essay on wealth inequality

Sources of U.S. Wealth Inequality: Past, Present, and Future

Hubmer, Joachim, Per Krusell, and Anthony A. Smith, Jr. 2021. "Sources of U.S. Wealth Inequality: Past, Present, and Future."  NBER Macroeconomics Annual 2020  35.

This paper employs a benchmark heterogeneous-agent macroeconomic model to examine a number of plausible drivers of the rise in wealth inequality in the US over the last forty years. We find that the significant drop in tax progressivity starting in the late 1970s is the most important driver of the increase in wealth inequality since then. The sharp observed increases in earnings inequality and the falling labor share over the recent decades fall far short of accounting for the data. The model can also account for the dynamics of wealth inequality over the period—in particular the observed U-shape—and here the observed variations in asset returns are key. Returns on assets matter because portfolios of households differ systematically both across and within wealth groups, a feature in our model that also helps us to match, quantitatively, a key long-run feature of wealth and earnings distributions: the former is much more highly concentrated than the latter.

Featured Topics

Featured series.

A series of random questions answered by Harvard experts.

Explore the Gazette

Read the latest.

Key to negotiated peace in Ukraine? Having the West keep Russia honest.

World appears on track for even more dangerous Cold War 2.0

Outside of the U.S., how do leaders view Harris and Trump?

Racial wealth gap may be a key to other inequities.

Illustration by Gary Waters

Harvard Staff Writer

A look at how and why we got there and what we can do about it

“Unequal” is a series highlighting the work of Harvard faculty, staff, students, alumni, and researchers on issues of race and inequality across the U.S. This part looks at the racial wealth gap in America.

The wealth gap between Black and white Americans has been persistent and extreme. It represents, scholars say, the accumulated effects of four centuries of institutional and systemic racism and bears major responsibility for disparities in income, health, education, and opportunity that continue to this day.

Consider that right now the net wealth of a typical Black family in America is around one-tenth that of a white family. A 2018 analysis of U.S. incomes and wealth written by economists Moritz Kuhn, Moritz Schularick, and Ulrike I. Steins and published by the Federal Reserve Bank of Minneapolis concluded, “The historical data also reveal that no progress has been made in reducing income and wealth inequalities between black and white households over the past 70 years.”

It’s no surprise. After the end of slavery and the failed Reconstruction, Jim Crow laws, which existed till the late 1960s, virtually ensured that Black Americans in the South would not be able to accumulate or to pass on wealth. And through the Great Migration and after, African Americans faced employment, housing, and educational discrimination across the country. After World War II many white veterans were able to take advantage of programs like the GI Bill to buy homes — the largest asset held by most American families — with low-interest loans, but lenders often unfairly turned down Black applicants, shutting those vets out of the benefit. (As of the end of 2020 the homeownership rate for Black families stood at about 44 percent, compared with 75 percent for white families, according to the Census Bureau.) Redlining — typically the systemic denial of loans or insurance in predominantly minority areas — held down property values and hampered African American families’ ability to live where they chose.

The 2020 pandemic and its economic fallout had a disproportionate toll on people of color, and many expect that it will widen the gap in various areas, including wealth. At Harvard, experts from different disciplines are studying the problem to find its roots and possible ways to level the playing field to ensure all have an equal chance to achieve the American dream. Here we will take a look at a few, several of which focus on education as a long-term path out.

A history older than the nation

Khalil Muhammad , Ford Foundation Professor of History, Race, and Public Policy at the Harvard Kennedy School, traces the roots of disparity to the Colonial period, when the European settlement and conquest of North America took place.

The process began in the second half of the 17th century, said Muhammad, when European settlers stripped Natives of their lands and used Africans as enslaved labor, preventing them from fully participating in the economy and reaping the fruits of their work.

“If we want to undo the cultural infrastructure that is hand in glove with the economic and political racism and domination of people, we have to start very young,” says Khalil Muhammad of the Kennedy School and Harvard Radcliffe Institute.

Photo by Martha Stewart

“The two dominant non-European populations, Indigenous and Africans, were subjected to various coercive forms of labor that would be distinct from the experience of indentured European servants,” said Muhammad, who is also the Suzanne Young Murray Professor at the Harvard Radcliffe Institute . “And as such, racism became an economic imperative to harness land and labor for the purpose of wealth creation, and that did not change in any substantial way until really about the 1960s.”

In fact the founders discovered that the issues of Black slavery and equality were so divisive that they opted to kick the can down the road, hoping some future generation would prove wiser or better.

With the Voting Rights Act of 1965, a crowning achievement of the Civil Rights Movement, African Americans finally gained full citizenship. Many believed that would end the era of Black inequality, but it did not, said Muhammad, because that thinking failed to account for how deeply systemic the problem had become.

Such misconceptions have tended to make it difficult to gain widespread public support for the implementation of policies to close the disparities between Blacks and whites. That’s why it’s important to institutionalize anti-racist practices and policies in civil society and government, said Muhammad, as well to better enforce anti-discrimination laws and investment in schools in low-income neighborhoods. But he also believes a “massive commitment to anti-bias education” starting in kindergarten is necessary.

“If we want to undo the cultural infrastructure that is hand in glove with the economic and political racism and domination of people, we have to start very young,” said Muhammad. “Anti-bias education is a social vaccine to vaccinate our children against the disease of racism. Imagine what the world would look like in a generation.”

A legacy that benefits some and hurts others

Over the past decades, many scholars have examined the Black-white gap in household wealth. But it was in 1995 that sociologists Thomas Shapiro and Melvin Oliver put wealth inequality on the map with their groundbreaking book, “Black Wealth, White Wealth.” Their research analyzed the role of wealth, or accumulated assets, rather than that of income in the persistent racial divide.

“Wealth is distinctive because it can be used as a cushion, and it can be directly passed down across generations,” providing greater opportunity in the present and the future, says Alexandra Killewald, professor of sociology in the Faculty of Arts and Sciences.

Kris Snibbe/Harvard Staff Photographer

“Income is unequal, but wealth is even more unequal,” said  Alexandra Killewald , professor of sociology in the  Faculty of Art and Sciences , who studies inequality in the contemporary U.S.

“You can think of income as   water flowing into your bathtub, whereas wealth is like the water that’s sitting in the bathtub,” she said. “If you have wealth, it can protect you if you lose your job or your house. Wealth is distinctive because it can be used as a cushion, and it can be directly passed down across generations,” providing families more choices and greater opportunity in the present and the future.

Most scholars agree that the legacy of slavery and other subsequent forms of legal discrimination against African Americans have hindered their ability to accumulate wealth. “Today’s African American adults and children are living with the legacy of discrimination, inequality, and exclusion, from slavery to redlining and other discriminatory practices,” said Killewald. “And in turn, white Americans are benefiting from legacies of advantage.”

The typical white American family has roughly 10 times as much wealth as the typical African American family and the typical Latino family. In other words, while the median white household has about $100,000-$200,000 net worth, Blacks and Latinos have $10,000-$20,000 net worth. Depending on the year or how it’s measured, those numbers may change, as shown by a report by the Pew Research Center, but the wealth racial gap has continued for decades . “It’s a staggeringly large number,” said Killewald.

The divide persists across generations, said Killewald, who researched the subject with co-author Fabian Pfeffer of the University of Michigan in an  article  that included striking visualizations. One  of them shows that Black parents tend to have much lower wealth than white parents, and that Black and white children tend to follow the wealth position of their parents, reproducing inequality across generations. The study concludes that “today’s black-white gaps in wealth arise from both the historical disadvantage reflected in the unequal starting position of black and white children and contemporary processes, including continued institutionalized discrimination.”

How inequality affects education

Many scholars consider education to be the key to narrowing the gap, and economist Richard Murnane is one of them.

During the last 40 years, Murnane examined the interactions between the U.S. economy and its educational system and the ways in which it has affected the educational opportunities of low-income children, who are disproportionately Black or Latinx.

“The extraordinary income inequality in the United States diminishes opportunities for low-income families and for children of color,” said Murnane, Juliana W. and William Foss Thompson Research Professor of Education and Society at the Graduate School of Education .

Rising inequality has led to growing gaps in educational resources and learning opportunities between high-income families and their low-income counterparts, as well as residential and educational segregation by income. As a result, inequality poses a danger to the promise that U.S. public education provides children with an equal chance at a better life than their parents.

Unequal distribution of economic growth has played a major role in why children who earn more than their parents has declined sharply in America over the past half century, says Raj Chetty, a professor of economics and co-author of the study “The Fading American Dream: Trends in Absolute Income Mobility Since 1940.”

Stephanie Mitchell/Harvard file photo

“One statement that most everybody across the political spectrum agrees with is that if a child grows up poor, but works hard and takes advantage of opportunities, that child’s children will have a better life,” said Murnane. “That’s less true now.”

A study on the “fading American dream” co-authored by Raj Chetty , William A. Ackman Professor of Economics, and others concluded that “absolute mobility — the fraction of children who earn more than their parents — has declined sharply in America over the past half century primarily because of the growth in inequality.”

Economic mobility rates are lower in the U.S. than in some European countries, and the American dream seems to grow more unreachable as inequality grows. Murnane warns that the government must address the problem as large sectors of the American population sink into despair and frustration.

“A great many people, especially males, have grown up thinking they would take care of their families, and the inability to do that has left them angry, frustrated, and depressed,” said Murnane. “That was what they grew up expecting, and that has not been possible for them. That’s a deep challenge to how people feel about themselves. And that’s a fundamental problem.”

The American dream: Out of reach

Economists Claudia Goldin , Henry Lee Professor of Economics, and Lawrence Katz , Elizabeth Allison Professor of Economics, believe that the solution to reducing income inequality, which is strongly tied to the wealth gap, is to close the educational divide.

Goldin and Katz examined wages and income inequality in the U.S. from the end of the 19th century to the early 21st century in their trailblazing book “The Race Between Education and Technology.”

What they found was that in periods where there was improved access to education amid technological change, as in the early 1900s when public high schools sprouted across the nation amid the Industrial Age, workers’ earnings rose. Inequality began to grow in the 1980s as the economy started to shift toward knowledge-based industries and the supply of highly trained workers fell below demand.

Expanding access to higher education could actually help reduce inequality, say economists Claudia Goldin and Lawrence Katz.

File photos by Rose Lincoln and Kris Snibbe/Harvard Staff Photographers

Around that time, the rates of college graduation began to decrease and overall high school graduation numbers leveled off. For Goldin and Katz, expanding access to higher education could actually help reduce inequality.

“You could wipe out a large fraction of inequality by ramping up the education of individuals who are limited in their ability to access and finish a college education,” said Goldin.

