Household Income Stagnation

A look at household income growth in the United States, 1947 to 2012

Over the past fifteen or so years, median real household incomes have stagnated. This observation is widely evoked in arguments that America’s middle class is faring poorly. It is used as a basis for asserting that the US economy does not serve regular Americans’ economic interests well.

Real income means inflation-adjusted income, a metric that is used in an attempt to differentiate genuine raises from those that merely reflect changes in general prices. For example, the median household in 1947 received about $3 thousand in income, but that money could purchase more then because prices were generally lower. At current prices, the Census Bureau estimates that this $3,000 (the prevailing nominal income at that time) is equivalent to (a real income of) about $27,000 today.1 This implies that the median household, whose income was about $60 thousand in 2012, has somewhere between twice and three times (rather than twenty or so times) the purchasing power of its post-WWII counterpart.

The figure below depicts canges in median US real household income from 1949 to 2012. Data are drawn from the Census Bureau.2

Median Income Stagnation

 

Between 1950 and about 1970, median household incomes rose quicky and steadily. Median real incomes grew at an average annual rate of about 3.5% per year, compared to an average rate of 0.9% from 1970 to 2000 and -0.1% from 2001 onwards.

These seemingly modest differences in growth rates amount to big income differences over time. For example, had real income continued to growth at its mid-century pace, real median income in 2012 would have been somewhere around $236 thousand, instead of $64 thousand. Had it maintained its 0.9% annual growth rate from 2000 onward, median incomes would have been somewhere around $75,320 by 2012. Had incomes not fallen since 2000, the median household would have about $5000 income in inflation-adjusted terms.

Over time, median wages have slowed. Their decline over the past 15 years makes the slow, steady growth of the 1970s through 1990s look like the “good old days.” However, the middle class prosperity of the past 40 years was far inferior to what was experienced in the 1950s and 1960s, at least insofar as real incomes are concerned.

Over the past several decades, the US economy has largely failed to secure rising incomes for its middle class. Policy has failed to create an environment in which regular Americans have been able to earn more money relative to prices. Of course, discerning how it has failed is a much more complicated (and different) topic.


  1. Census Bureau (2014) “Table F-5: Race and Hispanic Origin of Householder – Families by Median and Mean Income: 1947 to 2012” Data table. http://www.census.gov/hhes/www/income/data/historical/families/
  2. Ibid.

Download the R Markdown file and raw data here

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