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The Asset Price Meltdown and the Wealth of the Middle Class

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  • Edward N. Wolff

Abstract

I find that median wealth plummeted over the years 2007 to 2010, and by 2010 was at its lowest level since 1969. The inequality of net worth, after almost two decades of little movement, was up sharply from 2007 to 2010. Relative indebtedness continued to expand from 2007 to 2010, particularly for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. In fact, the average debt of the middle class actually fell in real terms by 25 percent. The sharp fall in median wealth and the rise in inequality in the late 2000s are traceable to the high leverage of middle class families in 2007 and the high share of homes in their portfolio. The racial and ethnic disparity in wealth holdings, after remaining more or less stable from 1983 to 2007, widened considerably between 2007 and 2010. Hispanics, in particular, got hammered by the Great Recession in terms of net worth and net equity in their homes. Households under age 45 also got pummeled by the Great Recession, as their relative and absolute wealth declined sharply from 2007 to 2010.

Suggested Citation

  • Edward N. Wolff, 2012. "The Asset Price Meltdown and the Wealth of the Middle Class," NBER Working Papers 18559, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18559 Note: AG LS PR
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    References listed on IDEAS

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    1. Maury Gittleman & Edward N. Wolff, 2004. "Racial Differences in Patterns of Wealth Accumulation," Journal of Human Resources, University of Wisconsin Press, vol. 39(1).
    2. Francine D. Blau & John W. Graham, 1990. "Black-White Differences in Wealth and Asset Composition," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 321-339.
    3. Kennickell, Arthur B & Woodburn, R Louise, 1999. "Consistent Weight Design for the 1989, 1992 and 1995 SCFs, and the Distribution of Wealth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(2), pages 193-215, June.
    4. Edward N. Wolff, 1998. "Recent Trends in the Size Distribution of Household Wealth," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 131-150, Summer.
    5. Edward N. Wolff & Ajit Zacharias & Thomas Masterson, 2009. "Long-Term Trends in the Levy Institute Measure of Economic Well-Being (LIMEW), United States, 1959-2004," Economics Working Paper Archive wp_556, Levy Economics Institute.
    6. Wolff, Edward N, 1979. "The Distributional Effects of the 1969-75 Inflation on Holdings of Household Wealth in the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 25(2), pages 195-207, June.
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

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