The problem of wealth inequality is more extreme than income inequality since the former builds on the latter, said Katz, and their effects persists across generations. The legacies of the Jim Crow era and racism against Blacks are expressed today in residential segregation, housing discrimination, and discrimination in the labor market.

For Katz, who has been studying housing discrimination and its effects on upward mobility, public policies can be implemented to reduce residential segregation. A study Katz co-authored with Chetty and Nathaniel Hendren , professor of economics, found that when low-income families move to lower-poverty neighborhoods, with help of housing vouchers and assistance, it is “likely to reduce the persistence of poverty across generations.” Chetty and Hendren, along with John Friedman of Brown University, were the co-founding directors of the Equality of Opportunity Project, now expanded and called Opportunity Insights, based at Harvard.

Growing inequality is spoiling the chances to have a better life than the previous generation. Recent numbers show that the top 1 percent has seen their wages grow by 157 percent over the last four decades, while the wages of the bottom 90 percent grew by only 24 percent.

Inequality is one of the factors keeping the American dream out of reach, said Goldin.

“The American dream has sort of shifted from one in which the economic growth of the nation was shared more across the income distribution, where the growth rate of the income of those at the bottom quartile was about the same, if not more, than the growth at the top quartile,” said Goldin. “And today it’s not that way at all: the bottom quartile isn’t going anywhere and the top is going rapidly up.”

To keep the American dream alive and return to the era of shared prosperity, the government must act, said Katz. Both Goldin and Katz believe that an expansion of investment in higher education infrastructure and access to a high-quality college education would have a powerful impact in the lives of many Americans. It could be similar to the effects of the high school movement, which lifted millions of American families out of poverty during the first half of the 20th century.

“In the early 20th century, we allowed everyone access to high school,” said Katz. “We have never done that for college, even though college is as essential today as high school was 100 years ago.”

Additional benefits of higher education

The economic returns of a college degree are important, but the social returns are also valuable, said Anthony Jack , assistant professor of education at the Graduate School of Education.

“Workers who are more educated tend to be in jobs that are more recession- and pandemic- proof,” said Jack, who also holds the Shutzer Assistant Professorships at the Radcliffe Institute. “They also tend to live longer, have better health outcomes, and be more civically engaged. Education means more than just extra dollars in the bank. It’s also the constellation of things that come along with it.”

But the road to college has become increasingly harder, especially for low-income people, even though access to college for disadvantaged students has increased over the past two decades. A report by the Pew Research Center found that the number of enrolled undergraduates from lower-income backgrounds grew from 12 percent in 1996 to 20 percent in 2016. Most of that growth has taken place in public two-year colleges and less-selective institutions.

“Education may be the great equalizer, but access to an equal education has never been part of the American story,” says Anthony Jack, assistant professor of education at the Graduate School of Education.

Selective universities have also opened their gates to poor students, however. In 1998, Princeton became the first Ivy League university to offer full financial aid to low-income students, and others followed suit. At Harvard, 55 percent of undergraduates receive need-based scholarships, and the 20 percent of Harvard parents who have total incomes below $65,000 don’t pay anything at all.

Still, access to college “varies greatly by parent income,” according to a study by Opportunity Insights. Children with parents in the top 1 percent are 77 times more likely to attend elite colleges and universities than children with parents in the bottom 20 percent.

To Jack, those numbers showcase that access to college is highly unequal and is influenced by income, race, wealth, and ZIP code. “Education may be the great equalizer, but access to an equal education has never been part of the American story,” he said. “Higher education is highly stratified. The wealthier the family, the higher the likelihood that students will enter a selective college. The inequality doesn’t end there. What happens if you are one of the few low-income students who make it into these elite schools?”

For Jack, that is not a rhetorical question. The middle son of a single mother who worked as a school security guard, Jack rose from a working-class neighborhood in Coconut Grove, Fla., to attend Amherst College, with the help of financial aid. He then came to Harvard, where he graduated with a doctorate in sociology in 2016. Two years later, Jack wrote the book “The Privileged Poor: How Elite Colleges are Failing Disadvantaged Students” about what it’s like to be a low-income student in selective universities, partly inspired by his own life.

Elite universities have made progress in recruiting more low-income students to their campuses, but there is much more work to be done to ensure that those students use their four years there as a springboard to a better future the same way their richer counterparts do, said Jack.

“The real question is not only how to increase access to colleges and universities,” said Jack. “We must pay attention to what happens once those low-income students move into campus, because that’s where inequality gets reproduced in ways that are sometimes invisible but no less insidious.”  

A Marshall Plan for higher education

  So if greater access to public higher education would help close the wealth gap, what we need is a kind of Marshall Plan to fix the system, says economist David J. Deming , professor of public policy and director of the Malcolm Wiener Center for Social Policy at Harvard Kennedy School .

That U.S. government initiative helped rebuild infrastructure and economy in Europe after the destruction of World War II. Deming’s ambitious proposal would likewise focus resources on overhauling and expanding the size and number of two- and four-year public institutions, with a goal of making access to college virtually universal.

“We ought to set a goal of increasing access to higher education for low-income students and students of color, to basically equalize education opportunity,” said Deming. “We need to invest in public higher education because it actually would make a difference in terms of intergenerational mobility.”

For one, public higher education is where most of the nation’s post-secondary schooling takes place. A report by the National Center for Education Statistics found that of the 19.7 million college students enrolled in the fall of 2019, 14.5 million attended public colleges and universities compared with 5.1 million enrolled in private institutions.

David J. Deming’s vision involves far-reaching investment across two-year colleges and four-year universities.

Kris Snibbw/Harvard file photo

The number of students enrolled in post-secondary education has skyrocketed over the past five decades. The report predicted that by the fall of 2029, more than 20 million students will be enrolled in college. Of them, nearly 15 million will attend public institutions.

Deming’s vision would involve far-reaching investment across two-year colleges and four-year universities, many of which have been historically underfunded and understaffed. Instructors are often adjunct faculty who teach large classes and have high course loads, and many institutions lack tutoring and counseling services to help less-prepared students navigate through college.

In terms of investment per student, the scale of inequality in resources is much greater in higher education than it is at the K-12 level. As an example, Deming points out that a rich school district might spend 20 percent more per student than a poor school district, whereas Harvard spends more than $100,000 per year per student, and Bunker Hill Community College spends about $10,000 or $15,000 per year per student.

“Just purely in terms of dollars and cents, the disparity is much, much greater at the higher education level,” said Deming.

Investing in higher public education won’t solve all the myriad problems that affect inequality, such as the declining minimum wage and discrimination in the labor market, among others. But it would be a big first step, he said.

Share this article

You might like.

Former defense minister says U.S., allies need to continue financial, arms aid, remove curbs on missiles to bring Putin to table

Pulitzer winner warns China, which is building nuclear arsenal, would be third major player besides U.S., Russia — and six other nations now have bombs, too.

Weatherhead panelists offer insights on geopolitical stakes of presidential election

What happened when a meteorite the size of four Mount Everests hit Earth? 

Giant impact had silver lining for life, according to new study

Does academic writing have to be boring?

English professor, journalist says first step to better prose is being aware that no one has to read you

How to fight depression? Faster.

Hope flags when medications fail, isolating and endangering patients. Backed by a major grant, 2 Harvard scientists are focused on reducing the distance between diagnosis and recovery.

What Wealth Inequality in America Looks Like: Key Facts & Figures

For an updated analysis of wealth inequality in the U.S.,  see  U.S. Wealth Inequality: Gaps Remain Despite Widespread Wealth Gains , which was published Feb. 7, 2024.

The following charts help to illustrate the state of wealth inequality in America.

The St. Louis Fed’s Center for Household Financial Stability looks at the relationship between wealth and different demographic characteristics: race or ethnicity, education, and age or birth year. We believe this demographic lens is more informative than looking at wealth by income bands, because while income can (and frequently does) change from year to year, demographics are more stable.

We find that families who are thriving tend to be white, college-educated and/or older. We find that families who are struggling tend to have one or more of these characteristics: black or Hispanic; no four-year college degree; and/or younger.

We also find that many families across the board are striving for more economic security.

Using data from the Federal Reserve Board’s Survey of Consumer Finances, we discuss trends in a series of charts and discuss pathways toward building that security. Dollar values in all figures and text are adjusted with the Consumer Price Index for All Urban Consumers (CPI-U) to 2016 dollars (i.e., inflation-adjusted to represent comparable values or “real terms”).

1) Income inequality has grown.

Income is a fairly common indicator of financial well-being. Let’s examine how income inequality has changed from 1989 to 2016, the earliest and latest years for which Survey of Consumer Finances data are available.

Notes: Totals may not equal 100% due to rounding.

Sources: Federal Reserve Board’s Survey of Consumer Finances and authors’ calculations.

Description: This figure includes two pie charts. The chart on the left shows the 1989 share of total pre-tax income for the bottom 50% of income earners, the middle 50% to 90%, and the top 10% of income earners. The values are 15% share, 42% share and 42% share, respectively. The right pie chart shows the 2016 shares of those same groups: a 13% share for the bottom 50% of income earners; a 37% share for the middle group; and a 50% share for the top 10% of income earners.

The charts above show different groups of U.S. income earners:

• The bottom 50% — In 2016, households in the 0-50 th percentiles had incomes of $0 to $53,000.
• The middle 50%-90% — These households had incomes between $53,000 and $176,000.
• The top 10% — Households in the 90 th percentile had incomes of $176,000 or above.

Consider that the U.S. has a total “income pie.” Think of it as all of the pre-tax household income combined—including wages, interest, capital gains, food stamps, Social Security and all other sources of income.

That pie was worth $7.12 trillion in 1989 and grew to be worth $12.88 trillion in 2016.

How has each group’s share of the pie changed over the past three decades? The bottom 50% and middle 50%-90% of income earners have slightly smaller shares of the pie, while the share of the top 10% has grown to half the pie.

2) Wealth inequality is starker.

Income allows a family to get by; wealth allows a family to get ahead.

A family’s net worth, or wealth, is its assets—things like savings, 401(k)s and real estate—minus its debts—things like mortgages, credit card debt and student loans.

• In 1989, the total household wealth in the U.S. was $32.87 trillion (2016 adjusted dollars).
• In 2016, total U.S. household wealth amounted to $86.87 trillion.

Just like income, we can look at the changing distribution of wealth in the U.S.

Notes: Dollar values are CPI-U adjusted to 2016 dollars and rounded to the nearest $10 billion.

Description: This figure shows the distribution of total U.S. wealth in 1989 and 2016, with the shares of the top 10%, middle 50%-90% and bottom 50% of families ordered by household wealth. In 1989, these shares were 67%, 30% and 3%, respectively. In 2016, the shares were 77%, 22% and 1%, respectively. A callout indicates that roughly 1 in 10 families in 2016 had negative net worth; that’s up from about 7% of families in 1989. The 1989 population was approximately 93 million families, while the 2016 population was approximately 126 million families.

