Three charts based on today’s Census report show that the US middle-class is shrinking…. because they’re moving up
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Middle Class Is Shrinking….Because They’re Moving Up. From 1967 to 2018, households earning over $100,000 tripled from 9.7% to 30.4% while middle-income households decreased from 53.8% to 41.7%.
Good charts from Mark Perry illustrating that the “hollowing out” of the middle class is driven by people “graduating up”
“…Bottom Line: As can be seen in the visualization above, America’s middle class did start largely disappearing in the 1970s, but it was because they were moving up to higher-income groups, not down into a lower-income category. And that movement was so significant that between 1967 and 2018, the share of American households earning incomes above $100,000 more than tripled, from 9.7% to 30.4%....”
Ed Conard
American incomes remained essentially flat in 2018 after three straight years of growth, according to Census Bureau figures released Tuesday that offer a broad look at U.S. households’ financial well-being. Median household income was $63,179 in 2018, an uptick of 0.9% that census officials said isn’t statistically significant from the prior year based on figures adjusted for inflation. Census officials said that median household income was essentially the same as it was during previous peaks in 1999 and 2007.
3. Washington Post. “More Americans go without health coverage despite strong economy, Census Bureau finds“
“Median household income today is right where it was in 1999. We’ve seen two decades with no progress for the middle class,” said University of Michigan economics professor Justin Wolfers. “The economy is producing more than before, but the gains aren’t being shared equally.”
4. CNN. “US income growth stalled in 2018, Census says“:
Median US household income stayed essentially flat in 2018 at $63,200, breaking a three-year streak of increases, according to data released by the Census Bureau on Tuesday. Median income in 2018 was not statistically different than in 2007 or in 1999, which was the high point. “It tells a pretty darn depressing story,” said Justin Wolfers, economics professor at the University of Michigan, of the report. “Two decades with no progress for the middle class.”
But a closer look at the Census Bureau data reveals there are several reasons that it’s maybe not such “a darn depressing story,” and might be a much more optimistic story of income gains for Americans than is being reported by the media. Here’s why:
1. Gains in Median Income for Households and Workers Was Better Than Reported. The Census Bureau report provides data in its press release and in Table A-1 and Figure 1 showing the following:
a. US median household income increased by only 0.9% in 2018 from the previous year and that increase was not statistically significant.
b. Median income for family households (65% of all households) increased by 1.2% and median income for nonfamily households (35% of households) increased by 2.4%, and both of those increases are statistically significant.
Since all Americans live in either a family household or a nonfamily household, the median income for all US households rose last year, and the increases were statistically significant. The only reason the median income for all households was stagnant has to be because of the changing mix and size of US households, a point I highlighted yesterday in this CD post.
c. The Census Bureau also reported that real median income increased for all workers by 3.4% last year and by 3.4% for full-time, year-round male workers and 3.3% for full-time year-round female workers; and all of those increases were statistically significant (see top chart above).
Bottom Line 1: Despite the media’s sober story of stagnation for Americans, all US households and all US workers experienced significant increases in their incomes last year, see top chart above for a summary.
2. Comparing 2018 Median Household Income to 1999 is Distorted by Declining Average Household Size. Between 1999 and 2018, it’s true that real median household income increased by only 2.7%. But adjusting for the ongoing decline in average household size, which fell to an all-time low last year of 2.52 persons, the increase in median household income per household member increased by 5.9% over that period, or more than twice the increase in unadjusted household income (see bottom chart). One way to overcome the evolving and changing nature and size of US households is to compare the real median household incomes over time for households with a fixed, constant number of earners. For households with one earner, their real median income increased by 7.6% between 1999 and 2018 (nearly 3 times the increase of 2.7% for all households) and the increase for two-earner households over that period was 12% (more than four times the increase for all households), see bottom chart above.
Bottom Line 2: Because of the declining size and changing composition of US households over time, comparisons of median household income in two different years (like 1999 and 2018) is an apples-to-oranges comparison and will understate the household income gains on a per-person basis over time, and significantly understate the income gains for a households that have a constant number of earners over time (e.g., one-earner and two-earner households).
