When we think about and discuss economic inequality in this country, we usually focus on income inequality: The CEO who makes 300 times more than his workers, or the fact that the top 20 percent of earners rake in over 50 percent of the total earnings in any given year.
But there's another type of inequality that gets a lot less attention. It arguably contributes far more to the divide between the haves and have-nots in this country, and it's been highlighted in a huge new report from the Organization for Economic Cooperation and Development: wealth inequality.
Income is the amount of money you earn from your work or your investments. But wealth is the amount of stuff you own: your house, your car, savings, retirement accounts, etc. The great thing about wealth is that it's self-perpetuating. Your house gains value over time (so you hope). You can take $1,000, invest it in something that yields a 10 percent return, and have $1,100 by the year's end. Cool!
The OECD report finds that the richest 10 percent of American households earns about 28 percent of the overall income pie. This is a lot, but it's roughly consistent with what you see in the world's other rich countries.
By contrast, the wealthiest 10 percent of U.S. households have captured a whopping 76 percent of all the wealth in America. And that number is considerably higher than in other rich nations, as the chart below shows.
For another angle on these numbers, New York University economist Edward Wolff calculated exactly how the nation's total wealth pie was sliced up among the population. And the figures are staggering. Check out the chart below.
Let's imagine that there are just 100 people in the United States. The richest guy -- and, yes, he's probably a guy -- owns more than one-third of the total wealth in this country. He's got a third of all the property, a third of the stock market and a third of anything else that can be owned. Not bad.
The next-richest four people together own 28 percent of all the stuff. Divvied up four ways that's still not too shabby. The next five people together own 14 percent of all the things, and the next 10 own another 12 percent.
We've accounted for just 20 percent of the people, but nearly 90 percent of the total wealth. Ninety percent! You can probably tell where this is going.
The next 20 percent of people have only nine percent of the wealth to split among them. Not great, but they're still doing a lot better than the 60 percent of people below them. The next 20 percent -- the middle wealth quintile -- only have three percent of the wealth to split 20 ways.
Now we've reached the bottom 40 percent of Americans, but guess what? We've run out of stuff. Sorry guys, you get nothing. In fact, Wolff calculates that this bottom 40 percent actually has an overall negative net worth, which means that they owe more money than they own -- and they probably owe that money to somebody in that top five or 10 percent.
You're not necessarily living in squalor if you have a negative net worth. For instance, some student loans and a brand-new mortgage will probably put you in that category. But if you've got a bachelor's degree, a job and a house to show for it, you're probably doing okay.
But plenty of folks will be stuck in that bottom 40 percent category forever. And as the OECD report points out, this is a big problem for everyone -- even the top one percent. Their data shows that more inequality equals less economic growth: Between 1985 and 2005, the OECD estimates that increasing inequality has knocked nearly five percentage points off growth in OECD countries.
If you're one of the fortunate ones with money in the bank, you can think of this as a five percent smaller return on your investment over that period, simply because the less fortunate aren't able to contribute to the economy as much as they could otherwise.
To see how your income stacks up to that of your peers, check out this snazzy interactive tool from the OECD.