A December 17th report from the Pew Research Center highlights that the wealth gap between America’s highest income segment and the of the country has reached record high levels. Furthermore, the data show a clear future trajectory of increasing wealth for the upper-income families and a lack of wealth growth for the middle- and low-income families.
Details on the growing US wealth gap
The Pew Research report notes that the median wealth of the nation’s upper-income families at $639,400 was seven times the median wealth of middle-income families at $96,500, representing the widest wealth gap ever seen in the more than three decades the Federal Reserve has been collecting these data.
In this case, wealth is defined as the difference between the value of a family’s assets (financial assets as well as home, car and businesses) and all debts. Wealth is considered an important part of household well-being because it can be used to sustain consumption during emergencies such as job layoffs, as well as offer income for retirement. The Pew data also illustrate a growing gap in wealth along racial and ethnic lines, especially since the recession ended in 2010.
The Fed data show that upper-income families are well on their way to regaining much of the wealth they lost during the Great Recession, while middle-income families are stuck in a rut. The median wealth among upper-income families increased from $595,300 in 2010 to $639,400 in 2013 (2013 dollars). On the other hand, the wealth of middle-income families remained at about $96,500 over the same three years.
This means the wealth gap between upper-income and middle-income families has actually increased during the recovery. According to the Fed data, the median wealth of upper-income families was 6.2 times the median wealth of middle-income families in 2010. However, by 2013, that wealth ratio had mushroomed to 6.6 times.
Pew report methodology
The Pew analysis categorized families by household income after adjusting incomes for family size. Middle-income families are defined as those families whose size-adjusted income lies between between two-thirds and twice the median size-adjusted income. Low-income families are those with a size-adjusted household income less than two-thirds the median, and upper-income families are defined as those with more than twice the median.
Using this methodology, 46% of America’s families are classified as middle income in 2013. Just over one-third of families were lower income and 21% were upper income. In 2013, a household income of $38,100 was categorized as middle income for a three-member family and $114,300 or greater qualified as upper income, which some especially in the New York area may find dubious.