The new animated “bar chart race” visualization above is a dynamic version of the second static chart, and both show the percent shares of US households by total money income for three income categories annually from 1967 to 2018: a) low-income households earning $35,000 or less, b) middle-income households earning between $35,000 and $100,000 and c) high-income households earning $100,000 or more (all in constant 2018 dollars). The income data are from the new Census Bureau report released today “Income, Poverty and Health Insurance Coverage in the United States: 2018.” The third chart above is another way to visualize what might be among the most important finding in the new Census data and confirms a continuation of a trend I’ve highlighted many times before on CD.
Here’s how I explained the income share trends displayed above in a post on CD a year ago discussing last year’s Census report, updated with this year’s data.
Yes, the “middle-class is disappearing” as we hear all the time, but it’s because middle-income households in the US are gradually moving up to higher income groups, and not down into lower-income groups. In 1967, only 9.7% of US households (fewer than 1 in 10) earned $100,000 or more (in 2018 dollars). In 2018, more than 1 in 4 US households (30.4%) were in that high-income category, a new record high. In other words, over the last half-century, the share of US households earning incomes of $100,000 or more (in 2018 dollars) has more than tripled! At the same time, the share of middle-income households earning $35,000 to $100,000 (in 2018 dollars) has decreased over time, from more than half of US households in 1967 (53.8%) to less than half (only 41.7%) in 2018. Likewise, the share of low-income households earning $35,000 or less (in 2018 dollars) decreased from more than one-third of households in 1967 (36.4%) to below one-third of US households last year (27.9%), a new record low.
Bottom Line: As can be seen in the visualization above, America’s middle class did start largely disappearing in the 1970s, but it was because they were moving up to higher-income groups, not down into a lower-income category. And that movement was so significant that between 1967 and 2018, the share of American households earning incomes above $100,000 more than tripled, from 9.7% to 30.4%. Many prominent people like Paul Krugman and progressive politicians like Sen. Bernie Sanders and Sen. Elizabeth Warren claim that American’s middle class has been declining, disappearing, collapsing, losing ground, vanished, stagnated, etc. But the Census Bureau data on household income over time displayed above demonstrate conclusively that those assertions are incredibly and verifiably wrong.
Think about it for a moment and let it sink in — in 2018 nearly one out of three (and more than 39 million) US households had annual incomes of $100,000 or more. And the share of American households with that level of income has increased by more than three times since 1967! Then compare that picture of a prosperous America with millions of middle-class households moving up into higher income groups to the narratives we hear all the time that the American middle class is: losing ground, falling behind, collapsing, stagnating, disappearing, fill in the blank ___________.
Income gains for US households and workers are much more upbeat than what’s being reported by the media
Following the release on Tuesday of the Census Bureau’s annual report on Income and Poverty in the United States, the majority of media reports painted a pretty gloomy picture of stagnating household income for Americans, here’s a sample:
1. CBS News. “Americans’ income barely inching up despite economic growth“:
Americans’ household income is barely rising despite ongoing economic growth and low unemployment, a sign the typical family is failing to see significant gains from what has been a record-long expansion.
The median household had income of $63,179 in 2018, not statistically different from the 2017 median, the Census Bureau said. On an inflation-adjusted basis, Americans families are earning just 2.7% more than they did in 1999, when median household income stood at $61,526, or 2007, when the median household income was about $61,000. The data illustrate why 4 in 10 Americans sometimes face what economists call “material hardship,” struggling to pay for basic needs such as food and housing. While income has barely inched upwards during the past two decades, costs for essentials such as health care and housing has soared, pinching budgets for many Americans.
2. Wall Street Journal. “Median U.S. Household Income Showed No Growth in 2018“:
Mark Perry, "Three charts based on today’s Census report show that the US middle-class is shrinking…. because they’re moving up," American Enterprise Institute, September 10, 2019, https://www.aei.org/carpe-diem/three-charts-based-on-todays-census-report-show-that-the-us-middle-class-is-shrinking-because-theyre-moving-up/
Mark Perry, "Income gains for US households and workers are much more upbeat than what’s being reported by the media," American Enterprise Institute, September 13, 2019, https://www.aei.org/carpe-diem/income-gains-for-us-households-and-workers-are-much-more-upbeat-than-whats-being-reported-by-the-media/
Three charts based on today’s Census report show that the US middle-class is shrinking…. because they’re moving up