The bottom fifth of Americans is suffering the worst of the downturn, losing ground on income and total wealth compared to the average American at a rate that is the worst since the end of World War II, according to new research from the Federal Reserve Bank of Minneapolis.
Nevertheless, their disposable income and spending on ordinary consumer goods remained about the same relative to the average, thanks to government safety net programs operating at historic highs.
The bottom 20 percent of people saw their earnings fall by 30 percent relative to the median during the recession, report bank researchers in a new working paper. Net wealth fell by 40 percent.
Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did
“Our first finding is that during and after the Great Recession, the bottom of the U.S. earnings distribution has fallen dramatically. This is the result of historically high unemployment and nonparticipation,” write Fabrizio Perri and Joe Steinberg.
“In terms of earnings, the bottom 20 percent of the U.S. population has never done so poorly, relative to the median, during the whole postwar period. We also show that this group experienced rapidly declining wealth.”
Nevertheless, the U.S. safety net seems to have worked to catch those who fell the hardest, although they did lose some ground and are not in a good position going forward.
“Our main substantive conclusion is that government redistribution in the Great Recession was at historical highs and partially shielded households from experiencing large declines in disposable income and consumption expenditures,” they write.
“The same households, though, have experienced losses in net wealth, and this might make them more vulnerable to further or more persistent earnings declines in the future.”
U.S. jobless claims remained at a four-year low in the latest reporting. Initial claims stood at 351,000 last week, the Labor Department reported. The official jobless rate was at 8.3 percent in January, down from 9.1 percent in August.
Nearly 24 million Americans are out of work or underemployed and 7.5 million claim unemployment benefits.
Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did
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