Monday, September 20, 2010

Rich Getting Richer, Riskier

It's common knowledge that the gap between rich and poor has grown substantially in recent decades, but a new paper from two Northwestern economists suggests that as the rich have grown wealthier, their income has also become more volatile. The top 0.01% of Americans have seen their income drop by 12.7% since the recession began. Americans in general have seen their income fall just 2.6%. More importantly, the wealthy have gained much more than the rest of the country in boom times; in the four years prior to the recession, the same one-in-ten-thousand saw incomes increase 13.9% while the other 99.99% saw incomes rise just 1.8%. Defining wealth more broadly, the same pattern remains. From 1982 to present, income for the top 1% has been 2.4 times more volatile than for the rest of the rest of country, while from 1946-1982 their income was 30% less than average. The paper found these trends to hold in both the United States and Canada (where income inequality is not as high). In short it's getting better, but riskier, to be rich, at least in North America.

According to the Wall Street Journal same trends of globalization and new technology that have helped the rich get richer by exposing them to growth in the global economy also exposes them more to slowdowns and are likely also the reason that their incomes are more volatile.

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