Monday, March 10, 2008

Can't We Bury the Middle Class Income Myths?

The graph above was created using inflation-adjusted median household income data and average household size data (both from the Census Bureau), and was inspired by an article in today's WSJ - "The Inequality Myth," (see previous CD post here).

Economist Brad Schiller wrote:

The Census data originate from an annual survey of households. The data don't track individual households from year to year, but instead just take a snapshot of the households in existence in March of each year. From these annual snapshots, we try to infer what's happening to the typical household over time.

The "typical" household, however, keeps changing. Since 1970 there has been a dramatic rise in divorced, never-married and single-person households. Back in 1970, 71% of all U.S. households were two-parent families. Now the ratio is only 51%. In the process of this social revolution, the average household size has shrunk from 3.14 to 2.57 persons -- a drop of 18%.
The meaning? Even a "stagnant" average household income implies a higher standard of living for the average household member.

Bottom Line: As the graph above shows, the average household size has declined by 21% from 1967 to 2006, while real, median household income increased by 31% over the same period. Result? A significantly, much, much higher standard of living for the average household member, i.e. the typical member of the middle class!

Isn't it time that we bury many of the myths forever about the "middle-class squeeze," "the war on the middle-class," "the American middle-class is fighting for its life," "Two Americas," etc.

15 Comments:

At 3/10/2008 6:56 PM, Blogger Ironman said...

Here's a look at the changes for individual income earner over the ten year period from 1995 to 2005 in the US, which underscores Schiller's point of how income shifts with aging.

And while I'm at it, here's a view of the percentage changes by age group in income for the number of people at every income level from $0 to $95,000 USD, which reveals that the number of those individuals earning the lowest incomes decreased between 1995 and 2005, while the numbers of those earning greater incomes increased.

If you'd like to see the big picture (all age groups added together), see here. Finally, if you'd like to see many of Schiller's arguments made many months ago, see the conclusion to the series!

 
At 3/10/2008 7:01 PM, Anonymous Anonymous said...

...the average household size has declined by 21% from 1967 to 2006, while real, median household income increased by 31% over the same period

Mark I'm not saying you are wrong but I am saying that you cannot infer anything without more data and more analysis.

While household size may decrease and household income increase one needs to look at all factors including the real cost of living including housing, food and transportation.

That house that sold for $30,0000 in 1967 would sell for over $1,000,000 in 2006 in major metropolitan markets. Rents are also up dramatically from 1967.

 
At 3/10/2008 8:03 PM, Anonymous Anonymous said...

Uncle Ben will more then likely be out tomorrow throwing candy to Wall Street with another inter-meeting cut in an effort to prop up this pig. The dollar is well on it's way to becomming worthless so if your wages rose 50% but the dollar is worth nothing, you do the math.

 
At 3/10/2008 8:53 PM, Blogger Mark J. Perry said...

Grammar Citation for Anonymous:

It should be "The dollar is well on ITS way...."

It's is a contraction for "it is," and the sentence would not make sense if it was "The dollar is well on it is way..."

 
At 3/10/2008 9:52 PM, Blogger Rick Ballard said...

"That house that sold for $30,0000 in 1967 would sell for over $1,000,000 in 2006 in major metropolitan markets. Rents are also up dramatically from 1967."

No it wouldn't. It would sell for about $370,000. A two bedroom apartment in 1967 ran about $100 ($645 today.)

It looks like buying a house in 1967 for $30K would have been an investment that outpaced inflation by about 100%. One of the reasons why only fools rent - over the long run.

 
At 3/10/2008 10:18 PM, Anonymous Anonymous said...

Thank you, Prof. Perry for the lesson in grammar.

Regarding the dollar being "worth nothing", the Wall st. Journal today reported that the official inflation rate in Zimbabwe is 100,500%. A little reminder that life in America is neither as bleak nor as desolate as some seem to suggest.

 
At 3/10/2008 11:02 PM, Anonymous Heretic38501 said...

You need to graph median household size with median income, not average income to show your point.

To do otherwise suggest you are just lazy or hiding something.

I do beleive you will get a similar result but to anyone wanting to disagree you are granting them the grounds.

 
At 3/10/2008 11:18 PM, Anonymous Heretic38501 said...

Ack, in my haste I got those two backwards.

The general point remains, use either both means or both medians, preferably medians.

It is entierly possible for average household size to fall but median household size rise, which could invalidate the point I am sure you are trying to make.

 
At 3/11/2008 6:44 AM, Blogger juandos said...

"You need to graph median household size with median income, not average income to show your point"...

What? Are YOUR FINGERS broken heretic?

 
At 3/11/2008 11:04 AM, Anonymous Heretic38501 said...

If I point out that you stink am I obliged to give you a bath? That would be some nice socialist thinking.

Clean up your own mess and I'll attend to mine.

 
At 3/11/2008 11:34 AM, Anonymous Anonymous said...

Isn't it time that we bury many of the myths forever about the "middle-class squeeze," "the war on the middle-class," "the American middle-class is fighting for its life," "Two Americas," etc.

No. Real median household income, adjusted for changes in household size and immigration*, has declined since 2000. Before the minor adjustments,

2000= $49,477
2006= $48,233

You are attempting to politicize the repuglithug and democrite positions. Just stick with the data.

No one is denying that that there has not been a squeeze since 1967, but I'm confident that there is a strong correlation between the increase in the labour force participation rate since 1970 and median per capita income.

*Median immigrant household income is 89% of native household income; immigrant household size is 3.11 persons/household and native household size is 2.43

 
At 3/11/2008 11:45 AM, Anonymous Anonymous said...

Ooops, html error for labor force participation rate.

 
At 3/11/2008 11:47 PM, Anonymous Chris said...

Same thing as above. 1967 households usually had one earner, 2006 have two. So the household devotes twice as much time to work (and thus raising fewer children), while earning 31% more income. Doesn't sound like a good deal to me.

 
At 10/07/2008 8:28 PM, Anonymous Anonymous said...

http://blog.gomacdonald.com/2008/07/demographics-in-united-states.html

 
At 12/03/2008 3:18 PM, Anonymous Anonymous said...

Sorry to say but you are wrong!
There has been a sever squeeze on the middleclass since the 1950 and 60s.
The cost to income ratio ahs not been constant. The average working joe would have to work 3.75 full time jobs to once again have the buying power of a single income from 1957. Take the average cost of a 57 Chevy Bell Aire at $3,500 and divide it into the average 57 working joe income at $6,700 per year. Today the average working joe would earn $20,000 and the average Impala, the replacement for the Bell Aire, is $35,000.You do the math! The average 3/2 single family home in 57 was $12,000 about the same as the average income for the year. Today it costs $283,000.000 and the income is $20,000!!!
This is per the IRS statisticle guides from the 1957, and 2000. !!!!!!!! Jay Baldwin www.apadd.com Americans to Preserve the American Dream and Democracy

 

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