Some on the political left have used analyses by French economists Thomas Piketty and Emmanuel Saez to argue that the "top 1 percent" have captured all of America's post-Great Recession economic gains.
This claim has no basis in fact. Focusing only on the recovery leaves out vital context, too: higher-income households see the largest losses during recessions and largest gains during recoveries. Painting an accurate picture requires a time frame that includes both.
Saez releases new inequality estimates every year, along with a summary of inequality trends and levels. The claim that all gains have gone to the top 1 percent of US households comes from his January 2015 summary, where he noted that 91 percent of the income growth in the U.S. between 2009 and 2012 went to the top 1 percent of tax units. But Saez's June 2015 summary updated his data through 2014 and reported that the top 1 percent had received 58 percent of income gains from 2009 to 2014.
Saez uses a cost-of-living adjustment that overstates inflation. Using the best available measure, 54 percent of income growth went to the top 1 percent from 2009 to 2014. This means that the top 1 percent saw their incomes rise by 29 percent ($280,000), on average, and the bottom 90 percent saw a rise of 3 percent ($900).
While the top 1 percent of households received an outsize share of income growth during the recovery, they also suffered a disproportionate share of income losses during the Great Recession. From 2007 to 2009, real income declined in the US, with fully half the decline falling on the top 1 percent. The average income of the top 1 percent was 36 percent lower ($553,000, on average) in 2009 than in 2007. Among the bottom 90 percent, income was 12 percent lower ($4,300).
All told, in 2014, the top 1 percent was still poorer, by 18 percent, than it was in 2007, compared with a 9 percent decline for the bottom 90 percent. So far in this business cycle, there have thus been no income gains to divide between rich and poor (at least according to the Piketty-Saez data).
Meanwhile, an enormous share of the losses, 46 percent, has accrued to the top 1 percent. Even more stunning, the top 1 percent's income was essentially no higher in 2014 than in 2000 — a fact that provides context to the income stagnation experienced by the US middle class since 2000. To the extent that income growth has stalled, it has stalled for all Americans. The difference between what has happened at the top and elsewhere is that the top has seen large booms and busts while changes below have been more muted.
There is nothing unique about the current cycle. This pattern for the top 1 percent — outsize gains during recoveries and outsize losses during contractions — has recurred since 1982. As the current recovery continues, one can expect income growth to continue accelerating at the bottom; and one can expect income gains over the entire cycle for the top and bottom. By the time we reach our next peak, the share of gains going to the top is likely to be similar to the respective shares of earlier business cycles.
Note, too, that in the presence of initial inequality, the top 1 percent will receive an outsize share of income growth — even if everyone's income rises by the same amount. For example, the top 1 percent received 18 percent of total income in 2009. Had incomes risen by the same amount across the board between 2009 and 2014, the top 1 percent would have received 18 percent of income growth. Its actual 54 percent share, as well as its eventual peak-to-peak share once this business cycle ends, should be compared with this baseline (18 percent of gains), not with a hypothetical baseline in which the top 1 percent receives only 1 percent of income growth.
None of this is to deny that income inequality has risen in America in recent decades. But all the gains have not gone only to the top, and the rise in income concentration has been considerably less severe than widely acknowledged. Indeed, claims that only the very top earners benefit from economic growth — or that the rich are unaffected by recessions — are patently false. US income data reveal that an economy that works for those at the top is also one that works for everyone.
This is an excerpt from the new Manhattan Institute report, "Reality Check: The Top 1 Percent Have Suffered Nearly Half of All Losses in This Business Cycle."