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Dartmouth – Texas Tech Study Finds that When it Comes to Wealth, the Great Recession Has Reduced Inequality Among Near-Retirees

November 14, 2014

According to a Dartmouth College – Texas Tech University study supported by the Sloan Foundation and published in the fall issue of the Journal of Retirement, the recent rebound in asset values due to the recovery has entirely erased losses on average for those households near retirement age that entered the recession with lower levels of wealth. In contrast, households with higher levels of wealth at the onset of the recession have not fully recovered from their initial losses.

The study examines the effects of the Great Recession on wealth held by the near retirement age population from 2006 to 2012 and is based on data from the Health and Retirement Study, a major project at the University of Michigan that has been following 25,000 individuals who are nearing retirement age, and has tracked them for over two decades.

Much of the decline in wealth from 2006 to 2010 was cushioned by social security and defined benefit pensions, which serve as stable sums. Nevertheless, for Early Baby Boomers (ages 51 to 56 in 2004), real wealth in 2012 remained 3.6 percent below its 2006 value. Moreover, all households have been affected by the failure of assets to grow beyond their initial levels.

According to the study's results, the reasons the Great Recession's effects varied with the household's initial wealth are:

  • Social security and pension assets did not fall sharply with the Great Recession, and these assets account for a disproportionate share of the wealth of those in the bottom part of the wealth distribution.
  • Those with the highest wealth have not fully rebounded because much of their wealth was in the form of real estate, financial assets and owned businesses, assets that have not fully recovered.
  • Those in the middle of the wealth distribution have seen their wealth fully rebound in the period following the Great Recession.

"Although there continues to be debate about the size of the trend toward increased inequality in the economy, most discussions focus on how much more unequal the distribution of income has become. In contrast, it is remarkable that for these near retirees, wealth has actually become more equally distributed, not less equal," said Alan L. Gustman, Loren M. Berry professor of economics at Dartmouth and research associate at the National Bureau of Economic Research. For the study, Gustman worked with Thomas L. Steinmeier, professor of economics at Texas Tech University and Nahid Tabatabai, research associate at Dartmouth. All three are also affiliated with the University of Michigan Retirement Research Center, and have collaborated on other research projects such as examining the distributional effects of introducing additional means testing of Social Security benefits.

Alan L. Gustman is available to comment at alan.l.gustman@dartmouth.edu or (603) 646-2641.

Last Updated: 9/9/15