterogeneity in wealth holdings continues to apply, with many households having almost no household wealth. This generalization is even more accurate with regard to financial assets.
To what extent can income disparities account for these large wealth disparities? Household income and wealth as well as all key components of wealth are strongly positively related, albeit in a highly nonlinear way. Financial assets and total net worth all increase at a more rapid rate than income as one moves from lower-income to higher-income households.
Net worth doubles between the 5th and 7th income deciles, doubles again between the 7th and 9th income deciles, and almost doubles once more between the 9th and 10th deciles. Households in the highest-income decile have six times the wealth of the median average-income household and almost times as much wealth as those households in the lowest average-income decile.
The increases in income across deciles are considerably smaller.
The Racial Wealth Gap: Why A Typical White Household Has 16 Times The Wealth Of A Black One
Yet it is easy to overemphasize the importance of income in determining household savings behavior and wealth. While not as frequently discussed, the diversity in wealth holdings even among households with similar incomes is enormous. The within-income diversity of wealth holdings holds true even among households in the lowest-income decile.
For a number of reasons, much less is currently known about motives and patterns of wealth accumulation in western Europe than in the United States. One reason is that European countries have lagged behind the United States in the collection of good household wealth data within their better household surveys. Fortunately, this situation is now changing rapidly in many but not all European countries. The panel took advantage of this positive development by encouraging new research on patterns of wealth accumulation and savings in several European countries.
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