Wednesday, August 27, 2008

Adjusted for Household Size, Real Income Reached An All-Time High in 2007, +66% Higher Than 1967


The Census Bureau just released its annual report that includes real, median household income for 2007 ($50,233). From the report:

Between 2006 and 2007, real median household income rose 1.3%, from $49,568 to $50,233 (see top chart above)—a level not statistically different from the 1999 prerecession income peak ($50,641 in 1999 and $50,557 in 2000). This was the third annual increase in real median household income. Compared with 1967, the first year for which household income statistics are available, real median household income has increased 29.6%.

Comments: A comparison of real median income in 1967 of $38,771 per household to income of $50,233 per household in 2007 (29.6% higher) doesn't take into account the significant 22% decline in average household size over this period, from 3.28 persons per household in 1967 to an all-time low of 2.56 persons per household in 2007 (Census data
here for income, here for average household size), see top chart above.

When adjusted for household size, real median income per household member reached an all-time high of $19,546 in 2007 (see bottom chart above), 65.6% higher than the $11,820 income per household member in 1967, and more than 2 times the unadjusted increase per household of 29.6% reported above.

Lost in all of the discussions and media reports about stagnating wages, income inequality, and the decline of the middle-class, we have this amazing statistical reality: In just a little more than one generation, real median income per household member has increased by a factor of almost 2/3!

It's been said that "the media constantly dwell on minor problems without celebrating the broader, more upbeat context in which they exist." A 2/3 increase in real income per person in just 40 years is definitely part of the broader, more upbeat context.

20 Comments:

At 8/27/2008 12:49 PM, Blogger Trevre said...

Not that they have anything to do with each other, but the trend in this graph is very similar to the trend of the national debt. While this is real income, real income does not correct for national debt, correct? Any discussion concerning this would be interesting.

 
At 8/27/2008 12:50 PM, Blogger Walt G. said...

Couldn't much of that increase be due to more wives working outside the home in 2007 as compared to 1967?

 
At 8/27/2008 12:57 PM, Blogger Trevre said...

Sorry I couldn't resist but do the calculations myself. Say on average between 1967 the median real income per individual has gone up $7000 total, for the last 40 years, for an average population of 250 million, that works out to just roughly 40 trillion dollars(the summation of the increase in income over the last 40 years). The national debt stands at say 12.5 trillion dollars. These numbers are similar and magnitude and by the time we pay off 12.5 trillion it will probably with interest have been worth at least 30 trillion. Which basically means all our increasing in median income are really just do to us borrowing money that we will have to pay back later. Does that make sense?

 
At 8/27/2008 1:01 PM, Blogger spencer said...

the large increase in single person households does bias the household data.

But the correct to adjust for the data is to use the family income data, not the operation you did.

That is why Census publishes both household and family data.

 
At 8/27/2008 1:01 PM, Blogger Walt G. said...

trevre,

Wouldn't you need to compare the increase in GDP from 1967 to 2007, too?

 
At 8/27/2008 1:05 PM, Blogger Trevre said...

yeah I would, but I am busy working myself out of debt, so I will have to do it later... :). I am sure someone out there has time.

 
At 8/27/2008 1:50 PM, Anonymous Machiavelli999 said...

walt g,

Even if it is due to increased participation in the workforce by women, I don't really see how this is a bad thing.

That means that there were jobs that were created because of growth that made it lucrative enough for women to take up careers.

Its not as if those jobs were always there to be had, they were created because of growth.

 
At 8/27/2008 2:37 PM, Anonymous Anonymous said...

A 2/3 increase in real income per person in just 40 years is definitely part of the broader, more upbeat context.

A zero increase in real income per person in 8 years is definitely part of the broader, less upbeat context.

The ought years (2000s) is the lost decade in the last four decades.

 
At 8/27/2008 2:43 PM, Blogger Craig said...

"But the correct to adjust for the data is to use the family income data, not the operation you did."

Households and families are often two very different cases. My family's income is very high; but among our mother and 5 children there are now 6 separate households each supporting itself on much, much less than the total.

I think the household correction is the proper one.

 
At 8/27/2008 2:58 PM, Blogger juandos said...

"A zero increase in real income per person in 8 years is definitely part of the broader, less upbeat context"...

You mean like this anon @ 2:37 PM?

Census: Income rose, middle class grew in 2007

Something for walt g, something I think he may have some familiarity with, right walt g?

Corporate Taxes Are Killing the U.S. Auto Industry

 
At 8/27/2008 4:24 PM, Anonymous Anonymous said...

juandos, the bottom line is that in the last 8 years (2000-2007), the increase in real income (what is it?...176 bucks) doesn't fill up a Hummer at the gas station.

