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201351 Pap

201351 Pap

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Published by: caitlynharvey on Aug 21, 2013
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09/05/2013

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Finance and Economics Discussion SeriesDivisions of Research & Statistics and Monetary A
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airsFederal Reserve Board, Washington, D.C.Inequality and Poverty in the United States: the Aftermath of the Great RecessionJe
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rey P. Thompson and Timothy M. Smeeding
2013-51
NOTE: Sta
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working papers in the Finance and Economics Discussion Series (FEDS) are preliminarymaterials circulated to stimulate discussion and critical comment. The analysis and conclusions set forthare those of the authors and do not indicate concurrence by other members of the research sta
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or theBoard of Governors. References in publications to the Finance and Economics Discussion Series (other thanacknowledgement) should be cleared with the author(s) to protect the tentative character of these papers.
 
 Inequality and Poverty in the Aftermath of the Great Recession
 
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Inequality and Poverty in the United States:the Aftermath of the Great Recession
 
Jeffrey Thompson*Federal Reserve Board of Governors jeffrey.p.thompson@frb.gov Timothy Smeeding
Institute for Research on PovertyUniversity of Wisconsin-Madisonsmeeding@lafollette.wisc.edu 
Draft: July 5, 2013
Abstract:
This paper explores trends in inequality and poverty using both market and after-tax andtransfer income in the period during and after the Great Recession (through 2011). Usingmarket income (or wages), inequality and poverty rose sharply between 2008 and 2010. The primary exception is measures for the top of the distribution; annual wage and income sharesof the top one percent dipped in 2008 and 2009. Including taxes and transfers, broad-basedinequality measures also fell, and the poverty increase was muted. Tax and transfer policieslowered inequality and poverty, but those policies were not equal across the population.Poverty declined among the elderly, changed little among children, and rose sharply amongthe working-age. Inequality fell across the total population, but was unchanged amongworking-age households. Since 2009, as the economy has grown slowly, inequality has risenfor all groups, and poverty remains high for the working-age.Key words: Inequality, poverty, income distribution, social welfare policyJEL codes: D31, I30* The analysis and conclusions set forth are those of the authors and do not indicateconcurrence by other members of the research staff, the Board of Governors or the Institutefor Research on Poverty.Thanks to Arthur Kennickel for comments on an earlier draft.
 
 Inequality and Poverty in the Aftermath of the Great Recession
 
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1. Introduction
The Great Recession (GR) was the most dramatic economic downturn the US hasexperienced since the Great Depression of the 1930s. Tumbling stock and housing marketserased more than $15 trillion in national wealth in 2008, or nearly 10 per cent of real totalnational financial assets. As financial markets and the rest of the economy slowed to a halt,real Gross Domestic Product did not grow in 2008 and fell by 2.6 per cent in 2009, the largestdecline in six decades. With the nation’s economic growth abruptly halted, millions of workers lost their jobs. Between December of 2007 and 2009 total nonfarm employment fell by 5.7 percent – a loss of 8.3 million jobs – and the unemployment rate peaked at 10 percent.The crisis brought about substantial economic policy response. In addition to the‘automatic stabilizers’ built into Unemployment Insurance, SNAP, and the tax system, therewere several major policy changes that pumped hundreds of billions of dollars into theeconomy in 2009 and 2010 (Burtless, 2009). The Troubled Asset Relief Program (TARP)helped stabilize the financial sector, using more the $400 billion to purchase or insuretroubled assets, taking major stakes in General Motors, AIG, and Citigroup. The AmericanRecovery and Reinvestment Act (ARRA) provided fiscal relief to state governments, reducedtaxes, expanded TANF, SNAP, Unemployment Insurance and the Earned Income Tax Credit,and financed infrastructure projects, injecting more than $700 billion into the economy in2009 and 2010. It is generally agreed that these policy changes, along with the monetary policy actions of the Federal Reserve Board, helped stabilize the economy and prevented theGreat Recession from becoming a far worse economic event than it otherwise would have been (CBO, 2013).The US economy halted its decline in the second half of 2009. Real Gross DomesticProduct hit its nadir in the second quarter of 2009, and commenced growing in the secondhalf. The seasonally adjusted unemployment rate peaked in October 2009 at 10 percent, andthe lowest point in seasonally-adjusted nonfarm employment came in December 2009. Sinceentering the recovery period, which commenced in June 2009 according to the NBER  business-cycle dating committee, the rate of growth has been slow, leaving millions of workers unemployed more than four years after the end of the recession was declared insummer 2009The powerful economic shocks in 2008 and 2009, the policy response to the GreatRecession, and the ensuing period of slow growth all impacted household incomes. This paper evaluates the combined distributional impacts of those changes. US Inequality had

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