David R. Henderson  

Household Incomes Declined During Recovery

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My guess is that many readers have already seen the articles and blog posts about the study of household incomes done by a firm named Sentier Research. Here's a sample post. The study shows that real median household income declined more during the current recovery than it did during the recent recession. Incomes falling during economic recoveries is pretty unusual. The numbers are shocking and I wondered if the authors were members of some fringe group looking to go after Obama.

They don't appear to be.

First, the data. I'll quote from the study, which you can find here. (Note, though, that Sentier is charging $25 for it.) This is from the introduction:

Based on new estimates derived from the monthly Current Population Survey (CPS), real median annual household income, while recovering somewhat during late 2011 and the first half of 2012, has fallen by 4.8 percent since the "economic recovery" began in June 2009. Adding this post-recession decline to the 2.6-percent drop that occurred during the recession leaves median annual household income 7.2 percent below the December 2007 level.

After adjusting for changes in consumer prices, median annual household income declined during the recession, from $54,916 in December 2007 to $53,508 in June 2009. During the "economic recovery", as the unemployment rate and the duration of unemployment remained high, real median annual household income continued to trend lower, standing at $50,964 in June 2012.

As I have noted many times on this blog, the Consumer Price Index (CPI) overstates inflation and so the declines aren't quite as bad as they look. But even if the overstatement is one percentage point per year, these are still declines.

Now to the authors' bona fides. The authors are Gordon Green and John Coder. Here are excerpts from their bios:

Gordon Green is a former Chief of the Governments Division at the U.S. Census Bureau and a member of the Senior Executive Service (SES). For many years at the U.S. Census Bureau, he directed work on the Nation's official income and poverty statistics program. He received a Ph.D. in economics from The George Washington University in 1984.

John Coder is a former Chief of the Income Statistics Branch at the U.S. Census Bureau. While at the Census Bureau he directed collection and processing of income and related data collected in the March Current Population Survey (CPS) and was instrumental in developing new methods for imputing missing survey responses.

UPDATE: Check out how White House press secretary Jay Carney flails in trying to answer Jake Tapper's question about the decline during the recovery.

Comments and Sharing

CATEGORIES: Income Distribution

COMMENTS (9 to date)
Brandon Berg writes:

Isn't this basically what Bryan has been saying all along, that real wages were too high and needed to come down to bring employment back up?

Also, could this be a cohort effect due to the Baby Boomers beginning to retire?

Reed Dame writes:

This could simply due to discouraged workers reentering the labor force. Therefore those seeking work are actually competing against a larger labor force than during the recession when there are many discouraged workers.

In the late 1970s, it was called "stagflation" and it mystified the Keynesians. Even Carpe Diem's Mark J. Perry echoes a Cleveland Fed report that inflation is the lowest in 54 years. What about the trillion or two pumped into the economy for the Bush/Obama Bailouts? It only makes me distrust all government statistics. MiniTruth needs more Winston Smiths to keep the party line in conformance.

On the other hand - ceteris paribus - the so-called "Long Recession" of the 1880s and 1890s was a time of expansion exactly because the gold standard let money be stable while more goods and services were invented to bid for it. Prices, including wages, fell. So, maybe we have that, and maybe there was no bailout...

Winston loves Julia: It's the only thing that really matters.

I think this area of study deserves more effort currently given its peculiarity. From my perspective, the combination of policy decisions since the crisis have compounded the issue for households already burdened with debt. As can be seen in the employment-to-population ratio, which has barely moved since the bottom, new jobs are only meeting population growth. The supply of labor therefore remains well in excess of current demand. Demand also remains weak because policies have been focused on protecting corporate profits instead of helping households deleverage.

MG writes:


I am sure you know the details behind these stats much better than I do, so may be you can comment on the following line of thought -- the unintended consequences of low interest rates and debt relief.

Can the collapse in personal interest income (see for example, http://conversableeconomist.blogspot.com/2012/08/the-drop-in-personal-interest-income.html) be behind this? I have always felt that economic commentary tends to be stuck on the premise that low interest rates are always and everywhere good. But I suspect that the unprecendented drop in returns on savings may now be figuring more prominently in the minds of the households being surveyed. Furthermore, and adding insult to injury, the beneficial effects of negative real rates may not be fully offsetting this effect because of reduced borrowing. Moreover, another source of debtors relief (forebearance, non-payment of debt) may not be properly imputed as income by the beneficiary responders -- while (more likely) being recognized as reduced income by the receivers.

Cosmo10 writes:

While median household income has slipped by $3,719 (census.gov) between 2000 and 2010, wages have essentially stagnated during the same period. The main reason behind the decrease in median household income is that one of the spouses works less hours now. Overall, this trend has not helped our consumer driven economy. That’s why we are stuck in the first gear in term of growth.

David R. Henderson writes:

It is true that their data include interest. But here’s why I don’t think lower interest rates are much of a factor: the two groups who traditionally have the highest interest incomes as a percent of income are those aged 65 to 74 and those aged 75 and more. As the Sentier data show, though, the only two groups whose real median income rose during the recovery are--those aged 65 to 74 (a rise of 6.5%) and those aged 75 or more (a rise of 2.8%).

Joe Cushing writes:

It's because the economy is in an L shaped or non-recovery.

Janice writes:

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