Can you not read a chart?

I made no reference to 2007 over 2006. I concede that 2007 was better than 2006. I do not concede that 2008 (which is the 9th year of the lost ought decade) will be better than 2000.

Since you didn't even read the money quote in your linked yahoo article, I'll italicize it for you :

We will see the real brunt of the mortgage crisis and energy crisis next year," says Mr. Zandi.

In other words, 2008 will suck compared to 2007.

 
At 8/27/2008 4:53 PM, Blogger Walt G. said...

Machiavelli999,

Overall, I think the American worker is much better off in 2007 than 1967. I know that I am. Even though I was in the seventh grade that year, I know I have conveniences today that were only dreamt about then. I just don't think the two dates 40 years apart are comparable without considering other factors.

Juandos,

I don’t believe corporate taxes are productive. They just dupe people into believing someone else who does not exist is paying the tax. I also don’t believe in soaking the rich, but I don’t see how people without money can pay taxes. And eliminating our progressive federal taxation system will mean cutting spending big time.

Our political system does not reward congressmen who try to cut spending. I don’t have the answer for that. You pretty much have to lie to get elected, and then spend all your time after that attempting to get contributions to get re-elected. It’s a dirty business: Isn’t it?

 
At 8/27/2008 5:11 PM, Blogger juandos said...

"I made no reference to 2007 over 2006. I concede that 2007 was better than 2006. I do not concede that 2008 (which is the 9th year of the lost ought decade) will be better than 2000"...

So this meant what? "A zero increase in real income per person in 8 years"...

Hmmm, so you don't understand the comments you post, eh?

I think you are forgetting what has gotten cheaper since 2000...

You are probably sitting in front of one those MUCH cheaper items...

If you have a bitch about the price of gasoline then talk to Rep. Pelosi and HER fellow travelers in the House and the Senate...

Since Nov. of '06 when the Dems took control of both houses the price of gasoline has shot up considerably...

======================

walt g says: "And eliminating our progressive federal taxation system will mean cutting spending big time"...

Hmmm, and the downside is what?

"Our political system does not reward congressmen who try to cut spending"...

Ahhh, I guess its NOT only the Congressmen who forget what they were elected for...

I can't disagree with your analysis though walt g...

"It’s a dirty business: Isn’t it?"...

Sad but true walt g...

 
At 8/27/2008 5:36 PM, Blogger OBloodyHell said...

> I think the household correction is the proper one.

For exactly the reason you describe, it is.

This is not the first time by any means spencer has been exposed to this notion. This is why few take his comments seriously.

 
At 8/27/2008 5:54 PM, Blogger OBloodyHell said...

trevre, I may well be wrong (we're dealing with an area which I suspect the possibility that I may be fuzzy on), but you are comparing debt to income, which is only one rational consideration.

That debt has built up over time -- and you compare it only to personal income (i.e., how much one makes when one works) while ignoring other possible forms of income (i.e., returns on assets).

At least part of what you have to consider is how that debt compares to the wealth against which it applies -- the total quantity of the assets of the nation.

Not saying this following is specifically a rational comparison of the real numbers involved, but to illustrate what I mean:

Suppose you have worked for 30 years at a range of jobs earning you generally increasing amounts over that 30 years. Right now, your income is approximately $50,000 per year. In the meantime, you've also gained debts of $30,000 (credit cards + auto/boat loans and some mortgage refinancing for home improvement). Suppose also that you own three houses worth a total of around $450,000 (de-inflated, natch).

Now, are you in good shape or bad shape, looking only at that debt compared to your personal income?

That's the comparison you make, but I think you can see, you're almost certainly not doing bad at all -- a comparison of your debt/asset ratio tells the other relevant part of the story.

The total aggregate wealth of the USA has shot through the roof in the last 40 years. Despite being 1/20th(5%) of the world's population, we produce, right now, 25% of the wealth generated worldwide (and for most of the last decade the number was more like 30% -- and that decrease is *not* due to a decrease in wealth generation, but the fact that Japan+China+India are all picking up steam themselves).

Placed in those terms, the debt is far less disturbing than your analysis suggests.

That is my take on it, from reading around. I'm open to challenge on any of it, however, so take any argument against me (well, except one from sophist or spencer) as possibly valid.

 
At 8/27/2008 9:36 PM, Blogger the buggy professor said...