Wealth inequality in America has grown tremendously from 1989 to 2016, to the point where the top 10% of families ranked by household wealth (with at least $1.2 million in net worth) own 77% of the wealth “pie.” The bottom half of families ranked by household wealth (with $97,000 or less in net worth) own only 1% of the pie.

You read that correctly. If we rank everyone according to their family net worth and add up the wealth of the bottom 50%, which includes roughly 63 million families, that sum is only 1% of the total household wealth of the United States.

Moreover, we can compare how average wealth within each group has changed. These are not the same families being compared over time. Each survey year of the Fed’s Survey of Consumer Finances samples new families, and estimates are weighted to be representative of the entire U.S. population.

• In 2016, the average wealth of families in the top 10% was larger than that of families in the same group in 1989.
• The same goes for the average wealth of families in the middle 50 th to 90 th percentiles.
• The average wealth of the bottom 50% however, decreased from about $21,000 to $16,000.

So, even though the total wealth pie grew, this rising economic tide did not lift all boats. On average, the bottom half of Americans are getting left behind.

An additional sign of economic insecurity? In 2016, more than 10% of families had negative net worth, up from about 7% of families in 1989.

3) The racial wealth gap is largely unchanged.

Aggregate trends can mask financial weakness revealed when splitting groups demographically: for example, the racial and ethnic wealth gaps.

Despite some fluctuation, the large racial and ethnic wealth gaps remain essentially unchanged when looking at white/black and white/Hispanic families. (Note that families are grouped by the survey respondent’s primary racial/ethnic choice.)

In 2016, the typical white family had about 10 times the wealth of the typical black family and about 7.5 times the wealth of the typical Hispanic family.

Notes: Dollar values are CPI-U adjusted to 2016 dollars and rounded to the nearest $1,000.

Description: This line chart displays the white/black racial wealth gap from 1989 to 2016. The top horizontal line shows the median (50 th percentile) wealth of white families, which was $134,000 in 1989 and $163,000 in 2016. The bottom horizontal line shows the median (50 th percentile) wealth of black families, which was $8,000 in 1989 and $16,000 in 2016. The tops of the dotted vertical lines indicate the 75 th wealth percentile for black families; notably, these never reach the 50 th wealth percentile of white families.

Notes: Dollar values are CPI-U adjusted to 2016 dollars and rounded to the nearest $1,000. Comparative figures result from using unrounded numbers.

Description: This line chart displays the white/Hispanic ethnicity wealth gap from 1989 to 2016. The top horizontal line shows the median (50 th percentile) wealth of white families, which was $134,000 in 1989 and $163,000 in 2016. The bottom horizontal line shows the median wealth of Hispanic families, which was $10,000 in 1989 and $22,000 in 2016. The tops of the dotted vertical lines indicate the 75 th wealth percentile for Hispanic families; these never reach the 50 th wealth percentile of white families.

By “typical,” we mean a family at the middle or median; in other words, the 50 th percentile of the wealth distribution for that race or ethnicity. This middle wealth value is a useful approximation of the “typical” family’s experience because it is more resistant to extremely high- or low-wealth families than the average.

The figures above show that over a nearly three-decade period, the U.S. has seen very little progress in narrowing racial and ethnic wealth gaps.

In terms of the total wealth pie that we examined earlier—$86.87 trillion in 2016—white families in 2016 owned 89% of it, while black and Hispanic families owned a 3% sliver each.

This is especially troubling given the changing racial makeup of the population. More than 1 in 4 families are headed by a black or Hispanic person, up from 1 in 5 in 1989. Yet their slivers of the economic pie have barely budged, according to our research.

What might be particularly indicative of the magnitude of the racial wealth gap? In no survey year of the Fed’s Survey of Consumer Finances, 1989 to 2016, did the wealth of black or Hispanic families in the 75 th percentile reach the wealth level of white families at the 50 th percentile.

4) The educational wealth gap has grown.

Thirty-four percent of families were headed by someone with at least a four-year college degree in 2016, up from 23% in 1989. This may reflect a growing belief that college helps people get ahead financially.

Indeed, looking at the whole, we find that families with a four-year degree or higher are doing quite well; they had roughly three-quarters of the wealth pie in 2016, up from half in 1989. Four-year college graduates and postgraduates have also seen their median wealth grow in real terms (i.e., after adjusting for inflation).

Description: This line chart displays the educational wealth gap, 1989 to 2016. From top to bottom, the median household wealth values of five educational groups are shown: families headed by someone with a postgraduate degree; a bachelor’s degree; an associate’s degree or certificate; a high school degree or some college (but no degree); and a GED or a high school dropout. In 1989, the median wealth of each group of families was $367,000, $176,000, $94,000, $76,000 and $45,000, respectively. In 2016, the median wealth values were $443,000, $229,000, $93,000, $64,000 and $24,000, respectively. Dollar values are CPI-U adjusted to 2016 dollars and rounded to the nearest $1,000.

On the other end of the spectrum, families with less than a high school degree or at most a GED have about half as much wealth at the median than families with the same education level did in 1989.

The group of families with at most an on-time high school degree (including families with some college experience, but no degree) has also experienced wealth losses at the middle, relative to similar families in earlier survey years.

Meanwhile, the median wealth of families with at most a two-year college degree or certificate has fluctuated, but in 2016 it was very similar to the median wealth of 1989 families headed by someone who’d attained the same level of education.

Taken together, the wealth gap has grown between families who are headed by someone with a four-year degree and families who are not.

5) The generational wealth gap also has widened.

The generational wealth gap has grown, too.

For example, let’s compare a group of younger families headed by 25- to 35-year olds to a group of older families headed by 65- to 75-year olds.

Taking the median, or middle, wealth value of each of those age groups, we see that older families had more than seven times the wealth of younger families in 1989. By 2016, this generational wealth gap had grown: older families had more than 12 times the wealth of younger families.

Notes: Dollar values are CPI-U adjusted to 2016 dollars and are rounded to the nearest $1,000.

Description: This line chart displays the generational wealth gap from 1989 to 2016. The top line shows the median (50 th percentile) household wealth of families headed by 65- to 75-year olds, and the bottom line shows the median household wealth of families headed by 25- to 35-year olds. In 1989, these values were $155,000 and $20,000, respectively. In 2016, these values were $228,000 and $18,000, respectively.

Older families have more wealth than same-aged families did in years past, while younger families have less wealth. We find that age 60 is a demarcation point. Families headed by someone age 60 or older in 2016 had more wealth than similarly aged families in 1989. Meanwhile, families headed by someone younger than 60 had less wealth than similarly aged families.

My colleagues and I examine this in depth in our recent Demographics of Wealth series .

6) The racial wealth gap is large for college graduates and nongrads.

While college is touted as the great equalizer, the data show that large racial and ethnic wealth gaps remain.

To examine gaps, let’s look at the median wealth of white, black and Hispanic families with four-year college degrees. We’ll also look at the median wealth of white, black and Hispanic families without four-year degrees—from here on out, called “nongrads.” Taking this approach helps us to control for education. Because the sample size of black and Hispanic college graduates is very small in some survey waves, we grouped survey years into an earlier period (1989, 1992, 1995 and 1998) and a later period (2010, 2013 and 2016). This makes long-term trends easier to see. Each family’s wealth was standardized for each survey year and medians were calculated on these standardized wealth values for each period. See the Appendix in the third Demographics of Wealth essay for more detail.

“Nongrads” includes families with at most a two-year college degree, as their wealth outcomes more closely mirror the wealth of families with at most an on-time high school degree than the wealth of four-year college graduate families.

Notes: Dollar values are CPI-U adjusted to 2016 dollars.

Description: This figure shows the comparative median wealth of families headed by someone who has not attained a four-year degree. The left stack of pennies shows that for every dollar of white nongrad median wealth in the earlier period (1989-1998), black nongrad families owned 11 cents and Hispanic nongrad families owned 12 cents. The right stack of coins shows these values in the later period (2010-2016), standing at 12 cents for black families and 17 cents for Hispanic families.

Among nongrads, the white/black and white/Hispanic wealth gaps narrowed slightly between the earlier (1989-1998) and later (2010-2016) periods. This trend is largely due to the decline among white nongrads , whose median wealth shrank from $101,000 in the earlier period to $88,000 in the later period.

• At the median, black nongrad families had 11 cents per dollar of white nongrad wealth in the earlier period. By the later period, their wealth had grown to 12 cents per dollar of white wealth.
• For Hispanic nongrad families, their median wealth grew from 12 cents to 17 cents per dollar of white nongrad wealth between the earlier and later periods.

Among black and Hispanic families headed by someone with a four-year college degree, the racial wealth gaps were historically narrower than among nongrads.

However, the Great Recession hit them very hard , and in recent years the college boost has been depleted to the point where there is little difference in the racial and ethnic wealth gap among grads versus nongrads.

Description: This figure shows the comparative median wealth of families headed by someone who has attained at least a four-year degree. The left stack of pennies shows that for every dollar of white college grad median wealth in the earlier period (1989-1998), black grad families owned 31 cents and Hispanic grad families owned 34 cents. The right stack of coins shows these values in the later period (2010-2016), standing at 17 cents for black families and 19 cents for Hispanic families.

This is due in large part to the gains of white college graduates. In the later period, black grads had 17 cents per dollar of white grad median wealth, down from 31 cents in the earlier period. Hispanic graduates’ median wealth went from 34 cents to 19 cents per dollar of white wealth between these time periods.

Conclusions

This series of charts illustrates the wide range in wealth outcomes within the United States. Demographic cuts illuminate vast differences otherwise obscured by aggregate statistics.

Demography may not be economic destiny, but it is strongly related to financial outcomes. Ongoing structural and systemic barriers may make it difficult to narrow gaps for some racial and ethnic groups.

Based on past research, here are four recommendations that could help families build wealth.

Help families build a rainy-day fund.

Having cash on hand contributes to financial stability and greatly reduces risk of hardship . These funds can be built through employers, at tax time, through mobile apps, and through innovations such as “prize-linked savings.”

Promote early-in-life investments.

In particular, efforts can be made to expand early education and early savings, such as child savings accounts, which have positive financial and social outcomes . These early investments are likely to have the largest effect on longer-term outcomes, and investing early in children can pay for itself over time.

Examine college costs.

Address the rising cost of college and reduce the need for students to finance post-secondary education with loans. While not for everyone, innovations such as Income Share Agreements , income-driven repayments and College Savings Accounts should be considered.

Support all forms of housing.

