Household income grows, but so does gap

Richest households reap the biggest gains in latest Federal Reserve survey

American households, including the middle class, saw both their incomes and wealth rise significantly from 2013 to 2016 for the first time since the Great Recession, but the gap between rich and poor continued to widen.

Those with less education and minorities realized proportionally bigger gains than college graduates and whites. Yet highincome households outpaced their lower-earning counterparts, the Federal Reserve said in its triennial Survey of Consumer Finances.

“While there was a sizable rebound in median income,” it “remains below its 2007 level,” says Elise Gould, senior economist at the left-leaning Economic Policy Institute. She also cited “growth in income inequality.”

U.S. median household income, adjusted for inflation, increased 10% to $52,700 after falling in the prior two three-year periods, the Federal Reserve said. Incomes were bolstered by an improving economy and an unemployment rate that fell to 5% from 7.5% during the period, the Fed said. Stronger job growth substantially increases incomes as the unemployed return to work.

Median net worth, or wealth, increased 16% to $97,300. The measure fell from 2007 to 2010 and showed little change from 2010 to 2013. Middle-class Americans, whose net worth hinges largely on house values, benefited from home prices that increased at an annual rate of 6.5% from early 2013 to early 2016, far outpacing inflation. Stock values, which mostly lift wealthier households, grew at an annual rate of about 9%, the Fed said.

The gains in both income and wealth were broad-based across virtually all demographic groups.

But households headed by people without a college degree saw their median income rise 6% to 15% as those without a high school diploma netted the biggest gains. As the low unemployment rate — now 4.4% — has made it tougher for employers to find workers, less-skilled Americans who had been left on the sidelines have been able to catch up.

Also, incomes increased 10% to 19% for blacks, Hispanics and other racial groups, compared to 6% for whites.

Despite these advances, the median income for college graduates was $92,000 last year, compared to $27,000 for high school dropouts. And whites had a median income of $61,000 vs. $35,000 to $38,000 for blacks and Hispanics.

Also, the biggest increases continued to flow to higher-income workers. Median income rose 3% to $16,000 for the lowest percentile of households and 9% for the top group with median earnings of $251,000.

That expanded the nation’s income divide. From 2013 to 2016, the share of income going to the top 1% of families climbed to 23.8% from 20.3% The portion going to the bottom 90% slipped from about 54% to 50%.

A similar dynamic was at play in measures of wealth. Net worth increased 24% to 29% for households headed by less-educated individuals, compared to 2% for those led by college graduates. But median net worth was $292,000 for college grads, vs. $23,000 to $67,000 for the less educated. Minorities also saw sharper gains than whites but still had substantially lower median net worth.

The richest households reaped the biggest gains as the median net worth for the top percentile rose 24% to $2.4 million. There was barely any increase for the bottom group with median net worth of $200.

As a result, the share of wealth held by the top 1% of households rose to 38.6% from 36.3% over the three-year period. The portion controlled by the bottom 90% has been falling for decades — from 33.2% in 1989 to 22.8% last year.

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