RSF: The Russell Sage Foundation Journal of the Social Sciences Wealth Inequality: Economic and Social Dimensions Volume 2 • Number 6 • october 2016 RSF: The Russell Sage Foundation Journal of the Social Sciences ISSN 2377-8261 The Russell Sage Foundation The Russell Sage Foundation, one of the oldest of Copyright © 2016 by Russell Sage Foundation. All rights America’s general purpose foundations, was established reserved. Printed in the United States of America. No part in 1907 by Mrs. Margaret Olivia Sage for “the improvement of this publication may be reproduced, stored in a retrieval of social and living conditions in the United States.” The system, or transmitted in any form or by any means, elec- founda tion seeks to fulfill this mandate by fostering tronic, mechanical, photocopying, recording, or otherwise, the development and dissemination of knowledge about without the prior written permission of the publisher. 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The introduction to each issue will include an ac cessible, broad, and synthetic overview of the research ques tion under consideration and the current thinking from the various social sciences. Rsf Journal Editorial Board Elizabeth O. Ananat, Duke Jennifer Hochschild, University Harvard University Annette Bernhardt, Douglas S. Massey, University of California, Princeton University Berkeley Mary E. Pattillo, Karen S. Cook, Stanford Northwestern University University James Sidanius, Harvard Sheldon H. Danziger, RSF University President Mary C. Waters, Harvard Janet C. Gornick, The University CUNY Graduate Center Bruce Western, Harvard University RSF: The Russell Sage Foundation Wealth Inequality: Journal of the Social Sciences Economic and volume 2 number 6 october 2016 Social Dimensions issue editors Fabian T. Pfeffer, University of Michigan Robert F. Schoeni, University of Michigan contents Part III. Social Dimensions of Wealth Part I. Introduction Inequality How Wealth Inequality Shapes Our Does Your Home Make You Wealthy? 110 Future 2 Alexandra Killewald and Brielle Bryan Fabian T. Pfeffer and Robert F. Schoeni A Wealth of Inequalities: Mass Incarceration, Part II. Economic Dimensions of Wealth Employment, and Racial Disparities in U.S. Inequality Household Wealth, 1996 to 2011 129 Bryan L. Sykes and Michelle Maroto Household Wealth Trends in the United States, 1962 to 2013: What Happened over Health Shocks and Social Drift: Examining the Great Recession? 24 the Relationship Between Acute Illness and Edward N. Wolff Family Wealth 153 Jason Thompson and Dalton Conley Inequality and Mobility Using Income, Consumption, and Wealth for the Same Passing It On: Parent-to-Adult Child Individuals 44 Financial Transfers for School and Jonathan Fisher, David Johnson, Jonathan Socioeconomic Attainment 172 P. Latner, Timothy Smeeding, and Jeffrey Emily Rauscher Thompson Wealth and Inequality in the Stability of Is the U.S. Retirement System Contributing Romantic Relationships 197 to Rising Wealth Inequality? 59 Alicia Eads and Laura Tach Sebastian Devlin-Foltz, Alice Henriques, and John Sabelhaus Part IV. Essay Turning Citizens into Investors: Promoting Wealth and Secular Stagnation: The Role Savings with Liberty Bonds During World of Industrial Organization and Intellectual War I 86 Property Rights 226 Eric Hilt and Wendy M. Rahn Herman Mark Schwartz Introduction How Wealth Inequality Shapes Our Future Fabian t. PFeffer and r obert F. s choeni Liz, Mary, and Howard are three teenagers in parents have a household income of only about the 1980s.1 Although unrelated, their families $40,000, but they have considerable wealth. have much in common: stable two- parent With a net worth of nearly a quarter million households, at least one parent completed dollars, Howard’s parents are in the top 20 per- high school (though none of them went to col- cent of wealth holders. They, too, own their lege), and all three are white. They differ in one home. important aspect: their parents command Liz (Low parental wealth), Mary (Middle pa- quite different levels of wealth (here measured rental wealth), and Howard (High parental as net worth, that is, the total sum of financial wealth) graduate high school in the late 1980s and real assets minus debt). Liz’s parents own and establish their own households in the less than $700 (inflation adjusted to 2013 dol- early 1990s. They are off to distinct life paths. lars), meaning that Liz grows up at the bottom Liz marries, gives birth to a son, and does not of the wealth distribution. Still, she is far from work outside the home for several years. She living in poverty thanks to her parents’ annual takes up a job as a nursing aid in the early income of about $50,000. Mary’s parents have 2000s and stays in this occupation for a few a somewhat higher income, about $70,000, but more years. She never goes back to school. Liz also markedly more wealth than Liz’s parents: and her husband manage to accumulate some their net worth of roughly $60,000 puts them wealth, but lose it during the two most recent at about the national median of the time. Also recessions. Because they lost most of their fi- unlike Liz’s parents, they are homeowners. nancial resources during the dot- com bubble Howard is lucky enough to grow up in afflu- of 2001, their debt is larger than their assets. ence. Not in terms of income, given that his They recover to about $20,000 of net worth in Fabian T. Pfeffer is research assistant professor at the Institute for Social Research and assistant professor of sociology at the University of Michigan. Robert F. Schoeni is research professor at the Institute for Social Re- search and professor of economics and public policy at the University of Michigan. This research was supported in part by a grant from the Russell Sage Foundation (#99- 15- 10). We thank Mat- thew Gross and Kelsey Moran for their valuable research assistance and John Sabelhaus for his close review of the manuscript. Direct correspondence to: Fabian T. Pfeffer at [email protected], University of Michigan, In- stitute for Social Research, 426 Thompson St., Ann Arbor, MI, 48104; and Robert F. Schoeni at bschoeni@umich .edu, University of Michigan, Institute for Social Research, 426 Thompson St., Ann Arbor, MI, 48106. 1. The individuals mentioned here represent clusters of individuals drawn from the Panel Study of Income Dy- namics (PSID) and its Child Development Supplement to represent life stories that are consistent with results from quantitative analyses. Although we base our description of these life stories on publicly available data, to avoid data disclosure the stories do not represent specific PSID respondents. introduction 3 2007 only to lose it again in the aftermath of Liz, Mary, and Howard thus all end up about the Great Recession. By 2013 they are in their where their parents were when it comes to mid- forties, their son is beginning to ask them their rank in the wealth distribution. However, whether he can afford college, and their net although their relative position in the wealth worth is negative $5,000. Complicating their structure is largely unchanged, the wealth gap lives further, they lost their house and, for the between the three has widened compared to first time as an adult, Liz becomes a renter. In that between their parents. Especially the dis- terms of her relative position among American tance between Howard and the other two has families, she is back to where her parents were increased, reflecting the growing polarization three decades earlier: among the bottom 15 of the wealth distribution. That Howard com- percent of families in terms of wealth. mands more wealth than his parents but is still Mary attends a one- year educational pro- lower in the overall wealth structure than his gram after high school, gets married, and be- parents were shows that the wealthiest—above comes a technician in a laboratory, an occupa- Howard’s level—have been pulling away. The tion she works in for the next two decades. She polarization of the wealth distribution is also earns a decent wage—her average annual earn- visible in comparing the wealth position of Liz ings over the last five years are about $45,000— with that of her parents.