Increase the supply of affordable rental housing while promoting paths to sustainable homeownership. Homeownership should be treated as a “capstone” financial event, not a first step; building a diversified balance sheet—with low levels of consumer debts and high levels of liquid savings—should precede and help sustain homeownership.

For an in-depth discussion and additional resources, see the Demographics of Wealth series . Dig deeper into structural and systemic barriers to wealth accumulation here (PDF).

Notes and References

• Dollar values in all figures and text are adjusted with the Consumer Price Index for All Urban Consumers (CPI-U) to 2016 dollars (i.e., inflation-adjusted to represent comparable values or “real terms”).
• These are not the same families being compared over time. Each survey year of the Fed’s Survey of Consumer Finances samples new families, and estimates are weighted to be representative of the entire U.S. population.
• Because the sample size of black and Hispanic college graduates is very small in some survey waves, we grouped survey years into an earlier period (1989, 1992, 1995 and 1998) and a later period (2010, 2013 and 2016). This makes long-term trends easier to see. Each family’s wealth was standardized for each survey year and medians were calculated on these standardized wealth values for each period. See the Appendix in the third Demographics of Wealth essay for more detail.

This blog post was updated Dec. 5, 2019, with additional authorship attribution.

Ana Hernández Kent is a senior researcher with the Institute for Economic Equity at the Federal Reserve Bank of St. Louis. Her research interests include economic disparities and the role of systemic biases and historical factors in wealth outcomes.  Read more about Ana’s research .

Lowell R. Ricketts is a data scientist for the Institute for Economic Equity at the Federal Reserve Bank of St. Louis. His research has covered topics including the racial wealth divide, growth in consumer debt, and the uneven financial returns on college educations. Read more about Lowell’s research .

Ray Boshara is a former senior advisor and assistant vice president of the Institute for Economic Equity at the Federal Reserve Bank of St. Louis. He is also a senior fellow in the Financial Security Program at the Aspen Institute.

Related Topics

This blog explains everyday economics and the Fed, while also spotlighting St. Louis Fed people and programs. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

Media questions

All other blog-related questions

The Reporter

Wealth Inequality in the United States

Much attention has focused in the last few years on the issue of inequality. With recent proposals for a direct wealth tax, particular attention has been given to wealth inequality. My work also focuses on this issue. Here, I summarize studies of four different aspects.

First, what are the general trends in wealth and wealth inequality over the last 60 years or so in the United States? I pay particular attention to the role of leverage and asset price movements in explaining these trends. Second, how has the racial wealth gap evolved over time, and what are the factors that account for its movement? Third, how does one account for the fact that certain assets like 401(k)s are tax-deferred? How does this affect the valuation of these assets and how does this impact measured inequality and wealth movements over time? Fourth, how might a direct tax on household wealth impact wealth inequality?

The Role of Leverage

In the first study, I examine wealth trends from 1962 to 2019. 1 My empirical work in this and the next three papers is based mainly on data from the Federal Reserve Board’s Survey of Consumer Finances. In terms of median wealth, the year 2007 stands out as a true high-water mark. Median net worth in constant dollars showed robust growth over 1962–2001, gaining 1.55 percent per year, and rose even faster over 2001–07, at 2.90 percent per year. Then the Great Recession hit like a tsunami and wiped out 40 years of gains. Over 2007–10, house prices fell 24.5 percent in real terms, stock prices declined 26.6 percent, and median wealth was reduced by a staggering 43.9 percent. By 2010, median wealth was at about the same level as in 1969.

However, between 2010 and 2019 asset prices recovered, and median wealth advanced by a robust 41.9 percent. Still, it was 20.4 percent below its 2007 peak. Mean wealth more than fully recovered by 2016 and by 2019 it was up 9.2 percent from its 2007 level.

Wealth grew more vigorously at the top of the wealth distribution than in the middle. Indeed, according to the Gini coefficient and top wealth shares, wealth inequality rose sharply from 1983 to 1989 (the Gini coefficient was up 0.029), remained relatively stable from 1989 to 2007, then showed a steep increase over 2007–10 (the Gini was up 0.032), and a more modest rise from 2010 to 2016. By 2016, the Gini coefficient and the share of the top percentile were at their highest levels of the 57 years of the study period, at 0.877 and 39.6 percent, respectively. However, from 2016 to 2019 there was actually a small decline in inequality, with the top percentile share down by 1.4 percentage points, the Gini coefficient down by 0.008, and the mean wealth of the top 1 percent down by 1.9 percent.

Another notable trend is the sharp increase in relative debt after 1983, with the debt-income and the debt-net worth ratios peaking in 2010 and then receding. The overall homeownership rate rose from 63.4 percent in 1983 to a peak of 69.1 percent in 2004, then fell off to 64.9 percent in 2019. The overall stock ownership rate — either directly or indirectly through mutual funds, trust funds, or pension plans — after rising briskly from 31.7 percent to a peak of 51.9 percent over 1989–2001, fell off to 46.1 percent in 2013. It rebounded to 49.6 percent in 2019, though it was still down from its peak.

The key to understanding the plight of middle-class Americans in the years following the Great Recession is their high degree of leverage, the high concentration of assets in their homes, and the precipitous fall in home prices. This translated into a very high negative rate of return on their wealth (−10.4 percent per year), which largely explains the steep decline in median wealth over 2007–10. High leverage, moreover, helps explain why median wealth fell more than house prices over these years. The high negative rate of return accounted for 61 percent of the collapse in median net worth, with the other 39 percent due to dissaving.

What about the recovery in median wealth after 2010? In 2010–16, the rate of return should have led to a $42,600 increase in median wealth, while the actual increase was $12,200. Dissaving reduced the gain by $30,400. For 2016–19, both the rate of return and saving made positive contributions, explaining 85.6 and 14.4 percent of the gain, respectively.

The large spread in returns between the middle three wealth quintiles and the top percentile — over 4 percentage points — also helps explain why wealth inequality climbed steeply from 2007 to 2010. It is first of note that, as shown in Figure 1, the return on net worth for the middle group exceeded that for the top percentile over the whole 1983–2019 period and for all subperiods except 1983–89 and 2007–10. A lot of theoretical work on wealth inequality assumes just the opposite relationship. In a decomposition analysis of the change in the ratio of the wealth of the top percentile to median wealth, the differential in returns between the two groups accounted for 28.7 percent of the increase in the inequality ratio over the Great Recession, with differences in saving accounting for the rest. The middle class took a bigger relative hit to its wealth from the home price plunge than the top 1 percent did from the stock market decline. There was a modest rise in the inequality ratio from 2010 to 2016. The same decomposition shows that the differential in returns between the two groups — now in favor of the middle group — should have led to a decline in the inequality ratio, while there actually was an increase. The inequality ratio fell a bit from 2016 to 2019. In this case, the rate of return difference — again in favor of the middle group — accounted for 18.2 percent of the decline and the residual accounted for 81.8 percent.

The Decline in Black and Hispanic Wealth

The year 2007 was also a watershed year for both the racial and ethnic wealth gaps. 2 The ratios of mean net worth between Blacks and Whites and between Hispanics and non-Hispanic Whites reached their maximum values, 0.19 and 0.26, respectively. The Great Recession hit Black households much harder than White because Blacks were more highly leveraged and had a greater share of their assets in their homes; the racial ratio plunged to 0.14 in 2010, reflecting a 33 percent decline of Black wealth in real terms. The wealth gap remained unchanged from 2010 to 2019.

Hispanic households made sizable gains on White households from 1983 to 2007, with the mean net worth ratio growing from 0.16 to 0.26. However, like Blacks, Hispanics got hammered by the Great Recession, with their mean net worth plunging in half over 2007–10 and the wealth ratio falling from 0.26 to 0.15. The relative and absolute losses suffered by Hispanic households over these three years were also mainly due to their much higher leverage and greater concentration of assets in homes. Over 2010–16, the mean wealth ratio rebounded to 0.19, where it remained in 2019.

Differential leverage and resulting differences in rates of return on net worth play critical roles in accounting for movements in the wealth of minorities relative to Whites. Blacks and Hispanics had much higher indebtedness and a higher concentration of housing wealth than Whites. In 2007, the debt-net worth ratio among Black households was an astounding 0.553 and that for Hispanics was 0.511, compared to 0.154 among Whites. Housing as a share of gross assets was 54 percent for Blacks and 52.5 percent for Hispanics, compared to 30.8 percent for Whites. The rate of return on net worth for the Black and Hispanic middle groups surpassed that for Whites for the whole period 1983–2019 and for all subperiods except 1983–89 and 2007–10, as shown in Figure 2.

Using a decomposition analysis, I find that capital revaluation explains about three-quarters of the advance of mean wealth among Black households over 2001–07 and 78 percent of the ensuing collapse over 2007–10. Among Hispanics, the corresponding figures are 59 and 57 percent. Differentials in returns account for 43 percent of the gain in the Black-White wealth ratio over 2001–07 and 39 percent of the decline over 2007–10. Over 2010–19, the higher rate of return for Black households should have helped close the racial wealth gap, but this was offset by greater dissaving.

Likewise, disparities in returns account for 33 percent of the gain in the Hispanic-White wealth ratio in 2001–07 and 28 percent of the ensuing drop over 2007–10. Over 2010–16, the higher returns for Hispanic households explain 41.4 percent of their relative gains, but over 2016–19 this effect is neutralized by greater dissaving.

The racial gap in augmented wealth, defined as the sum of net worth, defined-benefit pension wealth, and Social Security wealth, is considerably smaller than that in net worth. The former is defined as the present value of expected future pension benefits and the latter as the present value of expected Social Security benefits. In 2016, while the Black-White ratio in mean net worth was 0.14 and that in median net worth a mere 0.02, the ratio in mean augmented wealth was 0.27 and that in median augmented wealth also 0.27. The ratios in mean defined-benefit pension and Social Security wealth were notably higher, at 0.50 and 0.60, respectively. Whereas the racial gap in net worth widened from 1983 to 2016, the gap in augmented wealth remained largely unchanged.

Taxes and the Revaluation of Household Wealth

The face value of 401(k)s, IRAs, and other tax-deferred assets cannot be directly valued with other components of wealth like houses, stocks, and securities because tax-deferred assets carry a substantial tax liability on withdrawal. 3 For example, an IRA valued at $1,000 can yield considerably less than $1,000 when the asset is “cashed out.” Whether the net rate of return is higher with tax-deferred assets or directly investing in stocks depends on the income level of the investor, the time horizon, and the tax treatment of dividends.

I compare trends in wealth levels and wealth inequality with and without netting out this implicit tax liability. 4 I also consider how netting out income taxes due on accrued capital gains impacts wealth trends for both conventional net worth and augmented wealth over the period 1983–2016.

