Impact of the 2008 Recession on Wealth-Adjusted Income and Inequality for U.S. Cohorts

Abstract

Objective: To examine the distributional effects of the 2008 recession and subsequent recovery across generational cohorts.

Methods: Using data from the Survey of Consumer Finances (2007-2016), we constructed a measure of economic well-being accounting for income, household size, and annuitized value of assets. We examine trajectories of adjusted income and inequality, using Gini coefficients and income shares by decile, for the overall population and by cohort during the recession and recovery.

Results: Inequality declined temporarily during the recession, but reached new highs during the recovery. During recovery, population-level increases in economic resources were not reflected among below-median households, as the more concentrated financial assets rose while broader-based home equity and employment fell or remained stagnant. Inequality measures increased for cohorts in their primary working years (Generation-X and Baby Boomers), but not among the younger Millennials, who were at early stages of education, workforce entry, and household formation.

Discussion: The study illustrates an integrative approach to analyzing cumulative dis/advantage by considering interactions between historically consistent macrolevel events, such as economic shocks or policy choices affecting all cohorts, and the persistent life-course processes that tend to increase heterogeneity and inequality as cohorts age over time. Although recovery policies led to rapid recovery of financial asset values, they did not proportionately reach those below the median or their economic resource types. Results suggest that in a high-inequality environment, recovery policies from economic shocks may need tailoring to all levels of resources in order to achieve more equitable recovery outcomes and prevent exacerbating cohort inequality trajectories.

Keywords: Generational outcomes; Wealth distribution trends; Wealth inequality.

Figure 1.

Population trends of mean wealth-augmented income and inequality. Notes: Data from triennial waves of the Survey of Consumer Finances 2007–2016. Gini income (solid line) is presented as a factor of the federal poverty level, which adjusts for household size, and is measured on the left y-axis. Income includes an annuitized portion of household wealth to better represent household resources. Mean inequality (dashed line) is measured on the right y-axis using the same income definition.

Figure 2.

Trajectories of income, net worth, and portfolio composition among below-median and top tenth of wealthiest US Households 2007–2016. Notes: Data are from the 2007–2016 Survey of Consumer Finances. Outcomes are scaled by the federal poverty level for household size. In Panel B, the y-axis reports multiples of the poverty level. In Panel A, 2007 is indexed to one. Wealth-augmented income is constructed as the sum of nonasset income and an annuitized share of household wealth, adjusted for household size and inflation.

Figure 3.

Cohort-specific income shares. Notes: Data from triennial waves of the Survey of Consumer Finances. Cohorts are defined by birth years (Table 1). Bars represent the share of household income realized by the top 10% of cohort members (top bars) and realized by the bottom half of cohort members (bottom bars) in each panel. Wealth-augmented income is constructed as the sum of nonasset income and an annuitized share of household wealth, adjusted for household size and inflation.