An Income Gap That Goes Beyond Wages
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New research shows how earnings from assets like stocks and real estate have become increasingly uneven across the U.S.
As income inequality in the U.S. has grown more severe in recent decades, with wealthier households gaining and lower and middle income Americans falling further behind, a big part of the debate over how to restore more balance has focused on boosting wages.
New research digs into another aspect of earnings and wealth building: asset income from sources like dividend payments to shareholders, interest earned from deposits, bonds or other lending, and rent from investments in real estate or land. This type of income is substantial, accounting for about 20% of the nation’s personal earnings. But the report from the Economic Innovation Group suggests it is increasingly held in fewer places and by fewer hands.
“What struck me most, and the big headline, is just how concentrated asset income and wealth income is in the United States today,” said Kenan Fikri, director for research and policy development at EIG—a research and advocacy group that focuses on issues around entrepreneurship and investing and is known for backing the Opportunity Zones program.
For state and local policymakers thinking about how to tackle income inequality, or just seeking to understand the geography of wealth in their states, EIG’s research—which looks at asset income at the county level using data through 2019—could provide insights.
The national level for per capita asset income in 2019 was about $11,400, the researchers found.
The report notes that the number of counties with per person asset income that is at least two times the national level roughly doubled from 1990 to 2019. Meanwhile, nearly a quarter of counties have per capita asset income that is less than the national rate, compared to 1990 when that figure was just 10%. So, like other regional economic metrics in recent years, places at the top are booming, as more fall to the bottom and the middle becomes more hollowed out.
Many of the epicenters for asset income aren’t surprising. They include hubs for technology and financial services (San Francisco and New York City), places with mining, gas and oil drilling, or agriculture (McMullen, Texas, and Golden Valley, Montana) and recreation and vacation destinations (the area around Jackson Hole, Wyoming, and Nantucket, Massachusetts).
Teton County, where Jackson Hole is located, an enclave for the rich, has the highest income from assets per capita among counties, at $161,400. In contrast, in Uinta County, Wyoming, in the southwest corner of the state, that figure is just $7,100 per person.
Examples of these rifts can be found in other regions. In Manhattan, per capita income from assets is around $64,200, while in the Bronx it is just $4,800. Comparing different parts of the country shows how, in a place like King County, Washington, home to Seattle, per capita income from assets is $24,100, while in Wayne County, Michigan, where Detroit is located it is $6,900.
A factor driving the trends seen in the report is that people working in tech and other lucrative sectors tend to see their incomes buoyed substantially by stock options. While at the low-end of the earnings ladder people often lack access to even 401(k) retirement accounts.
Limited Wealth Holdings
Fikri said what motivated the EIG research project, and what he thinks is important to highlight, is not necessarily that the earnings among the wealthy are so outsized, but that in so many places people draw very little income from assets.
“It shows, I think, just how limited wealth holdings are across much of the country,” Fikri said. Even modest ownership of stocks or bonds, or rentable property, can go a long way toward fostering financial stability, he added. “We don’t all need a second home in Nantucket.”
The gaps that the findings illustrate come into even sharper focus when set against the past 18 months and the coronavirus pandemic. Generally, the wealthy, and even many upper middle-income earners with money stashed away in retirement accounts, saw their investments grow. On the other hand, lower-income workers with less wealth bore the brunt of the economic downturn.
Fikri said the findings could be useful “as we think about how to advance an economic inclusiveness agenda that goes beyond just wages” and the debate over a $15 minimum wage.
“Democratizing these ownership stakes in the economy, that’s the next frontier,” he said.
Bill Lucia is a senior editor for Route Fifty and is based in Olympia, Washington.
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