Household Income: Slip Slidin’ Away

household incomeToday the U.S. Census Bureau released its annual report on income, poverty, and health insurance coverage for 2011. Data from the report represents the second full year of economic recovery (which official started in June 2009). From the top line statistics, poverty held steady at 15% (46.2 million people) and the number of people without health insurance coverage declined from 50 million in 2010 to 48.6 million in 2011. The big changes were with regard to income as illustrated in the figure.

Median household incomes continued to slide in the U.S and more so in California. In the U.S. the income of typical households fell from $54,489 to $50,054 or by 8.1% (-$4,435) from the last economic peak of 2007 to 2011. Income in California plunged by an astonishing 13.5% (-$8,341) from its 2006 peak of $61,708 to just $53,367 in 2011; slightly above typical income in the state in 1984.

As I reported in a blog post last year, it isn’t just that the income for typical households has declined in tough times—it is what happened during the so called good times that is also disturbing. Household income has always been susceptible to economic fluctuations as is evident in the figure. Incomes peak near the end of economic expansions—in other words, just prior to recessions (gray bars)—and they fall during recessions. When economic expansion takes hold and recovery is strong enough incomes start to rise once again.

As the figure shows, in recent expansions post-recession income gains have taken longer to materialize and given the enormity of the Great Recession it may be years before we see any improvement. The salient point here is that the long term trend has always been up. In other words, typical income at the peak of each successive expansion has always been higher than the previous one—that is until the last economic cycle. As the figure shows, typical U.S. incomes showed a slight loss (-0.8%) over the last two economic peaks that occurred in 1999 and 2007. In California peak-to-peak gains were slight at just 0.9%.

sylvia allegrettoThe further incomes fall the harder they will be to regain, let alone surpass, during this expansion. Why? Because jobs are still down 4.7 million compared to December 2007 levels when the recession began. Even as the economy is well into the fourth year of recovery, the shortfall in jobs is still greater in percentage terms today (-3.5%) than at the worst point of the 1981 recession (-3.1%). Incomes for typical households will not recover until the labor market does.

Sylvia Allegretto
The Berkeley Blog

Posted: Wednesday, 12 September 2012

Published by the LA Progressive on September 12, 2012
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About Sylvia Allegretto

Sylvia Allegretto is a labor economist and deputy chair of the Center on Wage and Employment Dynamics, which is housed at UC Berkeley's Institute for Research on Labor and Employment.