Netting out implicit taxes on tax-deferred assets and accrued capital gains reduces the growth in net worth and augmented wealth by between 17 and 20 percent [see Figure 3] but has little impact on their inequality. However, it does lower pension wealth and Social Security wealth inequality. The implication is that the use of pre-tax values has led to a considerable overstatement of household wealth growth.

The impact of implicit taxes varies by demographic group. Netting out taxes is generally an equalizing factor with regard to intergroup differences in pension and Social Security wealth, though less so for net worth or augmented wealth. It has a minimal effect on the Black-White ratio in net worth or augmented wealth.

Distributional Effects of Wealth Taxation

I also analyze the fiscal effects of a Swiss-type direct tax on household wealth, with a $120,000 exemption and marginal tax rates running from 0.05 to 0.3 percent on $2,400,000 or more of wealth. 5 I also analyze the wealth tax proposed by Senator Elizabeth Warren with a $50 million exemption, a 2 percent tax on wealth above that, and a 1 percent surcharge on wealth above $1 billion. Based on the 2016 Survey of Consumer Finances augmented with wealth data from the Forbes 400, the Swiss tax would yield $189.3 billion and the Warren tax $303.4 billion per year by my estimates. Only 0.07 percent of households would pay the Warren tax, compared to 44.3 percent for the Swiss tax. However, the effect on wealth inequality of implementing either the Swiss tax or the Warren tax is small. If the policies were in place for a single year, they would reduce the Gini coefficient by at most 0.0005. The effect of both policies on wealth inequality would grow if they remained in place for a long period of time.

The incidence of the Swiss tax differs by demographic group, falling proportionately more on older than younger families, more on married couples than on singles, and more on Whites than on others.

A potential problem stemming from a wealth tax is capital flight. However, by my estimates, the Swiss tax would reduce the average yield on household assets by only 6.2 percent. It would reduce the yield in the top bracket by 9.7 percent. These figures suggest that disincentive effects on personal savings would be very modest. In contrast, the Warren wealth tax could reduce the after-tax rate of return on investments for the top group by almost 100 percent.

Researchers

More from nber.

“ Household Wealth Trends in the United States, 1962 to 2019: Median Wealth Rebounds … But Not Enough, ” Wolff E. NBER Working Paper 28383, January 2021. Published in part as “ The Declining Wealth of the Middle Class, 1983–2016 ,” Contemporary Economic Policy 39(3), July 2021, pp. 461–478.  

“ The Decline of African-American and Hispanic Wealth since the Great Recession ,” Wolff E. NBER Working Paper 25198, October 2018, and Review of Income and Wealth , forthcoming.  

“ Valuing Assets in Retirement Savings Accounts ,” Poterba J. NBER Working Paper 10395, March 2004. Published in National Tax Journal 57(2, Part 2), 2004, pp. 489–512.  

“ Taxes and the Revaluation of Household Wealth ,” Wolff E. NBER Working Paper 27328, June 2020, and J ournal of Pension Economics and Finance , forthcoming.  

“ Wealth Taxation in the United States ,” Wolff E. NBER Working Paper 26544, December 2019, and Public Sector Economics 44(2), June 2020, pp. 153–178.

NBER periodicals and newsletters may be reproduced freely with appropriate attribution.

In addition to working papers , the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter , the NBER Digest , the Bulletin on Retirement and Disability , the Bulletin on Health , and the Bulletin on Entrepreneurship  — as well as online conference reports , video lectures , and interviews .

• Feldstein Lecture
• Presenter: Cecilia E. Rouse

• Methods Lectures
• Presenter: Susan Athey

• Panel Discussion
• Presenters: Karen Dynan , Karen Glenn, Stephen Goss, Fatih Guvenen & James Pearce

© 2023 National Bureau of Economic Research. Periodical content may be reproduced freely with appropriate attribution.

Numbers, Facts and Trends Shaping Your World

Read our research on:

Full Topic List

Regions & Countries

• Publications
• Our Methods
• Short Reads
• Tools & Resources

Read Our Research On:

• Most Americans Say There Is Too Much Economic Inequality in the U.S., but Fewer Than Half Call It a Top Priority
• 1. Trends in income and wealth inequality

Table of Contents

• 2. Views of economic inequality
• 3. What Americans see as contributors to economic inequality
• 4. Views on reducing economic inequality
• Acknowledgments
• Methodology

Barely 10 years past the end of the Great Recession in 2009, the U.S. economy is doing well on several fronts . The labor market is on a job-creating streak that has rung up more than 110 months straight of employment growth, a record for the post-World War II era. The unemployment rate in November 2019 was 3.5%, a level not seen since the 1960s. Gains on the jobs front are also reflected in household incomes, which have rebounded in recent years.

But not all economic indicators appear promising. Household incomes have grown only modestly in this century, and household wealth has not returned to its pre-recession level. Economic inequality, whether measured through the gaps in income or wealth between richer and poorer households, continues to widen.

Household incomes are growing again after a lengthy period of stagnation

With periodic interruptions due to business cycle peaks and troughs, the incomes of American households overall have trended up since 1970. In 2018, the median income of U.S. households stood at $74,600. 5 This was 49% higher than its level in 1970, when the median income was $50,200. 6 (Incomes are expressed in 2018 dollars.)

But the overall trend masks two distinct episodes in the evolution of household incomes (the first lasting from 1970 to 2000 and the second from 2000 to 2018) and in how the gains were distributed.

Most of the increase in household income was achieved in the period from 1970 to 2000. In these three decades, the median income increased by 41%, to $70,800, at an annual average rate of 1.2%. From 2000 to 2018, the growth in household income slowed to an annual average rate of only 0.3%. If there had been no such slowdown and incomes had continued to increase in this century at the same rate as from 1970 to 2000, the current median U.S. household income would be about $87,000, considerably higher than its actual level of $74,600.

The shortfall in household income is attributable in part to two recessions since 2000. The first recession, lasting from March 2001 to November 2001, was relatively short-lived. 7  Yet household incomes were slow to recover from the 2001 recession and it was not until 2007 that the median income was restored to about its level in 2000.

But 2007 also marked the onset of the Great Recession, and that delivered another blow to household incomes. This time it took until 2015 for incomes to approach their pre-recession level. Indeed, the median household income in 2015 – $70,200 – was no higher than its level in 2000, marking a 15-year period of stagnation, an episode of unprecedented duration in the past five decades. 8

More recent trends in household income suggest that the effects of the Great Recession may finally be in the past. From 2015 to 2018, the median U.S. household income increased from $70,200 to $74,600, at an annual average rate of 2.1%. This is substantially greater than the average rate of growth from 1970 to 2000 and more in line with the economic expansion in the 1980s and the dot-com bubble era of the late 1990s.

Why economic inequality matters

The rise in economic inequality in the U.S. is tied to several factors. These include , in no particular order, technological change, globalization, the decline of unions and the eroding value of the minimum wage. Whatever the causes, the uninterrupted increase in inequality since 1980 has caused concern among members of the public , researchers , policymakers and politicians .

One reason for the concern is that people in the lower rungs of the economic ladder may experience diminished economic opportunity and mobility in the face of rising inequality, a phenomenon referred to as The Great Gatsby Curve . Others have highlighted inequality’s negative impact on the political influence of the disadvantaged, on geographic segregation by income, and on economic growth itself. The matter may not be entirely settled, however, as an opposing viewpoint suggests that income inequality does not harm economic opportunity.

Alternative estimates of economic inequality

This report presents estimates of income inequality based on household income as estimated in the Current Population Survey (CPS), a survey of households conducted by the U.S. Census Bureau in partnership with the Bureau of Labor Statistics. These estimates refer to gross (pretax) income and encompass most sources of income. A key omission is the value of in-kind services received from government sources. Because income taxes are progressive and in-kind services also serve to boost the economic wellbeing of (poorer) recipients, not accounting for these two factors could overstate the true gap in the financial resources of poorer and richer households.

The Congressional Budget Office (CBO) offers an alternative estimate of income inequality that accounts for federal taxes and a more comprehensive array of cash transfers and in-kind services than is possible with Current Population Survey data. The CBO finds that the Gini coefficient in the U.S. in 2016 ranged from 0.595, before accounting for any forms of taxes and transfers, to 0.423, after a full accounting of taxes and transfers. These estimates bracket the Census Bureau’s estimate of 0.481 for the Gini coefficient in 2016. By either estimate, income inequality in the U.S. is found to have increased by about 20% from 1980 to 2016 (The Gini coefficient ranges from 0 to 1, or from perfect equality to complete inequality). Findings from other researchers show the same general rise in inequality over this period regardless of accounting for in-kind transfers.

Yet another alternative is to focus on inequality in consumption, which implicitly accounts for all forms and sources of incomes, taxes and transfers. Some estimates based on consumption show that inequality in the U.S. increased by less than implied by estimates based on income, but other estimates suggest the trends based on consumption and income are similar. Empirically, consumption can be harder to measure than income.

Upper-income households have seen more rapid growth in income in recent decades

The growth in income in recent decades has tilted to upper-income households. At the same time, the U.S. middle class , which once comprised the clear majority of Americans, is shrinking. Thus, a greater share of the nation’s aggregate income is now going to upper-income households and the share going to middle- and lower-income households is falling. 9

The share of American adults who live in middle-income households has decreased from 61% in 1971 to 51% in 2019. This downsizing has proceeded slowly but surely since 1971, with each decade thereafter typically ending with a smaller share of adults living in middle-income households than at the beginning of the decade.

The decline in the middle-class share is not a total sign of regression. From 1971 to 2019, the share of adults in the upper-income tier increased from 14% to 20%. Meanwhile, the share in the lower-income tier increased from 25% to 29%. On balance, there was more movement up the income ladder than down the income ladder.

But middle-class incomes have not grown at the rate of upper-tier incomes. From 1970 to 2018, the median middle-class income increased from $58,100 to $86,600, a gain of 49%. 10  This was considerably less than the 64% increase for upper-income households, whose median income increased from $126,100 in 1970 to $207,400 in 2018. Households in the lower-income tier experienced a gain of 43%, from $20,000 in 1970 to $28,700 in 2018. (Incomes are expressed in 2018 dollars.)

More tepid growth in the income of middle-class households and the reduction in the share of households in the middle-income tier led to a steep fall in the share of U.S. aggregate income held by the middle class. From 1970 to 2018, the share of aggregate income going to middle-class households fell from 62% to 43%. Over the same period, the share held by upper-income households increased from 29% to 48%. The share flowing to lower-income households inched down from 10% in 1970 to 9% in 2018.

These trends in income reflect the growth in economic inequality overall in the U.S. in the decades since 1980.

