The 1% Gets 93% of the Growth From the Recovery
We were recently heartened by news that unemployment had reached its lowest point in the last four years.
University of California at Berkeley economics professor Emmanuel Saez analyzed the income gains and losses of the 1% over the last two economic growth periods and recessions.
And … yikes. From 2009-2010, the 1% captured 93% of the income growth. Seriously. 93%.
To put it another way, in those years, the 1% saw their incomes rise 11.6%. The 99% saw their incomes rise 0.2%.
Let’s take a look at the bigger picture to see how the two groups’ earnings have differed in the past.
How the 1% and 99% Fared Over the Last Two Decades
It turns out this isn’t an isolated case: Over the last couple of decades, the incomes of the two groups have fluctuated in very different ways.
This chart shows that the 1% gain more during periods of growth, but they also lose more during recessions.
|Cycle||Top 1% Income Growth||99% Income Growth|
|Clinton Expansion 1993-2000||98.7%||20.3%|
|2001 Recession 2000-2002||(30.8%)||(6.5%)|
|Bush Expansion 2002-2007||61.8%||6.8%|
|Great Recession 2007-2009||(36.3%)||(11.6%)|
So, the 1% are subject to much greater swings in their incomes than the 99%.
This would make sense, since they have a cushion of non-essential money. That allows them to bet on risky investments that could potentially make a killing without worrying about missing a mortgage payment if that gamble goes south.
Another noteworthy point is that, compared to the 99%, the 1% gained much more wealth from 2002-2007 than they did from 1993-2000. During the Clinton years, the 1% gained roughly five times as much wealth as the 99%, whereas they gained almost ten times as much wealth as the 99% from 2002-2007.
Saez says this difference “may help explain why the dramatic growth in top incomes during the Clinton administration did not generate much public outcry, while there has been a great level of attention to top incomes in the press and in the public debate since 2005.”
If you’re reading about the economic recovery and not feeling much of it yourself, now you see why. An income growth of 0.2% for the 99% rounds to zero, which is literally nothing to get excited about.
But don’t despair.
First, if you look at the chart above, you’ll see that swings are common. So, while we’re in a trough and we don’t know how long it will last, odds are that we’ll see sunnier days at some point in the future. But no one has a crystal ball that says when that will happen. So in the meantime, work on the things you can control.
This means doing whatever you can to keep yourself protected against continued economic malaise or further downturns. In fact, we’ve got a few suggestions.
- We’ve said it once and will say it again: Shore up your emergency fund. Gather up at least six months’ worth of living expenses for a future rainy day. As you see from the chart above, there are always rainy days, even for the 1%.
- Always do what you can do to save for retirement. That way when you stop working, you can really stop working.
- Lastly, remember, no situation lasts forever. Circumstances are always changing, and there are things you can do now to prepare for any future opportunities that may come your way.
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