Income PER EARNER Has Actually Risen For All Groups, And Rose Fastest For The Lowest Quintile
From The Skeptical Optimist: Median household income since 2001 looks stagnant at best, doesn't it (see chart above)? Something must have been really wrong with a growing economy that left the median household out of all that growth, don't you think? No wonder we hear so much about it from our politicians.
Hold on though. Try to think of one company — just one, large or small — that has ever written a payroll check to a "household." For example, has Microsoft Corp. ever written a payroll check to "The occupants of the house at 2345 Main Street, Redmond, Washington"? No, of course not.
A household has a group of people in it; most of those groups contain at least one specific person who earns a paycheck. The U.S. Census Bureau calls those people "Earners." The amount of money income received by a household depends to a great degree on the number of "earners" in that household (Census data here).
So the question about stagnated incomes is really a multi-part question. Here is the better question, and its multi-part answers:
1. Did household income stagnate or decline for households with no earners at all? YES.
2. How about for households that had a decline in the number of earners? YES.
3. How about those that had the same number of earners? NO.
4. How about those that had an increase in the number of earners? NO.
By now it should be obvious that an even better question is: Did the middle class income earner participate in the overall economy's growth? It's a better question because it removes the confusion caused by differences in the number of earners per household.
So let's take a look at how "income per earner" did for each of the quintiles of household income.
The chart below shows the result for the period 1994-2007. Note that any possible definition of the "middle class" would show that middle class earners' incomes did not stagnate or decline. In fact, they grew in tandem with the 3.2% average growth rate of overall disposable income per capita (a derivative of GDP).
Bottom Line: A previous CD post highlighted 5 problems with the Census Bureau's data on median household income, and showed that on a "per household member," real median household income actually reached an all-time high in 2007.
The Skeptical Optimist now provides evidence that on an "income per earner" basis, income grew at about the same rate (3.4% to 3.9%) for all income groups between 1994 and 2007, and actually grew the fastest (3.9%) for the bottom quintile (see chart above). In other words, between 1994 and 2007, the rich have gotten richer, the middle class has gotten richer, and the poor have gotten richer, all at about the same rate.
7 Comments:
I guess the only reason why household income or family income is used in some measurements (instead of per capita figures) is that a per capital figure can be skewed by extreme values in one direction or another.
But when you divide things up into quintiles to start with, I think the disadvantage in using household income and/or family income evaporates?
Do you agree? Do these statistics adequately take into consideration the predictable objection: Bill Gates walks into a bar a raises the per capital income of the people at the bar by 3000 percent?
Given that the unemployment rate was under 5 percent until the Democrats took over Congress and that the stock market boomed until Pelosi and Reid took control (now look how well it's doing under Democrat control), it's hard to believe that we haven't enjoyed increases in income by any measurement.
MP, did you read the question in the comments about inflation adjustments to the data?
he responds: "the median chart is "real" HH income adjusted to 2006 using CPI-U-RS. The others are not adjusted, because it doesn't change the outcome: no matter which inflation indicator one uses to adjust the numbers, the lines are the same shape, are in the same relative position, and are virtually identical to inflation-adjusted disposable personal income per capita."
so, the chart that shows stagnation is inflation adjusted. the following charts that show growth in each quintile are not inflation adjusted. now, he says this doesn't make any difference, but i don't know how that can be. if you adjust them for inflation the lines are going to flatten out, showing stagnation.
i'm baffled, MP, maybe you could explain it to me better.
The US stock market has vaporized 7 trillion phony paper dollars of illusionary wealth over the last 7 days. Me thinks incomes have not kept pace for the masses.
"The Skeptical Optimist now provides evidence that on an "income per earner" basis, income grew at about the same rate (3.4% to 3.9%) for all income groups between 1994 and 2007, and actually grew the fastest (3.9%) for the bottom quintile (see chart above). In other words, between 1994 and 2007, the rich have gotten richer, the middle class has gotten richer, and the poor have gotten richer, all at about the same rate."
MP, all income groups?
these charts say nothing about the comparison of the income growth rates of the rich, middle class and poor. the top rate he displays is around 45K. where are the 'rich' on his chart? heck, where is the middle class?
The US experienced an economic boom in the 1990s and economic stagnated since 2000.
You are trying to explain away the post-2000 stagnation by averaging the two eras.
If your data really explained away the post-2000 stagnation you would not have to use the average of the two eras data to prove your point.
I will take your argument seriously when you break down all the detailed data you presented into a pre-2000 set and a post-2000 set.
If your argument is really true the post-2000 set should demonstrate your point.
hi MP.
you might want to check steve's latest revisions. they are inflation adjusted and the income trends look pretty flat. real income increase from 1994-2007 approx 1%
he still compares the period of 1994-2007 with the period 2001- 2007. if he showed the increase from 2001 to 2007 i *think* it would be around zero.
he still doesn't show the increase for the top quintile. so how can we tell how the middle class did compared to the top earners?
i think this guy and his charts are busted. that you are ignoring this reflects negatively on you and your website. i hope you are more diligent in your teachings.
> The US stock market has vaporized 7 trillion phony paper dollars of illusionary wealth over the last 7 days. Me thinks incomes have not kept pace for the masses.
"Phony" and "paper" are not the same thing, idiot.
And, as long as Obama does not get in there to completely screw things up by poking the economy with collectivist and re-distributionist voodoo sticks, the economy ought to recover surprisingly quickly.
They've been comparing the drop to 1930s and the 1910s and so on, noting that it took 10 and 20 or more years to recover.
That was in an industrial economy.
In addition to the improperly applied economic principles which dragged very bad recessions into much deeper, longer lasting problems, the systems for wealth creation required the possession of substantial capital for investment to get to square one.
This is an IP and Services Economy
That's not just a name -- it's a behavioral phase change
The ability to create substantial new wealth is far more widely distributed than it once was. All it takes is a good idea, properly applied, and you can take a service company from a couple employees to a large company in a short time.
All it takes is imagination or talent to produce the next impressive idea -- the youtube, the google, the myspace -- or to make the next big game, or music. Even TV and Movies can be done on a shoestring, for the cost of renting some quality cameras and associated equipment, to some decent video editing equipment.
Yeah, big cap ideas are probably going to suffer for a decade or so, perhaps -- but small cap ones should more than amply pick up the slack.
All it takes to get rich nowadays is talent and imagination and a bit of luck. And this world has a fairly large amount of that all around. And that will be the engine that drives the economy, just as it has for the last 15-odd years, unless Obama and his ilk stomp all over the process.
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