The latest data on US incomes make for grim reading, both as regards the bottom of the income distribution where the number in (absolute) poverty is at an all-time high (the proportion of the population was the highest since 1993), and in the middle, where median household incomes have fallen back to the 1997 level. For some groups, such as male wage earners without college education, real incomes haven’t risen since around 1970
Having discussed this issue before I’m familiar with most of the standard arguments used to show that things really aren’t that bad. The big ones are
(i) household size is decreasing
(ii) the consumer price index doesn’t take adequate account of product quality
(iii) the Earned Income Tax Credit isn’t taken into account
(iv) health insurance and other benefits are undervalue
Looking at the period from 1970 as a whole, there’s some truth in these claims, though not enough to offset the dramatic contrast between the huge gains before 1970 and the relative stagnation thereafter. But over the last decade or two, these excuses have run out.
- Average US household size has been increasing since 2005
and is now back to the 1990 level
- Changes following the Boskin Commission report of 1996 have mostly accounted for product quality improvements and substitution effects
- The EITC was last changed in 2001, and the effects were modest. It seems likely to be cut as part of the current move to austerity
- Access to health insurance has generally declined. Obama’s reforms will change this if they survive to 2014, but that’s far from being a certainty
To sum up, whereas the apparent stagnation in household incomes, poverty rates and so on since the 1970s is somewhat misleading (even corrected, the picture is still pretty bad), the official statistics probably understate the decline in median household income and the increase in poverty over the last decade.
fn1. I’m not going to bother with another round of “people have more of things that have become relatively cheaper”. If you haven’t seen the repeated refutations of this, read my book Zombie Economics, Ch4.