Household income gap widening in boom times

The economy is creating millionaires at a rapid pace, but what’s it doing for everyone else?

The U.S. economy is minting new millionaires at an astonishing rate, according to a paper by New York University economist Edward N. Wolff.

The number of households with a net worth of $1 million (measured in constant 1995 dollars, or about $1.6 million today) grew from 2.4 million households in 1983 to 9.1 million households in 2016, a growth rate of 279 percent.

For comparison, the total number of households grew by just 50 percent over that period, meaning that the population of millionaires grew at more than 5 times the rate of the general population. In 1983 fewer than 3 percent of households had a net worth greater than $1 million in 1995 dollars. By 2016, over 7 percent of households were worth that much.

Net worth is a measure of a household’s assets, such as home value, stocks and retirement accounts, minus debts. From 2013 to 2016 alone, the economy added over 2 million households with a net worth of $1 million or more in constant 1995 dollars. That works out to roughly 1,845 new millionaire households each day during that period.

Rates of growth in the upper echelons of the wealth spectrum have been even more rapid. From 1983 to 2016, the number of households worth $5 million grew by 649 percent. The number of households worth $10 million or more grew by 856 percent over the same period.

“Much of the growth [in millionaire households] occurred between 1995 and 2001 and was directly related to the surge in stock prices,” Wolff writes in his paper. The real estate market has also been a significant factor in recent years.

The results “show growing polarization with [the] very wealthy pulling farther away from the middle,” Wolff said via email. This is also plainly apparent in the increasing share of American wealth owned by the richest 1 percent of households, he said.

Downward trends

The American middle class has been in decline for decades. As of 2015, middle class households were no longer a majority in the United States, according to a Pew Research Center analysis. Part of that shift is due to people falling out of the middle class: Between 1971 and 2015, the share of American adults in the “lower middle” and “lowest” income tiers grew by four percentage points, according to Pew.

But the middle class is also shrinking because many households are becoming better off, as the American Enterprise Institute’s Mark Perry has noted. This is undoubtedly good news, particularly for the newly prosperous families benefiting from the trend.

As the middle class shrinks under pressure from the top and bottom of the income spectrum, the danger is that growing inequality will create a society of haves and have-nots, rather than one based in shared, broad-based prosperity. Wolff’s research has also shown that the richest 1 percent of Americans now own nearly twice as much wealth as the bottom 90 percent combined.

Similarly, gains in income have been flowing primarily to the richest households in recent years.

Regardless of the number of millionaires created each day, the rise in inequality could

spell trouble for the economy if it continues unabated. Too much inequality can depress economic growth in a number of ways. As the Economist summarized the research in 2015, “inequality could impair growth if those with low incomes suffer poor health and low productivity as a result, or if, as evidence suggests, the poor struggle to finance investments in education.”

Going beyond dollars and cents, it doesn’t appear that the meteoric rise of the millionaire class is making Americans healthier, happier or more satisfied with their lives overall. National surveys paint a consistent picture of declining American happiness in recent decades. We spend more money on health care than citizens in other wealthy nations, but we die younger. We’re getting shorter. We hurt more. If money can buy happiness, it’s clear that for many Americans, it’s at too high a price.