Working class and African Americans families suffered disproportionately in the Great Recession, says a new study by economists at the progressive-leaning Economic Policy Institute.
According to the report, the distribution of wealth in America after the official end of the recession in 2009 was the most unequal it's ever been. The wealthiest 1 percent of U.S. households claimed a net worth that was 225 times greater than that of the median household, which fell to $62,000 in 2009 from $71,900 in 1983 (in 2009 dollars). The wealth of the richest one percent of households, meanwhile, doubled over that 26-year period.
During the recession, which officially lasted from December 2007 to June 2009, EPI estimates that the richest fifth of Americans lost 16 percent of their wealth, compared with a 25 percent decline in net worth for the bottom four-fifths of U.S. households. At the end of 2009, the wealthiest fifth of Americans held 87.2 percent of the country's total wealth -- up 2.2 percentage points from 2007 due to larger drops in wealth by those at the bottom.
"The recovery has proceeded on two tracks," the report says. "[O]ne for typical families and workers, who continue to struggle against high rates of unemployment and continued foreclosures, and another track for the investor class and the wealthy, who have enjoyed significant gains in the stock market and benefited from record corporate profits."
For African Americans, the damage was significantly worse: while a quarter of U.S. households held zero or negative net worth at the end of the recession, approximately 40 percent of black households landed in that category. The study found that the median net worth of black households was only $2,200 in 2009--the lowest in history--compared to a $97,900 median for white households. And average black wealth declined by 37 percent from 2007 to 2009, while white wealth declined by 28 percent during the same period.
Josh Bivens, an EPI economist, said the fact that lower-income Americans and black households hold a majority of their wealth in the form of housing accounts for the disparity.
"Housing wealth is more equally distributed than other kinds of wealth, like stock market wealth, and this recession was accompanied by a massive burst in housing prices," he said, "so it hit families the hardest who had a higher proportion of their in wealth in housing. Wealthier families were able to recover as the stock market clawed its way back in 2009, but the housing prices are continuing to fall."
That helps explain why the 400 richest people in America collectively possess a greater net worth than the poorest 50 percent of all households combined.
The wealth gap is likely to widen in the next few years as housing prices continue to fall, Bivens said, and lawmakers should consider the larger ramifications of the crisis as they debate cutting programs like Social Security.
"We have this cohort of Baby Boomers about to retire who just had their predominant form of wealth erased, and we're gonna talk about cutting Social Security?" he said. "You can't have that policy discussion and not talk about what the bursting housing bubble has done to hurt near-retirees."
A household's wealth is measured by the difference between its total assets, such as bank accounts, real estate, stock holdings, and its total liabilities, such as mortgages and credit card debts.