It’s been ten years since the beginning of the Great Recession. The stock market peaked in October 2007, and over the next 16 months the value of the U.S. stock market was cut in half. Employment peaked in December 2007, and during the 18 months that followed more than 8 million jobs were lost. According to The National Bureau of Economic Research, the recession officially ended in June 2009.
A decade later, our economy has recovered in many ways, but it is clearly not the same as it was prior to 2007. For example, one of the most remarkable aspects of the American recovery has been the decline of the unemployment rate. In October 2017, it reached a 16-year low of 4.1% (down from over 9% in 2009), with many industries reporting difficulty in finding qualified candidates. That sounds good for wage-earners, until you consider the fact that roughly 50% of all workers make less than $30,000 per year. For comparison, the Federal Poverty level for a family of four is $24,600. Therefore, it is not surprising that roughly 60% of all American households have less than $1,000 in their “emergency fund”.
On the positive side, the low unemployment rate has started to push wages up in many areas of the country. This could help to keep the economy growing for at least another year. Median household income is finally back to where it was in 2000 and 2007 (about $60,000 per year). According to the Federal Reserve, people are feeling more comfortable with their financial situation today than they were five years ago.
But the recession didn’t just impact earnings—it also erased a significant amount of wealth. Net worth for the median U.S. household dropped 40% from 2007 to 2013. Net worth is rising again, but is nowhere near 2007 levels. In fact, median net worth today is only slightly higher than where it was in 1995. While most people are struggling to build back what they lost during the Great Recession, a small minority are doing quite well. Rising values in stocks and real estate have widened the wealth gap over the past 10 years. In fact, wealth inequality by income level is at its widest point ever—the median net worth of upper-income households has grown from 40 times that of low-income households in 2007 to 75 times today. In real terms, families in the upper-income bracket have a median net worth of over $800,000.
What does this wide gap in wealth mean for the future of our economy? For our country? The top 1% of households now hold roughly 40% of our nation’s wealth, whereas the bottom 90% hold only 20%. A strong middle class, for many people, is considered central to the American ideal and the backbone of a healthy democracy. In “Politics”, Aristotle wrote that it is unavoidable to have both “advantaged” and “disadvantaged” populations within a society, but that neither of these parties should be allowed to rule. A strong middle class, ideally, should outnumber both the prosperous and the needy, providing just and compassionate rulers while working to counteract polarizing views.
While no one can wave a wand and magically increase the middle class, we can all do our part to promote and facilitate those factors that help move people one step closer to achieving their own financial security.