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Pre-Recession Middle-Class Debt Helped Sink Net Worth, NYU Economist Wolff Finds

August 26, 2013
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The American middle class was sinking into debt well before the onset of the recession and the housing crisis, a development that took a heavy toll on its net worth once the economic downturn began in 2008, according to a study by New York University economist Edward Wolff.

His findings appear in a report, “The Middle Class: Losing Ground, Losing Wealth,” released by the US2010 Project at Brown University.

Wolff’s findings show that by 2010 more than one in five households had zero or negative net worth.

“The high debt levels of the middle class in 2007 created a ‘leverage’ effect, causing their net worth to drop twice as much in percentage terms as housing prices,” Wolff observed.

By contrast, he added, from 1983 to 2010 the top 1 percent of Americans saw their wealth rise by 71 percent.

The report may be downloaded here.

The study is accompanied by a second set of US2010 Project findings—by Cornell University economist Richard Burkhauser and Jeff Larrimore of the Joint Committee on Taxation—that shows middle- class incomes were already stagnating in the period 2000-2007, then plummeted in the Great Recession.

The authors note that two basic population trends will challenge the U.S. economy in the near future: one, the Baby Boom generation, which supported the economy during its peak earning years, is starting to retire, which will dramatically increase the number of low-income older individuals, and, two, relatively high-income whites are being replaced by minorities, especially Hispanics, whose incomes have remained around 60 percent of white incomes over the last decade.

Burkhauser and Larrimore project that these two trends together will reduce growth in median incomes by about a half percent per year through 2030, independent of other sources of change.

Their report, “Median Income and Income Inequality: From 2000 and Beyond,” may be downloaded here.

Funded by the Russell Sage Foundation and Brown University, the US 2010 research project examines changes in American society in the recent past. For more, go to the US 2010 project web page: www.s4.brown.edu/us2010.

This Press Release is in the following Topics:
Research, Arts and Science

Type: Press Release

Press Contact: James Devitt | (212) 998-6808

Pre-Recession Middle-Class Debt Helped Sink Net Worth, NYU Economist Wolff Finds

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