Affluent Advantage
So Far, Economic Recovery Tilts To Highest-Income Americans

They Gain More, Spend More;

With Job Market Rising, Will Others Feel Rebound?

Mr. Williams Waits for a Raise

By JON E. HILSENRATH and SHOLNN FREEMAN
Staff Reporters of THE WALL STREET JOURNAL
July 20, 2004; Page A1

Joshua Berry and Ricky Williams, both Houstonians, have seen two very different economic recoveries.

Mr. Berry, an entrepreneur, has profited handsomely from the stock market, in the real-estate boom and by selling a business. Mr. Williams, an airline baggage handler, has been waiting since 2001 for a pay raise.

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"To date, the [recovery's] primary beneficiaries have been upper-income households," concludes Dean Maki, a J.P. Morgan Chase (and former Federal Reserve) economist who has studied the ways that changes in wealth affect spending. In research he sent to clients this month, Mr. Maki said, "Two of the main factors supporting spending over the past year, tax cuts and increases in [stock] wealth, have sharply benefited upper income households relative to others."

The good times upper-income Americans are enjoying represent a bounce-back from the hit that many of the wealthiest took after bonus income dried up in 2001 and 2002 and stock options went sour. For example, Wall Street compensation was up 16% in the first quarter from a year earlier, after having fallen from stratospheric levels the three previous years, according to the Securities Industry Association.

Longer-term issues are also at work. Wage and income disparities between the rich and poor have generally been widening for nearly 20 years. In 1980, the top 10% of households in income accounted for 33% of total household income, according to economist Emmanuel Saez at University of California, Berkeley. By 2000, that had risen to 44%. The figures exclude capital gains. Mr. Saez says the concentration of income at the top dropped during the recession but has probably started picking up again.