The Rich Get Richer

By Wolff, Edward N. | The American Prospect, February 12, 2001 | Go to article overview

The Rich Get Richer


Wolff, Edward N., The American Prospect


And Why the Poor Don't

A newcomer to the United States, after reading the newspaper or watching television for a few days, might conclude that every family in America was huddled around their computers, watching their stocks and mutual funds rise and fall. Even the gloomier news reports of recent weeks ("How to Survive the Slump" blared a recent Time magazine cover) take for granted the triumph of a "people's capitalism"--the idea that the rising stock market of the 1990s lifted all ships--and imply that the average American's main concern as the economy lands is waiting out a temporary contraction in his or her technology portfolio.

The reality, as any regular American Prospect reader well knows, is quite otherwise: Most American families have seen their level of well-being stagnate over the last quarter-century--and that's even before the current economic slowdown. Between 1973 and 1998, the real hourly wages of the average American worker fell by 9 percent. (This contrasts with the preceding quarter-century, 1947 to 1973, when real wages grew by 75 percent). Indeed, in 1998 the average inflation-adjusted hourly wage was about the same as in 1967. As workers' wages have stagnated, economic inequality has worsened. In 1974 the richest 5 percent of American families earned 14.8 percent of total U.S. income; by 1998 their share had risen to 20.7 percent.

But if everyone now owns stocks, shouldn't inequality in wage income have been offset by the market gains of the last 10 years? Not at all. In fact, when both wealth and income are taken into account, the growth in inequality becomes worse. While it is true that the share of households that own stock either outright or indirectly through mutual funds, trusts, or various pension accounts has risen from about 24 percent in 1983 to 48 percent in 1998 (see table 1), much of the increase was fueled by the growth in pension accounts such as IRAs, Keogh plans, and 401 (k) accounts. Indeed, while direct stock ownership declined somewhat between 1983 and 1989, probably as a result of the 1987 stock market plunge, the share of households with pension accounts nearly doubled, from 11 to 23 percent, thus accounting for the overall increase in stock ownership during that period. Between 1989 and 1998, the direct ownership of stocks grew by only 6 percent, while the share of households with a pension account again doubled, thereby accounting for the bulk of the overall increase in stock ownership.

Table 1. Distribution of U.S. Households That Own Stock

Value of Holdings     1983    1989    1992    1995    1998

Any amount            24.4%   31.7%   37.2%   40.4%   48.2%

Stock worth $5,000+   14.5    22.6    27.3    29.5    36.3

Stock worth           10.8    18.5    21.8    23.9    31.8
$10,000+(*)

NOTE: Stock holdings include directly owned stock and shares owned indirectly through mutual funds, trusts, and retirement accounts. Data from the U.S. Bureau of the Census.

(*) In 1995 dollars.

Despite the overall gains in stock ownership, fewer than half of all U.S. households had any stake in the stock market by 1998--and many of those had only a minor stake. In 1998, while 48 percent of households owned some stock, only 36 percent had total stock holdings worth $5,000 or more and only 32 percent owned stock worth $10,000 or more. Moreover, the top 1 percent of households accounted for 42 percent of the value of all stock owned in the United States; the top 5 percent accounted for about two-thirds; the top 10 percent for more than three-quarters; and the top 20 percent for almost 90 percent (see table 2).

Table 2. Concentration of Stock Ownership by U.S. Wealth Class, 1998

                      VALUE OF            NATIONAL SHARE OF
                   STOCK HOLDINGS          ALL STOCK OWNED

Wealth       Any      $5,000    $10,000            Cumulative
Class        Amount   or More   or More   Total      Total

Top 1         93. … 

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