Income growth has been most rapid for the top 5% of families

Even among higher-income families, the growth in income has favored those at the top. Since 1980, incomes have increased faster for the most affluent families – those in the top 5% – than for families in the income strata below them. This disparity in outcomes is less pronounced in the wake of the Great Recession but shows no signs of reversing.

From 1981 to 1990, the change in mean family income ranged from a loss of 0.1% annually for families in the lowest quintile (the bottom 20% of earners) to a gain of 2.1% annually for families in the highest quintile (the top 20%). The top 5% of families, who are part of the highest quintile, fared even better – their income increased at the rate of 3.2% annually from 1981 to 1990. Thus, the 1980s marked the beginning of a long and steady rise in income inequality.

A similar pattern prevailed in the 1990s, with even sharper growth in income at the top. From 1991 to 2000, the mean income of the top 5% of families grew at an annual average rate of 4.1%, compared with 2.7% for families in the highest quintile overall, and about 1% or barely more for other families.

The period from 2001 to 2010 is unique in the post-WWII era. Families in all strata experienced a loss in income in this decade, with those in the poorer strata experiencing more pronounced losses. The pattern in income growth from 2011 to 2018 is more balanced than the previous three decades, with gains more broadly shared across poorer and better-off families. Nonetheless, income growth remains tilted to the top, with families in the top 5% experiencing greater gains than other families since 2011.

The wealth of American families is currently no higher than its level two decades ago

Other than income, the wealth of a family is a key indicator of its financial security. Wealth, or net worth, is the value of assets owned by a family, such as a home or a savings account, minus outstanding debt, such as a mortgage or student loan. Accumulated over time, wealth is a source of retirement income, protects against short-term economic shocks, and provides security and social status for future generations.

The period from the mid-1990s to the mid-2000s was beneficial for the wealth portfolios of American families overall. Housing prices more than doubled in this period, and stock values tripled. 11 As a result, the median net worth of American families climbed from $94,700 in 1995 to $146,600 in 2007, a gain of 55%. 12  (Figures are expressed in 2018 dollars.)

But the run up in housing prices proved to be a bubble that burst in 2006. Home prices plunged starting in 2006, triggering the Great Recession in 2007 and dragging stock prices into a steep fall as well. Consequently, the median net worth of families fell to $87,800 by 2013, a loss of 40% from the peak in 2007. As of 2016, the latest year for which data are available, the typical American family had a net worth of $101,800, still less than what it held in 1998.

The wealth divide among upper-income families and middle- and lower-income families is sharp and rising

The wealth gap among upper-income families and middle- and lower-income families is sharper than the income gap and is growing more rapidly.

The period from 1983 to 2001 was relatively prosperous for families in all income tiers, but one of rising inequality. The median wealth of middle-income families increased from $102,000 in 1983 to $144,600 in 2001, a gain of 42%. The net worth of lower-income families increased from $12,3oo in 1983 to $20,600 in 2001, up 67%. Even so, the gains for both lower- and middle-income families were outdistanced by upper-income families, whose median wealth increased by 85% over the same period, from $344,100 in 1983 to $636,000 in 2001. (Figures are expressed in 2018 dollars.)

The wealth gap between upper-income and lower- and middle-income families has grown wider this century. Upper-income families were the only income tier able to build on their wealth from 2001 to 2016, adding 33% at the median. On the other hand, middle-income families saw their median net worth shrink by 20% and lower-income families experienced a loss of 45%. As of 2016, upper-income families had 7.4 times as much wealth as middle-income families and 75 times as much wealth as lower-income families. These ratios are up from 3.4 and 28 in 1983, respectively.

The reason for this is that middle-income families are more dependent on home equity as a source of wealth than upper-income families, and the bursting of the housing bubble in 2006 had more of an impact on their net worth. Upper-income families, who derive a larger share of their wealth from financial market assets and business equity, were in a better position to benefit from a relatively quick recovery in the stock market once the recession ended.

As with the distribution of aggregate income, the share of U.S. aggregate wealth held by upper-income families is on the rise. From 1983 to 2016, the share of aggregate wealth going to upper-income families increased from 60% to 79%. Meanwhile, the share held by middle-income families has been cut nearly in half, falling from 32% to 17%. Lower-income families had only 4% of aggregate wealth in 2016, down from 7% in 1983.

The richest are getting richer faster

The richest families in the U.S. have experienced greater gains in wealth than other families in recent decades, a trend that reinforces the growing concentration of financial resources at the top.

The tilt to the top was most acute in the period from 1998 to 2007. In that period, the median net worth of the richest 5% of U.S. families increased from $2.5 million to $4.6 million, a gain of 88%.

This was nearly double the 45% increase in the wealth of the top 20% of families overall, a group that includes the richest 5%. Meanwhile, the net worth of families in the second quintile, one tier above the poorest 20%, increased by only 16%, from $27,700 in 1998 to $32,100 in 2007. (Figures are expressed in 2018 dollars.)

The wealthiest families are also the only ones to have experienced gains in wealth in the years after the start of the Great Recession in 2007. From 2007 to 2016, the median net worth of the richest 20% increased 13%, to $1.2 million. For the top 5%, it increased by 4%, to $4.8 million. In contrast, the net worth of families in lower tiers of wealth decreased by at least 20% from 2007 to 2016. The greatest loss – 39% – was experienced by the families in the second quintile of wealth, whose wealth fell from $32,100 in 2007 to $19,500 in 2016.

As a result, the wealth gap between America’s richest and poorer families more than doubled from 1989 to 2016. In 1989, the richest 5% of families had 114 times as much wealth as families in the second quintile, $2.3 million compared with $20,300. By 2016, this ratio had increased to 248, a much sharper rise than the widening gap in income. 13

Income inequality in the U.S has increased since 1980 and is greater than in peer countries

Income inequality may be measured in a number of ways , but no matter the measure , economic inequality in the U.S. is seen to be on the rise.

One widely used measure – the 90/10 ratio – takes the ratio of the income needed to rank among the top 10% of earners in the U.S. (the 90th percentile) to the income at the threshold of the bottom 10% of earners (the 10th percentile). In 1980, the 90/10 ratio in the U.S. stood at 9.1, meaning that households at the top had incomes about nine times the incomes of households at the bottom. The ratio increased in every decade since 1980, reaching 12.6 in 2018, an increase of 39%. 14

Not only is income inequality rising in the U.S., it is higher than in other advanced economies. Comparisons of income inequality across countries are often based on the Gini coefficient , another commonly used measure of inequality. 15 Ranging from 0 to 1, or from perfect equality to complete inequality, the Gini coefficient in the U.S. stood at 0.434 in 2017, according to the Organization for Economic Cooperation and Development (OECD). 16  This was higher than in any other of the G-7 countries , in which the Gini ranged from 0.326 in France to 0.392 in the UK, and inching closer to the level of inequality observed in India (0.495). More globally, the Gini coefficient of inequality ranges from lows of about 0.25 in Eastern European countries to highs in the range of 0.5 to 0.6 in countries in southern Africa, according to World Bank estimates .

• The median income splits the income distribution into two halves – half the households earn less than the median and half the households earn more. Incomes are adjusted for household size and scaled to represent a household size of three. See methodology for details. ↩
• Percentage changes are estimated, and other calculations are made, before numbers are rounded. ↩
• The recession dates are as designated by the National Bureau of Economic Research . ↩
• It is likely that household incomes did not return to their 2000 level till 2016 or later. A redesign of income questions by the Census Bureau in 2014 is estimated to have given a boost of about 3% to median household income in the U.S. at the time of the redesign. ↩
• Middle-income” Americans are adults whose annual household income is two-thirds to double the national median, after incomes have been adjusted for household size. Lower-income households have incomes less than 67% of the median and upper-income households have incomes that are more than double the median. See methodology for details. Previous Pew Research Center reports have examined the state of the American middle class in greater detail, including trends within U.S. metropolitan areas. ↩
• The data source for these estimates is the Current Population Survey, Annual Social and Economic Supplement for 1971 to 2019. In the survey, respondents provide household income data for the previous calendar year. Thus, income data in this section refer to the 1970-2018 period and the counts of people from the same survey refer to the 1971-2019 period. ↩
• The S&P/Case-Shiller U.S. National Home Price Index increased from 80 in January 1995 to 185 in June 2006 (January 2000=100). It fell to 134 in February 2012 and climbed thereafter, reaching 212 in August 2019. At the start of the Great Recession in December 2007, the S&P 500 index stood at about 1,500, three times its level of about 500 in 1995. After the peak in 2007, the S&P 500 fell below 1,000 in 2009. As of November 2019, the index had reached a level of about 3,000. (S&P 500 historical values downloaded from Yahoo! on Nov. 21, 2019.) ↩
• Estimates of wealth are from the Survey of Consumer Finances (SCF). The SCF is conducted triennially by the Federal Reserve Board of Governors. It was first fielded in 1983 and the latest survey for which data are available was in 2016. ↩
• It is not possible to compute the ratio of the wealth of the top 5% of families to the wealth of the poorest 20% because the median wealth of the poorest families is either zero or negative in most years examined. ↩
• Per the U.S. Census Bureau , the source of these estimates, the 90th percentile household income in 2018 was $184,292 and the 10th percentile household income was $14,629 (incomes not adjusted for household size). ↩
• The Gini coefficient encapsulates the share of aggregate income held by each person or household. If everyone has the same income, or the same share of aggregate income, the Gini coefficient equals zero. If the income distribution is perfectly unequal, a single person or household holds all aggregate income, the Gini coefficient is equal to one. ↩
• The OECD is a group of 36 countries, including many of the world’s advanced economies. The OECD’s estimates of the Gini coefficient are for the following years: U.S. – 2017, UK – 2017, Italy – 2016, Japan – 2015, Canada – 2017, Germany – 2016, France – 2016, and India – 2011. ↩

Sign up for our weekly newsletter

Fresh data delivery Saturday mornings

Sign up for The Briefing

Weekly updates on the world of news & information

• Economic Inequality
• Economic Policy
• Economy & Work
• Issue Priorities
• Personal Finances

Income inequality is greater among Chinese Americans than any other Asian origin group in the U.S.

1 in 10: redefining the asian american dream (short film), the hardships and dreams of asian americans living in poverty, a booming u.s. stock market doesn’t benefit all racial and ethnic groups equally, black americans’ views on success in the u.s., most popular, report materials.

