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Income Inequality - 2017 Update

Income Inequality - 2017 Update

| October 08, 2018

On September 12th the Census Bureau released its annual report titled “Income and Poverty in the United States: 2017” containing updated data on household income and demographics.  The next couple of days it was widely reported that median household income last year was $61,372, the highest ever and an increase of 1.8% over 2016!  Of course with all the shenanigans in Washington DC, the story rapidly dropped from view.  Apparently, good news doesn’t sell - who knew?

Today we will drill deeper and highlight several important revelations from the Census Bureau Report with the help of charts and commentary posted on the blog of one of my favorite living economists, Mark Perry.  His post is titled “Census Data Released Today Show Continued Gains for Middle-Class Americans and Little Evidence of Rising Income Inequality.”



As the chart above shows, “Median household income last year of $61,372 was an increase of 1.8% from 2016 and brought median income for US households to the highest level ever, above the previous record level last year of $60,309.  The income gain last year was the fifth consecutive annual increase in real median household income starting in 2013, following five consecutive declines from 2008 to 2012 due to the effects of the Great Recession.  The last period of four consecutive gains in annual median household income was during the late 1990s at the end of the longest economic expansion in US history (120 months from March 1991 to March 2001).  Although it doesn’t get as much attention as median income because it’s influenced by outliers on the high-end, average household income also increased to a new record level last year of $86,220, which was an increase of 1.5% from 2016 and the seventh consecutive annual increase starting in 2011.”

“Income adjusted for household size is calculated and presented below, but it should be obvious that a comparison of median household incomes over time is distorted because the average size of US households has been declining.  It’s also important to note that the typical US household in 2017 had an annual income of $61,372, which is $12,464 more (in 2017 dollars) than the typical household in 1975 ($48,908) – that’s more than $1,000 in additional inflation-adjusted income every month for the typical household today compared to 42 years ago.”



Average and Median Income per Household Member.  The chart above displays average and median household income adjusted for household size.  Both the average and median income per person in the US reached all-time highs in 2017 of nearly $34,000 (in 2017 dollars) for average income per person, and $24,160 for median income per household member last year. Compared to 1975, the average household income per US household member has increased by 74% from $19,500 to $34,000, while the median household income per person has increased by 45% from $16,600 to $24,160.  Without adjusting for household size, average household income increased by only 50% since 1975 (vs. 74% adjusted for average household size) and median income increased only 25% (vs. 45%), demonstrating the importance of adjusting for changes in household size when comparing median household incomes over time.”



Married 2-Earner Households.  The chart above shows annual median income from 1949 to 2017 for families headed by married couples with both spouses working.  Income for a typical family in this group reached an all-time high last year of $111,000, and the median family income for this group of Americans has been above $100,000 (in 2017 dollars) for the last five years.  Since 1949, the real inflation-adjusted median income for married couples with two earners has more than tripled (from $34,800) and since 1963 has more than doubled (from $54,700).”



What Rising Income Inequality?  We hear all the time about “rising income inequality” in America (there are more than 100,000 Google search results for that term), about “the rich getting richer and the poor getting poorer,” the “stagnant or disappearing middle class,” “all of the recent income gains going to the rich,” “the lack of income mobility,” and other narratives of pessimism.  In a December 2013 speech, President Obama described rising income inequality as the “defining challenge of our time” and promised that for the rest of his presidency, he and his administration would focus all of their efforts to stop the increase in income inequality.  And yet, the data in today’s Census Bureau tell a much different story.”

“The chart above shows the shares of total income earned by the top 20% and top 5% of US households from 1993 to 2017.  In 1993, 48.9% of total income went to the top quintile of US households, and 24 years later in 2017, the share of income going to the top 20% of households has increased to only 51.5%.  Likewise, in 1993 the share of total income going to the top 5% of US households was 21.0%, and that share had increased to only 22.3% last year.  Interestingly, the 22.3% share of income earned by the top 5% of households last year was lower than the share that group earned in 2016 (22.6%) and 2001 (22.4%), and the same as in 2006, 2011 and 2012.  Over the last two decades, the income shares of the top 20% and top 5% have been remarkably stable at about 49-51.5%  and 21-22.6% respectively, and there has been no statistical evidence of significant “rising income inequality” according to these measures.”

Mr. Perry wraps up this theme with: “So why are we having a national debate about solutions to the “non-problem” of rising income inequality that doesn’t even exist according to several standard Census Bureau measures?  Maybe it’s another example of what H.L. Mencken called an “imaginary hobgoblin”:

“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”

We will return for a further discussion of household income in the United States next week.  Here is the link to the entire Carpe Diem post by Mr. Perry on September 12th:  Census data released today show continued gains for middle-class Americans and little evidence of rising income inequality.

If you have any questions or comments we would be happy to hear from you.  And please share this good news with others.

Until next time, cheers!