Ponds and streams: wealth and income in the U.S., 1989 to 2007

Much discussion treats the working definitions of wealth and income as if they were self-evident, but definitional choices can make substantial differences in the overall picture. To provide a clear basis on which to examine family wealth and income their interrelationship, this paper begins with a basic discussion of a range of possible measures of those concepts. Using the measures developed, the paper examines the distributions of wealth and income and their joint properties using data from the 1989–2007 waves of the Survey of Consumer Finances (SCF). Among other things, the data show a complicated pattern of shifts in the wealth distribution, with clear gains across the broad middle and at the top. For income, there is a more straightforward picture of rising inequality. Over this period, wealth as a fraction of income moved up across both the distributions of wealth and income. Nonetheless, their joint copula distributions (a type of distribution with uniform margins) do not show noticeable changes over this time. The consistent pattern is that very high wealth and income and very low wealth and income go together, but in between these poles, the relationship is fairly diffuse. The paper also presents information on the composition of wealth and income over the 18-year period; the general patterns of holdings across the distributions did not change markedly, but there were some important shifts. For wealth, debt increased as a share of assets across the wealth distribution, the share of principal residences rose mainly below the median of net worth, the share of tax-deferred retirement accounts rose and the share of other financial assets declined. For income, the clearest change was a general decline in the relative importance of capital income other than that from businesses.