• Interactive essay: Two recessions, two recoveries
• American Trends Panel Wave 54

901 E St. NW, Suite 300 Washington, DC 20004 USA (+1) 202-419-4300 | Main (+1) 202-857-8562 | Fax (+1) 202-419-4372 |  Media Inquiries

Research Topics

• Email Newsletters

ABOUT PEW RESEARCH CENTER  Pew Research Center is a nonpartisan, nonadvocacy fact tank that informs the public about the issues, attitudes and trends shaping the world. It does not take policy positions. The Center conducts public opinion polling, demographic research, computational social science research and other data-driven research. Pew Research Center is a subsidiary of The Pew Charitable Trusts , its primary funder.

© 2024 Pew Research Center

Photo by Harry Gruyaert/Magnum

The great wealth wave

The tide has turned – evidence shows ordinary citizens in the western world are now richer and more equal than ever before.

by Daniel Waldenström   + BIO

Recent decades have seen private wealth multiply around the Western world, making us richer than ever before. A hasty glance at the soaring number of billionaires – some doubling as international celebrities – prompts the question: are we also living in a time of unparalleled wealth inequality? Influential scholars have argued that indeed we are. Their narrative of a new gilded age paints wealth as an instrument of power and inequality. The 19th-century era with low taxes and minimal market regulation allowed for unchecked capital accumulation and then, in the 20th century, the two world wars and progressive taxation policies diminished the fortunes of the wealthy and reduced wealth gaps. Since 1980, the orthodoxy continues, a wave of market-friendly policies reversed this equalising historical trend, boosting capital values and sending wealth inequality back towards historic highs.

The trouble with the powerful new orthodoxy that tries to explain the history of wealth is that it doesn’t fully square with reality. New research studies, and more careful inspection of the previous historical data, paint a picture where the main catalysts for wealth equalisation are neither the devastations of war nor progressive tax regimes. War and progressive taxation have had influence, but they cannot count as the main forces that led to wealth inequality falling dramatically over the past century. The real influences are instead the expansion from below of asset ownership among everyday citizens, constituted by the rise of homeownership and pension savings. This popular ownership movement was made possible by institutional changes, most important democracy, and followed suit by educational reforms and labour laws, and the technological advancements lifting everyone’s income. As a result, workers became more productive and better paid, which allowed them to get mortgages to purchase their own homes; homeownership rates soared in the West from the middle of the century. As standards of living improved, life spans increased so that people started saving for retirement, accumulating another important popular asset.

Today, the populations of Europe and the United States are substantially richer in terms of real purchasing-power wealth than ever before. We define wealth as the value of all assets, such as homes, bank deposits, stocks and pension funds, less all debts, mainly mortgages. When counting wealth among all adults, data show that its value has increased more than threefold since 1980, and nearly 10 times over the past century. Since much of this wealth growth has occurred in the types of assets that ordinary people hold – homes and pension savings – wealth has also become more equally distributed over time. Wealth inequality has decreased dramatically over the past century and, despite the recent years’ emergence of super-rich entrepreneurs, wealth concentration has remained at its historically low levels in Europe and has increased mainly in the US.

Among scholars in economics and economic history, a new narrative is just beginning to emerge, one that accentuates this massive rise of middle-class ownership and its implications for society’s total capital stock and its distribution. Capitalism, it seems, did not result in boundless inequality, even after the liberalisations of the 1980s and corporate growth in the globalised era. The key to progress, measured as a combination of wealth growth and falling or sustained inequality, has been political and institutional change that enabled citizens to become educated, better paid, and to amass wealth through housing and pension savings.

I n his book Capital in the Twenty-First Century (2014), Thomas Piketty examined the long-run evolution of capital and wealth inequality since industrialisation in a few Western economies. The book quickly received wide acclaim among both academics and policymakers, and it even became a worldwide bestseller.

Piketty’s narrative outlined wealth accumulation and concentration as following a U-shaped pattern over the past century. At the time of the outbreak of the First World War, wealth levels and inequality peaked as a result of an unregulated capitalism, low taxation or democratic influence. During the 20th century, wartime capital destruction and postwar progressive taxes slashed wealth among the rich and equalised ownership. Since 1980, however, goes Piketty’s narrative, neoliberal policies have boosted capital values and wealth inequality towards historic levels.

Immediately after publication, Capital generated fierce debate among economists, focused primarily on the book’s theoretical underpinnings. For example, Piketty had sketched a couple of ‘fundamental laws’ of capitalism, defining the economic importance of aggregate wealth. The first law stated that the share of capital income in total income (the other share coming from labour) is a function of how much capital there is in the economy and its rate of return to capital owners. The second law stated that the amount of capital in the economy, measured as its share in total output, is determined by the balance between saving to accumulate capital and income growth. While these laws were actually fairly uncontroversial relationships, almost definitions, they laid out a mechanistic view of inequality trends that attracted considerable attention and scrutiny among Piketty’s fellow theoretical economists.

My work arrives at a striking new conclusion for the history of wealth and inequality in the West

However, what the academic debate cared less about was the empirical side of the analysis. Almost nothing was said about the historical data and the empirical conclusions underlying the claims about U-shaped patterns and main driving forces. The void in critical scrutiny exposed a widespread disinterest among mainstream economists in history and the fine-grained aspects of source materials, measurement and institutional contexts.

In recent years, a new strand of historical wealth inequality research has emerged from universities around the world. It offers a more nuanced empirical picture, including new data and revised evidence, pointing to different results and interpretations. In Piketty’s book, most of the analysis centred on the historical experiences of France, and then there was additional evidence presented for the United Kingdom and Germany (together making up Europe) and the US. Newer work reexamines and extends the historical wealth accumulation and inequality trends. Some of these contributions also revise the earlier data series, such as those analysing Germany and the UK. Other studies expand the empirical base by incorporating previously unexplored countries, such as Spain and Sweden. A number of ongoing research projects into the history of wealth distribution examine more new countries, including Switzerland, the Netherlands and Canada. Their findings will soon be added to this historical wealth database.

My work with new data, published in my book Richer and More Equal (2024), arrives at a new conclusion for the history of wealth and inequality in the West. The new results are striking. Data show that we are both richer and more equal today than we were in the past. An accumulation of housing wealth and pension savings among workers in the middle classes emerges as the main factor producing greater equality: today, three-fourths of all private assets are either homes or long-term pension and insurance savings.

U nderlying the change in personal wealth formation over the 20th century are a number of political and economic developments. The democratisation of the Western world began with the extension of universal suffrage during the 1910s. This movement initiated a process of reforming the educational system, to extend basic schooling to the population and facilitating access to higher education. New labour laws improved working life by restricting the working hours per day, allowing unions to be active. Better training and nicer workplaces raised worker productivity and earnings, creating opportunity for working- and middle-class households to purchase their own homes. The improved living standards also led to longer lives. Between the 1940s and today, life expectancy at birth increased by almost 20 years in Western countries, most of which were spent in retirement. Pension systems started evolving during the postwar era, both as public-sector unfunded systems based on promises about a future income, and as private-sector funded systems where individual pension funds were accumulated as part of people’s long-term saving.

At the core of the new findings are three empirical observations.

The first is that the populations in Western countries are richer today than ever before in history. By rich, again, I mean having a high level of average wealth in the adult population. Why this measure of riches captures relevant aspects of welfare is because higher wealth permits a lot of good things in life. It allows for higher consumption, more savings and larger investment for future prosperity. It also promises better insurance against unforeseen events. Figure 1 below illustrates the growth in the average real per-capita wealth in a selection of Western countries over the past 130 years. It is dramatic. During the first half of the past century, the average wealth in the Western population hovered at a stable level. Since the end of the Second World War, asset values started to increase, doubling the level in only a couple of decades. From 1950 to 2020, average wealth in the West increased sevenfold.

Over the past 130 years, a monumental shift in wealth composition has taken place

A fact to notice specifically is how wealth has grown each single postwar decade up to the present day. For several reasons, this consistency of growth is a marvel. It affirms the robustness of the result: we are wealthier today than in history, and this fact does not depend on the choice of start or end date but holds regardless of the time period considered. The steady increase in wealth is not confined to investment-driven growth in Europe’s early postwar decades. Neither does it hinge on the market liberalisations of the 1980s and ’90s. However, it is notable how the lifting of regulations and the historically high taxes since the 1980s are indeed associated with the highest pace of value-creation that the Western world has ever experienced.

Figure 1: rising real average wealth in the Western world. Note: wealth is expressed in real terms, meaning that it is adjusted for the rise in consumer prices and thus expresses change in purchasing power. The line is an unweighted mean of the average wealth in the adult population in six countries (France, Germany, Spain, Sweden, the UK and the US) expressed in constant 2022 US dollars. Source: Waldenström (2024, Chapter 2)

A second fact coming out of the historical evidence is that wealth in the aggregate has changed in its appearance. The composition of assets people hold tells us about the economic structure of society and what functions wealth plays in the population. For example, whether most assets are tied to the agricultural economy or to industrial activities signifies the degree of economic modernisation in the historical analysis. The importance of ordinary people’s assets in the aggregate signifies the degree to which workers take part in the value-creation processes of the market economy. Figure 2 below displays the division across asset classes in the aggregate portfolio since the end of the 19th century. It is evident that, over the past 130 years, a monumental shift in wealth composition has taken place. A century ago, wealth comprised primarily agricultural land and industrial capital. Today, the majority of personal wealth is tied up in housing and pension funds.

Figure 2: the aggregate composition of assets: from elite wealth to people’s wealth . Note: unweighted average of six countries (France, Germany, Spain, Sweden, the UK and the US). Source: Waldenström (2024, Chapter 3)

The transformation of wealth composition has strong distributional implications. Individual ownership data, often called microdata, show how ownership structures across wealth distribution bear a pattern of who owns what. Historically, the rich held agricultural estates and shares in industrial corporations. This is especially true over the long term of history, but it remains so now too. In contrast, the working population acquires wealth in their homes and long-term savings in pension funds. Homeownership rates today range from 50 to 80 per cent. Labor-force participation rates are even higher. In substance, this tells us that housing and work-related pension funds are assets that dominate the ownership of ordinary people in the lower and middle classes, which in turn links the relative aggregate importance of housing and pension funds for wealth inequality.

L ooking closer at the relationship between the share of a country’s citizens who own their homes and the level of wealth inequality, the distributional pattern becomes evident. Figure 3 below plots countries according to their homeownership rates and wealth inequality, as measured by the common Gini coefficient that ranges from 0 (no inequality) to 1 (one individual owns everything), using recent wealth and homeownership surveys. Countries with higher levels of homeownership have lower wealth inequality. The straight line in the figure has a negative slope, which suggests that raising the homeownership rate by 10 points leads to an expected reduction in wealth inequality by 0.04 Gini points. As an example, France has a lower homeownership than Italy ( 60 per cent compared with 70 per cent), and a higher wealth inequality (0.67 versus Italy’s 0.61).

