Working-class families are finally seeing their wealth getting back to where it was before the Great Recession started at the end of 2007. This comparison, though, ignores that families had already lost a lot of ground by then. Slow wage growth and rising costs led people to borrow a lot. Mortgages, credit cards, student loans and car loans all soared after the labor market boom of the late-1990s ended , contributing to a massive decline in household wealth after 2000. In early 2019, average real wealth for the bottom half of households was about half of what it was in 1999. Middle class families didn’t just lose one decade. Instead, they are nearing the end of their second decade of persistent economic insecurity.
Families rely on their wealth to get ahead and to help them pay their bills in tough times. They can use their savings to move to new jobs when better opportunities arise, start a business, finance part of their and their children’s education and support a dignified retirement, among other things. Wealth also helps families to pay their bills in an emergency such as a layoff, cut back in hours, and a medical incidence or chronic illness.
Wealth has become more important for families over the years. Education and health care, among other things, cost a lot more. And when people now lose a job, they need to keep looking longer for a new one and thus rely on their savings longer than in the past. Families also need more money to fund their retirement. They live longer and the age for full Social Security retirement benefits keeps going up to 67.
Just as working-class families needed more wealth, their wealth fell sharply during the Great Recession and only slowly came back. All families in the bottom half of the wealth distribution owned 1.3% of all wealth by the end of 2019 (see figure below). This was also their share at the end of 2007. It declined during the Great Recession so much that it actually became negative by the middle of 2010. Working-class families owed more money than their savings were worth, mainly because they still owed a lot of debt but the value of their houses had dramatically dropped. It took another nine years for the share of wealth belonging to working-class families to just get back to where it was in late 2007.
Contrast this to what happened to the wealth of the top 10% of households. By the end of 2007, they owned 68.1% of all wealth. During the Great Recession, their wealth share barely declined to 67.9% before it quickly increased again. Since 2017, the wealthiest 10% of household owned 70% or more of the country’s total wealth.
Expressing wealth in shares, though, doesn’t tell us much about working-class economic security. Average wealth for the bottom half of households amounted to $17,512 in wealth (in 2019 dollars) by the end of 2017 (see figure below). It fell to a negative $2,833 by June 2010, grew again to between $17,000 and $18,000 by late 2017 and early 2018 and to $20,506 by early 2019. This amount is comparable to their average wealth in early 2007 – a few months before the Great Recession got under way.
But this comparison is misleading. The same amount of wealth now needs to go a lot further than in the past. It now buys less economic mobility and security than it did before the Great Recession.
It may also sound good that working-class families are finally getting back to where they were more than a decade ago. But this comparison overlooks the steep decline in wealth before the Great Recession actually got under way. Average wealth at the start of 2007 was already far down from its peak at the end of the 1990s when it averaged more than $39,000 (see figure above).
Compare this again to what has happened to wealth at the top. Using Fed data and adjusting for the number of households available from the Census, the wealthiest 10% of families owned an average of $4.4 million (in 2019 dollars) at the end of 2007. It fell to $3.7 million in March 2009 and started to go up again before the Great Recession even ended. Average wealth at the top exceeded $4.4 million by the second half of 2013, just four years after the recession ended, and kept rising. The wealthiest families owned an average of $5.6 million by early 2019, the largest level on record, dating back to 1989.
This wasn’t just because the top 1% pulled away from everyone else. The average wealth for all other households in the top 10% — those between the 90th and 99th percentile – amounted to a record $3.1 in early 2019.
Working-class families have seen improvements in their economic security over the past decade. The economy and the labor market have steadily grown, debt has stabilized and house values have eventually increased again. Families had been waiting for a long time for these improvements. These gains, though, only got families back to where they were more than a decade ago. Their wealth is still well below where it was almost two decades ago before the labor market substantially weakened, employment opportunities disappeared and income and wealth inequality sharply went up from already high levels. Working-class families now find themselves near the end of the second decade of struggling with rising costs and little savings to help them get ahead and back them up in an emergency. It is high time that policymakers made sure that the economy actually works for working-class families, not just for the wealthy few.