The paper presents two results: First, it shows that the inequality in net wealth (net worth) is greatly driven by financial markets. This shows up first, in the fact that income from the upper wealth brackets is mainly derived from asset income, and less from labor income. Second, the examination of private debt shows that when income groups are subdivided into those that dominantly borrow for consumption and those that dominantly borrow for investment, the former group suffers losses in net wealth while the latter group maintains a steady increase in net wealth.The empirical section of the paper validates those predictions with data from the Federal Reserve Board’s Survey of Consumer Finances (SCF). The data analytics span the years 1989 through 2013 post the financial crisis of 2008. Overall, inequality in the wealth distribution seems to be more prevalent than inequality in the income distribution.
Professor Willi Semmler holds a PhD from the Free University of Berlin with research interests in Empirical Macroeconomics, Financial Markets, the Economics of Climate Change, Business Cycles and Macro Dynamics. He is a Professor at The New School in the Department of Economics and a ZEW Research Associate of the Center for European Economic Research. Professor Semmler is a well-known author, researcher and has co-authored working papers for the ILO, World Bank, the IMF and the ECB.
Damien Parker is a PhD Candidate at The New School with concentrations in econometrics and finance. His research is focused on the distribution of wealth and growing economic inequality. Regional areas of study are the U.S. and Europe.