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Wednesday, February 20, 2013

Wealth Inequality in America: Young versus Old


We have a problem of inequality of wealth distribution in America, and the problem is increasing.  The issue is not simply that the wealthiest 1% control too much wealth; rather, the problem is the distribution of wealth between the young and the old.   In a variety of ways, the young are suffering financially compared to previous generations.  Young people have less wealth, earn lower wages, pay higher taxes, and face higher education costs and higher unemployment than the previous generation.  Furthermore, the young will inherit the government debt incurred by their parents.  In this context, 22 percent of American children are growing up in poverty, defined as family income providing less than half of basic necessities.  Forty-five percent of American children are growing up in low-income households.

In America, it has always been expected that each generation would provide a better life for the next generation.  In our time, we have failed.
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Let’s look at the distribution of household wealth in America. 
Wealth in America is concentrated among the middle-aged and elderly.  Eighty-nine percent of national wealth is held in families aged 45 and over.  Families under the age of 35, raising young children, hold less than 3% of American wealth.  
Young families did not begin the decade with a lot of wealth.   Median family wealth for families under 35 hit a peak at $16,000 in 2004, but declined to $9300 by the end of the decade.
Most of America suffered financial losses through the Great Recession.  But young families suffered the most severe decline in net worth.  Changes in Median household wealth, representing typical families, are shown in the chart below.  Household wealth was reported in constant 2010 dollars, adjusted for inflation.

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Wages and salaries have been in a relative decline since the 1960s, as a greater share of GDP has accrued to owners of capital, and a smaller share accrued to workers.   As we saw earlier, financial assets are concentrated in the middle-aged and elderly, who are receiving a larger share of GDP, while the working youth are receiving a smaller share.  The following chart shows wages and salaries as a percentage of GDP, in constant 2005 dollars.
Wages and salaries also declined disproportionately for the young in the last decade.


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I hope to add to this post in the coming days and weeks.
Further considerations are the distribution of income, payroll taxes supporting the elderly, unemployment and the cost of education.
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References:
Survey of Household Net Worth


US Census Statistical Abstract

US Census Bureau Publication:  Income, Expenditures, Poverty and Wealth

22 percent of children are in households beneath the poverty level, defined as $23,000 income for a family of four, or less than half of what is needed to meet basic expenses.   45 percent of children are living in low-income households.

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