And once they are accounted for, measured wealth inequality plummets. 

One reason that the illiquid and non-market resources of DB [defined benefit] pensions and Social Security are typically excluded from studies of wealth concentration is that they are not directly available in household-level survey data. Our work addresses this issue by taking data from the Survey of Consumer Finances (SCF), estimating work histories to predict future Social Security income streams, and combining these results with estimated accrued DB assets and other market wealth holdings to form an expanded wealth measure. We look at households aged 40 to 59, who are building up to peak wealth accumulation before drawing down assets in retirement. Our estimates show that the value of DB pensions and Social Security are [sic] significant relative to other forms of wealth—throughout the wealth distribution but especially at the lower half of the wealth distribution. Indeed, we find that, even for the median household, the present value of DB pensions and Social Security benefits accounts for more than half of all wealth. With respect to their effects on the distribution of wealth, we find that (1) including DB pension and Social Security wealth results in markedly lower measures of wealth concentration, and (2) trends toward higher wealth inequality over time, while moderated, are still present. In particular, the “90/50 ratio”—the ratio of wealth held by those at the 90th percentile of wealth to those at the 50th percentile—is reduced by nearly half for the 50– 59 age group (from 13.4 to 6.8 in 2019) and for the 40–49 age group (10.7 to 6.4) when we include the estimated value of Social Security. The “50/10 ratio” declines even more with the inclusion of Social Security; for 2019, the ratio falls from 13.1 to 4.3 among those aged 40 to 49 and from 21.3 to 4.2 for the 50–59 age group. The share of wealth held by the “top 5 percent” drops from about 72 percent down to 51 percent when defined contribution (DC) plan and DB pension wealth are added to non-retirement wealth; it falls even further, to 45 percent, when Social Security benefits for those aged 40 to 59 are included. The inclusion of each measure, however, has a somewhat different effect: Social Security decreases wealth concentration “at the top,” whether we look at the top 5 percent’s share of wealth or the 90/50 ratio; DB decreases the top 5 percent’s share, but in more recent years, it actually increases the 90/50 ratio. The top 5 percent’s share of our expanded wealth measure rises 8 fewer percentage points compared with the top 5 percent’s share of non-retirement wealth over the 1989–2019 period.

This is from Lindsay Jacobs, Elizabeth Llanes, Kevin Moore, Jeffrey Thompson, and Alice Henriques Volz, “Wealth Concentration in the United States Using an Expanded Measure of Net Worth,” Federal Reserve Bank of Boston, Working Papers, April 2021. HT2 Tyler Cowen and Scott Lincicome.

Economists have known for a long time that something like their claims had to be true. For very wealthy people, defined benefit pensions and Social Security are a small percent of their wealth. For the non-wealthy, defined benefit pensions and Social Security are a large percent of their wealth. So leaving those two things out badly distorts two things: (1) the measure of wealth for the non-wealthy and (2) the extent of wealth inequality.

NOTE: The title is an attempt at humor. One of the early articles I read when I was learning economics in the early 1970s was Robert J. Gordon, “$45 Billion of U.S. Private Investment Has Been Mislaid,” American Economic Review, June 1969.