No, Incomes Didn’t Soar In 2015

On Tuesday, the Census Bureau released its annual report on income and poverty in the United States, based on the Current Population Survey. The report found that median household income increased by an inflation-adjusted 5.2% in 2015. President Obama and Hillary Clinton hailed this finding as a vindication of eight years of stagnation, and newspapers played up the 5.2% increase as the best economic news in a long time.

Of course, the Bureau’s own press release noted that “this is the first annual increase in median household income since 2007….” So it’s about time. Hillary Clinton probably won’t be heard to say, “Vote Democrat, and once in a decade your income won’t go down!”

Many observers wondered how we could have 5% income growth at the same time we were experiencing 2% GDP growth, and even the most cursory review of the report’s Table 1, which contains summary data, reveals that the supposed 5.2% increase in household income has been badly overhyped.

From newspaper headlines, one would assume that if you are a regular person with a full-time job, your income likely went up 5% last year. Wrong. The figures for earnings of full-time workers are much lower. Men who worked full-time in 2015 saw a median increase in earnings of only 1.5%, and women a slightly larger median increase of 2.7%.

Also, the income gains were not uniformly distributed. The smallest gains went to native-born Americans. Whose incomes increased the most? Donald Trump might want to take note of this one: foreign-born non-citizens, up by 10.5%.

If median full-time workers were only earning 2% more (blending the male and female numbers), why did median household income go up by over 5%? I am still digging into the data, but there are several possibilities. One is that a considerable part of the difference is made up by higher government payments. Most people do not realize that there is a difference between “earnings” and “income.” It was median household income that supposedly went up by 5.2%, and income includes Social Security, disability payments, welfare benefits, unemployment compensation, and more (alimony and various kinds of retirement benefits, for example). So measuring income doesn’t necessarily measure economic productivity.

Another problem with household data is that they tell us as much about household composition as about economic progress. For example, if two people with incomes get married, household income goes up. In 2015, there was a 2% increase in the number of workers who had earnings, and a 1% increase in the number of households. As a result, the mean number of workers per household rose from 1.28 to 1.3. This would, naturally, increase household income.

To the extent that this may reflect an improving job market, it is a good thing. But it is not the same as the average worker making a 5% higher income. Also, labor force participation declined last year, a fact (from a different data set) that is hard to reconcile with the growing number of workers with earnings in the Census Bureau’s Current Population Survey.

A final observation: all of the numbers in the Bureau’s report have high margins of error. As I read Table 1, the much-celebrated 5.2% increase in median household income is + or – 1.6: in other words, somewhere between 3.6% and 6.8%. The 2.7% increase in median earnings for women who work full-time and year-round is + or – 1.86, which makes the 2.7 figure virtually meaningless.

I will comment further if I come across additional information of interest, but from even a brief review it is obvious that last year’s supposed 5.2% increase in median household income does not change the verdict on the eight years of stagnation over which the present administration has presided.