Wealth and Income Inequality in America, 1949-2013

Income and wealth inequality in the United States are at historical highs. This paper introduces data from historical waves of the Survey of Consumer Finances (SCF) for the entire post-WW2 period from 1949 to 2013. The new data allow us to add important new aspects to the inequality debate. As the historical household surveys cover the entire balance sheet of households, we can study income and wealth inequality jointly. The data gives us a detailed picture of inequality trends among the bottom 90 %. We document a substantial hollowing out of the middle class as income and wealth concentration at the top was accompanied by losses concentrated in the middle of the distribution. For the first time we can directly contrast the evolution of income and wealth inequality. We show that the income inequality rose earlier and more strongly. We explain this finding by differences in household portfolios. The typical middle-class portfolio is both highly concentrated in housing and highly leveraged. Until the crisis, rising house prices compensated for relative income losses and the growing concentration of financial wealth at the top. Rising middle-class housing wealth gains mitigated the rise in wealth inequality relative to income inequality. The documented differential trends in the evolution of income and wealth inequality provide important information to discriminate between different sources of rising inequality in structural macroeconomic models. Our results highlight the importance of price effects and differences in portfolio composition to understand trends in wealth inequality.