The Corner

Economy & Business

What to Make of the Substantial Growth in Median Incomes?

The Census Bureau released new income figures yesterday. Two facts jumped out at almost every reporter covering the story: (1) Median incomes grew substantially, rising almost $3,000 in 2015; and (2) median household incomes are still below where they stood in 2000 and 2007. On this basis many have concluded Americans have suffered a lost decade and a half.

This conclusion is premature. The Census Bureau figures have several problems well known to economic researchers. All these problems tend to make Americans look poorer than they are. Specifically, the Census Bureau figures:

‐Ignore both employer provided benefits (such as health coverage) and government benefits (such as food stamps);

‐Do not adjust household incomes for changing household sizes;

‐Use a measure of inflation (the Consumer Price Index) that is less accurate than other inflation estimates;

‐Conflates the aging of the population and the rising number of retirees with lower earnings for workers with jobs.

Fortunately, the Congressional Budget Office (CBO) produces income estimates that correct for these problems. These data only go through 2013. This superior data shows claims of income stagnation are exaggerated — to a point.

The CBO figures show that incomes for the middle quintile of non-elderly Americans with children rose an average of $9,300 between 2000 and 2013. The middle quintile of non-elderly Americans without children enjoyed, on average, incomes that were $6,700 higher in 2013. Using better data shows incomes have grown considerably over the past 15 years.

However, that growth stopped after 2007. The CBO data shows that — through 2013 — middle-class incomes were still lower than before the recession hit. The new Census figures suggest that CBO will find incomes only returned to pre-recession levels last year.

Americans are not poorer today than they were 15 years ago. But incomes have been essentially flat for the past eight years.

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