Figure 3: homeownership and wealth inequality in Europe and the US. Source: Waldenström (2024, Chapter 6)

The historical shift in the nature of wealth, from being elite-centric to more democratic, can thus be expected to have profound implications for the distribution of wealth. Figure 4 below presents the most recent data from European countries and the US. They reveal in graphical form how wealth inequality has decreased substantially over the past century. The wealthiest percentile once held around 60 per cent of all wealth. The share ranged from 50 per cent of wealth in the US and Germany to 70 per cent in the UK.

Most wealth today is in homes and pensions, assets predominantly of low- and middle-wealth households

Since the first half of the 20th century, the tide has turned. A great wealth equalisation took place throughout the Western world. From the 1920s to the 1970s, wealth concentration fell steadily. In the 1970s, wealth equalisation stopped, but then Europe and the US follow separate paths. In Europe, top wealth shares stabilise at historically low levels, perhaps with a slight increasing tendency. As of 2010, the richest 1 per cent in society holds a share of total wealth at around 20 per cent in Europe. That is roughly one-third of its share of national wealth from a century earlier. Countries like the UK, the Netherlands, Italy and Finland have top percentile shares of around 16-18 per cent. A bit higher are countries like Spain, Denmark, Norway and Sweden with top shares at around 21-24 per cent. Germany has an even higher share, around 27 per cent, and Switzerland’s richest percentile group owns about 30 per cent of all wealth.

This stability of post-1970 top wealth shares may seem contradictory when contrasted with the large increases in aggregate wealth values over recent decades. However, it is consistent with most of the asset ownership patterns documented above, with most of wealth today being in housing and pensions, assets predominantly held by low- and middle-wealth households.

The US wealth concentration experience is somewhat different. Wealth inequality in the beginning of the 20th century was somewhat lower in the US than in most European countries, perhaps reflecting being a younger nation with less established elite structures. The equalisation trend also happened in the US, but it was less pronounced than in Europe. Today, US wealth concentration is currently much higher than in Europe. This situation, as the figure below shows, is the result of several years of steady increase. In historical perspective, however, even the current US level of wealth inequality is lower than it was before the Second World War, and it pales in comparison with the extreme levels of wealth concentration that the people of Europe experienced 100 years ago.

Figure 4: the great wealth equalisation over the 20th century. Source: Waldenström (2024, Chapter 5)

H ow can we account for these historical trends showing a steady growth in average household wealth and, at the same time, wealth inequality falling to historically low levels, where it has remained in Europe but has risen lately in the US? One approach is to break down the top wealth shares into the accumulation of wealth in the top and bottom groups of the distribution. In other words, we decompose the change in top wealth shares by documenting the changes in absolute wealth holdings in the numerator and denominator of the top wealth-share ratio. Figure 5 below shows these numbers, and they are striking.

During no historical time period during the past century did the wealth amounts of the rich fall on average. The falling wealth concentration from 1910 to 1980 was instead the result of wealth accumulating faster in the middle classes than in the top. Since 1950, wealth holdings have actually grown in the entire population. Between 1950 and 1980, it grew faster among the lower groups in the wealth distribution, explaining the continued equalisation. After 1980, wealth has instead grown faster in the top percentile than in the lower classes, which accounts for the halt of the long equalisation trend and a slight upward trend in the top wealth share, driven by the US development, whereas the European countries remained at its historically low levels.

Figure 5: Western wealth growth: the middle class vs the rich. The graph shows a six-country average (France, Germany, Spain, Sweden, the UK, the US) of the average annual growth rate of real (inflation-adjusted) net wealth per adult individual in the top 1 per cent and the lower 90 per cent of the wealth distribution during three time periods. Source: Waldenström (2024, Chapter 6)

Looking at the specific factors that could account for these trends in wealth growth and wealth inequality, there are some that match the evidence better than others. According to the orthodox narrative, the main explanation was the shocks to capital during the world wars and postwar capital taxes, all of which are believed to have created equality through lowering the top of the wealth distribution. In this telling, the physical capital destruction in wars reduced the fortunes of the rich, and the immediate postwar hikes in capital taxes and market regulations, such as price controls and capital market restrictions, prevented the entrepreneurs from rebuilding their wealth.

Wealth and inheritance taxes reached almost confiscatory levels in the early 1970s

However, the thesis has some issues. One is that the evidence shows little difference between belligerent and non-belligerent countries. During both wars, the wealth share of the top 1 per cent fell equally in belligerent countries like France and the UK as in non-belligerent Sweden. Including the immediate postwar years, which were heavily influenced by wartime turbulence, does not change this pattern. Germany’s data from the wars is less clear, but it appears that the country experienced larger losses than others, reducing top wealth shares. Spain, which stayed out of both world wars but fought a civil war in the 1930s, saw the wealth share of the richest 1 per cent remain virtually unchanged between 1936 and 1939, according to preliminary estimates. Looking at the US, top wealth shares fell during both wars.

Analysing instead the changes in absolute wealth held by the rich and by the rest reinforces the conclusion that wars were not a devastating moment for capital owners. In fact, the fortunes of the elite did not shrink significantly, except in France during the First World War and seemingly in Germany during both wars. In other cases, the capital values of the rich remained almost constant, and the wealth equalisation observed can be attributed to growing ownership among groups below the top tier.

Progressive tax policies after the Second World War offer another potential explanation for the wealth-equalisation trend. Capital taxation increased rapidly between the 1950s and the 1980s in most Western countries. Wealth and inheritance taxes reached almost confiscatory levels in the early 1970s, and this coincided with stagnating business activities, few startups, slowed economic growth, and an exodus of prominent entrepreneurs from high- to low-tax countries. Few studies have been able to analyse systematically the extent to which these taxes prevented the rise of new large fortunes, but studies of later periods suggest that there are good grounds to believe they did.

A general problem for the factors above – which focus on shocks to the capital of the rich and thus lowering the top of wealth distribution as the primus motor behind the great wealth equalisation of the 20th century – is that the evidence presented in Figure 5 above shows that it was instead the lifting of the bottom of the distribution that accounted for the equalisation. Let us therefore shift focus and examine the two main channels through which this happened: the accumulation of homeownership and saving for retirement.

At the turn of the 20th century, owning a decent home and saving for retirement were luxuries enjoyed by only a select few – maybe a couple of tens of millions in Western countries. Today, the once-elusive dreams of home ownership and pensions have become a reality for several hundreds of millions of people. Homeownership rates went from 20-40 per cent in the first half of the former century to 50-80 per cent in the modern era. Retirement savings also increased in the postwar period, reflecting the longer life spans that came with the general improvement of living standards. Funded pensions and other insurance savings comprised 5-10 per cent of household portfolios around 1950, but this share increased to 20-40 per cent in the 2000s.

The most crucial equalisation resulted from expanded wealth ownership among ordinary citizens

History demonstrates that the significant wealth equalisation over the past century was primarily driven by a massive increase in homeownership and retirement savings. But what initiated this accumulation of assets by households? The most comprehensive evidence highlights the role of political changes and economic developments that explicitly included new groups in the productive market economy. Firstly, the 1910s and ’20s witnessed a broad wave of political democratisation, extending universal suffrage to the Western world. Following this regime shift, a series of reforms transformed the economic reality for the masses. Educational attainment was expanded, and higher education became accessible to broader segments of society. New labour laws improved workers’ rights, making workplaces safer and reducing working hours. These changes enhanced workers’ productivity and real incomes. Simultaneously, the financial system evolved by offering better services to this new constituency of potential customers, including cheaper loans, savings plans, mutual funds and other financial services.

Thus, the primary drivers behind the great wealth equalisation of the 20th century were not wars or the redistributive effects of capital taxation. While these factors had some impact, the most crucial equalisation resulted from expanded wealth ownership among ordinary citizens, particularly through homeownership and pension savings, and the institutional shifts that enabled the accumulation of these assets.

A general lesson from history is that wealth accumulation is a positive, welfare-enhancing force in free-market economies. It is closely linked to the growth of successful businesses, which leads to new jobs, higher incomes and more tax revenue for the public sector. Various historical, social and economic factors have contributed to the rise of wealth accumulation in the middle class, with homeownership and pension savings being the primary ones.

As a closing remark, it should be recognised that the story of wealth equalisation is not one of unmitigated success. There are still significant disparities in wealth within and among nations, generating instability and injustice. Over the past years, wealth concentration has increased in some countries, most notably in the US. The extent to which this is due to productive entrepreneurship generating products, jobs, incomes and taxes, or to forces that exclude groups from acquiring personal wealth causing tensions and erosive developments in society, is a question that needs to be studied more. However, at this point it is still vital to acknowledge the progress toward greater equality that has been made in our past and understand how it has happened. Only then can we be in a stronger position to lay the foundation for further advancements in our quest for a more just and prosperous world.

History of ideas

Settling accounts

Before he was famous, Jean-Jacques Rousseau was Louise Dupin’s scribe. It’s her ideas on inequality that fill his writings

Rebecca Wilkin

Philosophy of mind

Rage against the machine

For all the promise and dangers of AI, computers plainly can’t think. To think is to resist – something no machine does

Food and drink

The fermented crescent

Ancient Mesopotamians had a profound love of beer: a beverage they found celebratory, intoxicating and strangely erotic

Tate Paulette

Politics and government

The spectre of insecurity

Liberals have forgotten that in order for our lives not to be nasty, brutish and short, we need stability. Enter Hobbes

Jennifer M Morton

The script creator

Pau Cin Hau dreamt of an alphabet for a language that had never been written down. So began the religion of Laipianism

Bikash K Bhattacharya

Human rights and justice

Utah is so gay!

The Mormon state is seen as deeply homophobic. Yet, from polygamy to pride, Mormons themselves are a distinctly queer lot

Kristi Rhead

The Wealth Gap Myth: Why Everything You Thought About Inequality is Wrong

Daniel Freeman of the Institute of Economic Affairs interviews Professor Daniel Waldenström about his new book, "Richer & More Equal: A New History of Wealth in the West." Waldenström's research suggests that wealth inequality has decreased over the past century, with the middle class experiencing significant growth in wealth accumulation.

The discussion covers changes in wealth composition, shifting from agricultural land and industrial shares to widespread homeownership and pension savings. Waldenström examines the effects of world wars and economic policies on wealth distribution, and compares European and American experiences of wealth concentration in recent decades.

This conversation explores how wealth is measured, the impact of technological advancements, and the potential benefits of promoting homeownership and funded pension systems. Waldenström's work offers a different perspective on wealth creation and distribution, encouraging viewers to reconsider common assumptions about economic progress in the West. The interview provides an accessible look at wealth inequality trends for those interested in economic history and current debates.

Discussion about this podcast

Ready for more?