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Wealth Inequality: It’s Not Clear What It Means

The NYT had a column by Christina Gibson-Davis and Christine Percheski telling readers that wealth inequality had grown much more among families with children than among the elderly. While there is little doubt that inequality has increased hugely over the last three decades (they look at the period from 1989 to 2013), with the implications they describe for inter-generational mobility, there are serious problems with their use of wealth.

First, it is important to note that while the authors’ research shows a much larger increase in inequality among families with children than the elderly, they still find that the top one percent of elderly households has more than twice the wealth of the top one percent of households with children. The next 9 percent of the elderly households actually saw a considerably more rapid percentage increase in wealth over this period than was the case for the next 9 percent of the distribution for families with children.

While the bottom 50 percent of the elderly distribution look to be in much better shape in terms of their wealth than the bottom 50 percent of the distribution for families with children (median wealth of $46,020 for the elderly, an inflation-adjusted gain of 70 percent, compared with debt of $233 for families with children) on closer analysis this is much less clear. An elderly household was far more likely to have some income from a defined benefit pension in 1989 than in 2013. They were also more likely to have retiree health benefits. Furthermore, the amount of health care spending not covered by Medicare would be much higher in 2013 than in 1989. In addition, Social Security benefits are lower relative to workers’ wages in 2013 than was the case in 1989. When these factors are taken into account (we would take the discounted value of these benefit reductions), it is not obvious that the median elderly household would have more wealth in 2013 than in 1989.

Wealth is also a problematic measure for families with children. The families at the bottom by this measure are likely to be recent graduates of elite programs like Harvard business school. These families would have borrowed heavily to earn their degrees, but would not have much work experience to pay off their debt and accumulate assets. Many recent college grads would also have negative wealth. While some of these people will face serious problems paying back their debt, most will have much higher paying jobs than non-college educated members of their cohorts and have much better life prospects.

Also, since there is a huge age aspect to wealth (on average, people have much more wealth in their 40s than in the 20s or 30s) the fact that many people are having children at an older age is likely to be a huge contributor to wealth inequality among families with children. This would especially be the case if more educated families tend to be the ones having children at older ages.

None of this should be taken to minimize the problem of inequality or the difficulties that children from low and moderate income families face in obtaining a decent education and in their subsequent careers. However, trends in wealth inequality are probably not a very good way to access these difficulties.

This article originally appeared on Beat the Press.

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

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