1) Once again, Mark has presented us, fortunately, with some data that indicate how --- despite stagnant male wages since the mid-1970s (captured again in the Census Bureau study he links to --- the median household has clearly benefited from the impressive flexibility and growth performance of the US since then . . . driven by a combination of the US spearheading the latest clustered wave of revolutionary technologies in computers and radically new communications and information businesses and their diffusion, on the one hand; and on the other hand, by globalizing tendencies that have reinforced competitive pressures within the US economy. Then, too, there's the causal influence of remarkably innovative entrepreneurs . . . to the point that 75% of the Fortune 500 companies today didn't exist in 1975. And the influence no less importance of the remarkable flexibility and hard-work ethos of the average American, all brought out in comparative statistics across countries about the number of hours worked by labor forces in the industrial countries.

2) As Spencer and Walt and others have remarked, the impressive improvement in living standards reflects both new market-generated innovations --- bigger housing, better housing, better cards, computers, color televisions, air-conditions; what have you --- and the entrance of women into the work force, along with regrettable demographic developments such as the virtual collapse of the two-parent black family (70% of babies born to a single mother) and Hispanic families (50% illegitimate).

3) Then, too, household size has decreased --- not least because of a moderate drop in birth-rates generally and older retirees (thanks to better social security payments and medicare) choosing to live by themselves, not with their children . . . a fairly common practice until the 1960s.

4) The result?

As the link shows, two-parent families have clearly benefitted from the growth in GDP (actually, they earn on an average about $70-75,000 a year for the household. Then, too, believe it or not, the households in the top two quintiles have about 2.5 times as many members working as the bottom quintile . . . where there is, contrary to the common view, far fewer family members and far fewer workers.

4) Anonymous is also right, alas: this is the first time we've had a sustained upswing in the business cycle where average wages have not risen but a tiny tick.

5) And Obloody is right too not to worry so much as Treve does about national debt.

It was 120% of GDP coming out of WWII, and didn't reach roughly the percentage of GDP today (about 70-75%) until the late 1950s.

And believe it or not, it has risen much faster as a percentage of GDP since 1980 in an era of Republican presidents and Republican control of Congress . . . the case, by the way, in the Nixon era 1968-1976 too.

Click here, and go to figures 2 and 3 and 4. The latter two figures need to be understood carefully, to grasp how Republican-controlled Congresses since 1980 have been mainly responsible for the big increases in national debt since the end of the Carter era.

(In the Reagan era, a mixed bag: Republicans controlling the senate to 1986, and Democrats the House.)

6) Since 1975, by the way, the US growth rates in GDP and productivity --- labor, capital, and multi-factor (technology) --- have outpaced all the other major industrial countries . . . not least Japan and Germany, both vying since 1991 to see which can rack up the worst growth performance in the industrial world since the 1930s Great Depression (though German export industry, it's fair to add, has impressively become very competitive, and we owe a big debt to the quality and prices of Japanese cars and consumer electronics).

....

Michael Gordon, AKA, the buggy professor

 
At 8/28/2008 3:09 AM, Anonymous Anonymous said...

In contrast to anon, I look at the chart and see that over the last several years the US managed to avoid a sharper decline in real income compared to past recessions, and now appears to be moving back towards trend.

Or at least we were, before hundreds of millions of impoverished people globally started getting a taste for the finer things.

I'd also point out the recession that sparked the fall in real income could easily be identified long before Clinton exited office. That business cycles occur should be obvious, regardless of parties in the White House.

 
At 8/28/2008 8:56 AM, Blogger spencer said...

Could you compare you data to the weak per capita data and explain how the drop in real per capita income over the past seven years is transformed to your series showing strong gains.


Your transformation of the data is a great example of adding craps and apples to get crab apples.

 
At 8/28/2008 4:05 PM, Blogger bobble said...

the always erudite buggy prof skims over this, but if you want a real eye opener look at the chart (figure 2) on page 11
of the census pdf.

real income for males peaked in 1973.

it appears that the only reason for the rise in household income since then is women joining the workforce and women earning more.

 
At 8/31/2008 1:55 PM, Anonymous Anonymous said...

Someone mentioned the addition of more dual income households due to more women joining the workforce, thus providing a negative slant to the per household member income increase.

A particularly interesting (and inflammatory) way to think about that is to consider perhaps that the increase in women in the workforce providing additional worker supply has perhaps led to the lack of pricing power in the workforce and therefore the very wage stagnation that democrats love to cite as a judgement on free market economic policies.

If that were the case, then the 'empowerment' of women through working, lower overall real wage growth in the workforce, and persistent lower wages among women relative to men (unadjusted for countless factors) could all be symptoms of an underlying condition of which they themselves are the biggest contributor.

Of course, you can probably tell I'm male, and therefore subject to all kinds of ad hominem attacks on the subject, so I'll just leave it there.

Not saying this is the right way to look at it, just offering that it's both economically and statistically valid.

 

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