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Income gains for US households and workers are much more upbeat than what’s being reported by the media – Publications – AEI

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AEI Income gains for US households and workers are much more upbeat than what’s being reported by the media Following the release on Tuesday of the Census Bureau’s annual report on Income and Poverty in the United States, the majority of media reports painted a pretty gloomy picture of stagnating household income for Americans, here’s a sample: 1. CBS News. “Americans’ income barely inching up despite economic growth“: Americans’ household income is barely rising despite ongoing economic growth and low unemployment, a sign the typical family is failing to see significant gains from what has been a record-long expansion. The median household had income of ,179 in 2018, not statistically different from the 2017 median, the Census Bureau said. On an inflation-adjusted basis, Americans

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Income gains for US households and workers are much more upbeat than what’s being reported by the media

Income gains for US households and workers are much more upbeat than what’s being reported by the media - Publications – AEI

Income gains for US households and workers are much more upbeat than what’s being reported by the media - Publications – AEI

Following the release on Tuesday of the Census Bureau’s annual report on Income and Poverty in the United States, the majority of media reports painted a pretty gloomy picture of stagnating household income for Americans, here’s a sample:

1. CBS News. “Americans’ income barely inching up despite economic growth“:

Americans’ household income is barely rising despite ongoing economic growth and low unemployment, a sign the typical family is failing to see significant gains from what has been a record-long expansion.

The median household had income of $63,179 in 2018, not statistically different from the 2017 median, the Census Bureau said. On an inflation-adjusted basis, Americans families are earning just 2.7% more than they did in 1999, when median household income stood at $61,526, or 2007, when the median household income was about $61,000. The data illustrate why 4 in 10 Americans sometimes face what economists call “material hardship,” struggling to pay for basic needs such as food and housing. While income has barely inched upwards during the past two decades, costs for essentials such as health care and housing has soared, pinching budgets for many Americans.

2. Wall Street Journal. “Median U.S. Household Income Showed No Growth in 2018“:

American incomes remained essentially flat in 2018 after three straight years of growth, according to Census Bureau figures released Tuesday that offer a broad look at U.S. households’ financial well-being. Median household income was $63,179 in 2018, an uptick of 0.9% that census officials said isn’t statistically significant from the prior year based on figures adjusted for inflation. Census officials said that median household income was essentially the same as it was during previous peaks in 1999 and 2007.

3. Washington Post. “More Americans go without health coverage despite strong economy, Census Bureau finds

“Median household income today is right where it was in 1999. We’ve seen two decades with no progress for the middle class,” said University of Michigan economics professor Justin Wolfers. “The economy is producing more than before, but the gains aren’t being shared equally.”

4. CNN.US income growth stalled in 2018, Census says“:

Median US household income stayed essentially flat in 2018 at $63,200, breaking a three-year streak of increases, according to data released by the Census Bureau on Tuesday. Median income in 2018 was not statistically different than in 2007 or in 1999, which was the high point. “It tells a pretty darn depressing story,” said Justin Wolfers, economics professor at the University of Michigan, of the report. “Two decades with no progress for the middle class.”

But a closer look at the Census Bureau data reveals there are several reasons that it’s maybe not such “a darn depressing story,” and might be a much more optimistic story of income gains for Americans than is being reported by the media. Here’s why:

1. Gains in Median Income for Households and Workers Was Better Than Reported. The Census Bureau report provides data in its press release and in Table A-1 and Figure 1  showing the following:

a. US median household income increased by only 0.9% in 2018 from the previous year and that increase was not statistically significant.

b. Median income for family households (65% of all households) increased by 1.2% and median income for nonfamily households (35% of households) increased by 2.4%, and both of those increases are statistically significant.

Since all Americans live in either a family household or a nonfamily household, the median income for all US households rose last year, and the increases were statistically significant. The only reason the median income for all households was stagnant has to be because of the changing mix and size of US households, a point I highlighted yesterday in this CD post.

c. The Census Bureau also reported that real median income increased for all workers by 3.4% last year and by 3.4% for full-time, year-round male workers and 3.3% for full-time year-round female workers; and all of those increases were statistically significant (see top chart above).

Bottom Line 1: Despite the media’s sober story of stagnation for Americans, all US households and all US workers experienced significant increases in their incomes last year, see top chart above for a summary.

2. Comparing 2018 Median Household Income to 1999 is Distorted by Declining Average Household Size.  Between 1999 and 2018, it’s true that real median household income increased by only 2.7%. But adjusting for the ongoing decline in average household size, which fell to an all-time low last year of 2.52 persons, the increase in median household income per household member increased by 5.9% over that period, or more than twice the increase in unadjusted household income (see bottom chart). One way to overcome the evolving and changing nature and size of US households is to compare the real median household incomes over time for households with a fixed, constant number of earners. For households with one earner, their real median income increased by 7.6% between 1999 and 2018 (nearly 3 times the increase of 2.7% for all households) and the increase for two-earner households over that period was 12% (more than four times the increase for all households), see bottom chart above.

Bottom Line 2: Because of the declining size and changing composition of US households over time, comparisons of median household income in two different years (like 1999 and 2018) is an apples-to-oranges comparison and will understate the household income gains on a per-person basis over time, and significantly understate the income gains for a households that have a constant number of earners over time (e.g., one-earner and two-earner households).

Income gains for US households and workers are much more upbeat than what’s being reported by the media
Mark Perry

Mark Perry
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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