Four years after the Great Recession ended and the recovery began, millions of Americans continue to struggle with high unemployment, low labor force participation and stagnant wage growth. But according to a new report from inequality researchers Emmanuel Saez and Thomas Piketty, life at the top of the income distribution has rarely been better.
Last year, the richest 1 percent of households took home nearly a quarter (22.5 percent) of every dollar earned in the United States—a larger percentage of the economic pie than at any other time since before the stock market crash of 1929 or the financial crisis in 2007–2008.
Even more shocking is the fact that, for the first time ever, the top 10 percent earned more than half (50.4 percent) of the total national income—the highest recorded level of inequality since the government began taxing income in 1913.
Such an incredible increase in inequality comes after years in which nearly every dollar in income growth went to only the wealthiest Americans.
According to the latest data, incomes for the richest 1 percent of households soared 31.4 percent between 2009 and 2012—equal to 95 percent of all new income gains. Only 5 percent of growth went to the bottom 99 percent of earners, whose incomes increased just 0.4 percent.
Those numbers, updated last week, confirm the current recovery has been the weakest and the most unequal in living memory—a fact made even more remarkable considering the previous two economic expansions under former presidents Clinton and George W. Bush were far from egalitarian. From 1993 to 2000, real incomes for the top 1 percent grew five times faster than the bottom 99 percent; from 2002 to 2007, they grew nine times faster.
Income inequality decreased slightly in the immediate aftermath of the Great Recession as stocks fell, leading some to speculate inequality had peaked and the financial crisis had “fixed” the problem. In fact, the opposite happened. Because low- and middle-income families invested heavily in housing in the years before the crisis (real estate is typically the largest single investment among the middle class), the average American was hit particularly hard by the housing boom and bust cycle.
Households in the bottom four-fifths of the wealth distribution experienced a catastrophic decline in net worth of 39.1 percent between 2007 and 2010. The top 20 percent, who typically hold more of their wealth in stocks and other financial securities, lost just 14 percent of their net worth.
Since 2010, the stock market has rallied to record highs, while housing prices didn't hit bottom until 2012. As a result, much of the inequality of the post-2009 recovery has been driven by massive increases in capital gains for the richest ten percent, generating both higher net worth and higher incomes from sales of stock and dividend payments. (The richest ten percent of households are estimated to own 80 percent of all stocks and mutual funds.)
The bottom 90 percent, meanwhile, reduced their discretionary incomes dramatically in order to pay down mortgage and credit card debt.
The latest data from Saez and Piketty are preliminary, and only go through 2012. But given current trends, there is no reason to think this year will be any different. The stock market is soaring, and corporate profits have never been higher. The share of national income going to labor continues to fall, while the returns to capital grow ever larger. High unemployment has undermined workers' ability to bargain, and employers have taken advantage of their weakened position to cut hours and benefits.
Professors Saez and Piketty will update their data again in January, when more complete statistics become available. Until then, there is little reason to doubt that 2013 will be the most unequal year in United States history.