My recent paper with Chris Edwards concluded that studies estimating wealth inequality without accounting for Social Security would both exaggerate the level of inequality and overestimate its increases since the 1980s.

We realized that increasing amounts of wealth for the bottom 90 percent had become tied up in Social Security claims over the past three decades. And a host of evidence suggests that redistributive programs, such as Social Security, actively crowd out private saving among those on modest incomes.

By reducing the incentive and ability for lower paid workers to save (not least because of payroll taxes), Social Security widens marketable wealth inequality, which has been the focus of most inequality studies. Perversely, critics of current levels of marketable wealth inequality then use these calculations ignoring Social Security as justification for increasing the generosity of transfer programs such as Social Security, that would iwiden their preferred wealth inequality metrics further.

A new study from University of Pennsylvania economists adds empirical blast to our intuition. Whereas the oft-cited work of Thomas Piketty et al restricts wealth inequality statistics to the distribution of marketable assets, this new study estimates the present value of Social Security wealth too, before assigning it across the wealth distribution.

Its conclusions are striking. Adjusting for Social Security wealth not only substantially reduces the level of wealth apparently “held” by the top 1 percent and top 10 percent, it completely changes the trend since 1989:

Our most conservative estimates suggest that between 1989 and 2016 the top 10% share [of wealth] declined by 3 percentage points and the top 1% share increased only slightly by 1.2 percentage points. This differs drastically from recent work that excludes Social Security and finds the top 10% and 1% shares rose by over 10 percentage points over this period.

Why does including Social Security wealth have such a dramatic effect? Well, first, because the implied wealth is large, at around 42 percent of marketable wealth today. But, second, because Social Security wealth has increased over three-fold between 1989 and 2016, due to expansions of the program, a fall in real interest rates, and population aging, which means the share of workers near the peak of their Social Security wealth (just before retirement) is larger. As a result, in 2016 Social Security represented 57.7 percent of all wealth held by the bottom 90 percent by net wealth, up from 14.2 percent in 1989.

As the study makes clear, there is no convincing rationale for excluding Social Security from studies of wealth concentration. But doing so exaggerates both wealth inequality levels and its increases over the last three decades. If some academics still contest that marketable wealth inequality alone tells us something interesting, then they must also acknowledge that Social Security’s existence widens that measure.

Strangely, those who consider marketable wealth inequality a huge problem do not often advocate abolishing Social Security to narrow it. In fact, the opposite. So do they really care as much about wealth inequality as their rhetoric suggests?