Academic journal article Review - Federal Reserve Bank of St. Louis

Wealth and Its Distribution, 1983-1992: Secular Growth, Cyclical Stability

Academic journal article Review - Federal Reserve Bank of St. Louis

Wealth and Its Distribution, 1983-1992: Secular Growth, Cyclical Stability

Article excerpt

This article describes the changes in the distribution of wealth among U.S. households that occurred between 1983 and 1992, a period that very nearly coincides with the most recent business cycle. The article extends a previous one, which discussed changes between 1983 and 1989, the expansionary phase of the cycle (Weicher, 1995). The distribution of wealth has received extended popular attention recently, based on reports that it became markedly more unequal during the economic expansion of the 1980s.1 My previous article showed that this conclusion depends on technical issues about which statisticians and analysts disagree, and that the apparent changes in the distribution of wealth do not pass conventional tests of statistical significance in most cases. With the availability of new data for 1992, it is now possible to compare the experience during the expansion with the changes during the subsequent recession and, for the first time, to analyze changes over a business cycle with a consistent data series.

The additional data indicate that concerns over the purportedly increasing concentration of wealth were unnecessary. Even if the distribution did indeed become more unequal during the expansionary phase of the cycle, that change was fully reversed during the subsequent recessionary period. The distribution was about the same in 1992 as it was in 1983-or for that matter as it was in 1962. The degree of concentration has fluctuated since the end of World War II, and the measures for the latest cycle generally fall within the postwar range, although the data come from a variety of sources of varying quality and are available only at irregular intervals of a few years.

While the distribution was stable, total wealth and wealth per household increased over the cycle, so that it is appropriate to conclude that rich and poor households enjoyed a more or less equal gain, in percentage terms.

These findings are likely to be surprising. The notion that the distribution of wealth has become more concentrated has seemed plausible to many economists and many laymen. They note the rapid rise in the stock market and the fact that stocks are mainly held by well-to-do individuals, and they also note that income inequality has been steadily increasing. This article investigates these hypotheses and finds that they are incomplete. By itself, the rise in the stock market would have contributed to an increase in inequality, but it was offset by increases in the value of other assets that are widely held by middle-income households, especially equity in owner-occupied homes. Income and wealth are indeed correlated, but the correlation weakened between 1983 and 1992, and high-income households had less wealth for any given income level in the later year.

In this article I suggest the hypothesis that the distribution of wealth has a cyclical pattern. The article, of course, provides evidence on only one business cycle, and the limited evidence for earlier periods partly supports and partly is inconsistent with this hypothesis.

THE SURVEY OF CONSUMER FINANCES

The data source is the Federal Reserve Board's Survey of Consumer Finances (SCF). This is one of the few sources of information on household wealth that reports asset and liability holdings of individual households for a sample of the entire population on a consistent basis over time. The most recent available surveys that are useful for analysis of the distribution of wealth are those for 1983, 1989, and 1992. These dates approximate to the turning points of the business cycle. The trough is dated as November 1982; the 1983 SCF was conducted between February and August 1983, and half the interviews had been conducted by April. The peak occurred in July 1990; the 1989 SCF was conducted between August 1989 and March 1990. The next trough occurred in March 1991; the 1992 SCF was conducted between June and November 1992. Thus the 1983 and 1989 surveys cover a period slightly shorter than the economic expansion, by about six months at either end, while the 1989 and 1992 surveys cover the last few months of the expansion, the succeeding recession, and the first 18 months of the next expansion. …

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