Deconstructing Household Wealth Trends in the United States, 1983 - 2013
I use the Survey of Consumer Finances (SCF) to analyze wealth trends from 1983 to 2013. Asset prices plunged between 2007 and 2010 but then rebounded from 2010 to 2013. Median wealth plummeted by 44 percent over years 2007 to 2010 and wealth inequality was up sharply. These two movements can be traced to the high leverage of middle class families, the high share of homes in their portfolio, and the drop in house prices. There was virtually no change in median wealth and wealth inequality from 2010 to 2013 according to the SCF despite the recovery in asset prices. A decomposition analysis based on “pseudo-panels” indicates that for the middle three wealth quintiles, capital revaluation explained virtually all of the change in simulated mean wealth over the 1983-1989, 1989-2001, 2001-2007, 2007-2010, and 2010-2013 periods, and implicit savings were negative. Trends in inequality as measured by the change in the P99/P2080 ratio largely reflected differences in rates of return and savings rates between the top one percent and the middle three wealth quintiles. Over 1983-1989, the higher savings rate of the top group explained all the increase. Over 1989-2001, 2001-2007, and 2010-2013, their higher savings rate led to an increase in the P99/P2080 ratio but this was offset by the higher rate of return of the middle group, which lowered inequality. Over years 2007-2010, both the higher savings rate of the top group and their higher rate of return contributed about equally to the rise in the P99/P2080 ratio.
I would like to express my appreciation to the Institute of New Economic thinking (INET) for financial support. An earlier version of this paper was presented at the IARIW 34th General Conference, Dresden, Germany, August 21-27, 2016. I would like to thank Andrew Sharpe for his excellent comments. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.