Tuesday, September 20, 2011

Incomes Decline in 2010: Here's the Story

The Great Recession was supposed to have ended in June 2009, according to the National Bureau of Economic Research. But the release last week of the 2010 income statistics calls that claim into question. According to the Census Bureau, median household income fell to $49,445 in 2010--7 percent lower than in 2000, after adjusting for inflation--and that's just the beginning of the story.

I would hazard a guess that the macroeconomic indicators on which the National Bureau of Economic Research dates recessions have become decoupled from the microeconomics of American households--thanks to globalization and the rise of multinational corporations. The Census Bureau even includes a helpful chart in its income report showing just how odd this "recovery" has been. It is the only one in modern history in which the number of workers with earnings has declined. There were 1.6 million fewer workers in the "recovery" year of 2010 than during the Great Recession itself. It ain't over folks, and by the time the Great Recession does end we might need a new name for it. Economist and New York Times columnist Paul Krugman has taken to calling it the Lesser Depression.

If the politicians cannot hear the middle class crying for help in the 2010 income statistics, then we really are trapped in a downward spiral on our way to becoming a third world nation. At this point, the only thing propping open the doors of many businesses is the valiant effort by middle class families to keep up appearances by spending down their savings and taking on debt (mainly in the form of student loans). They can't fake it much longer.

Rather than focus on the big story contained in the income statistics, the media have been tsk-tsking in knee-jerk fashion about the rise in the poverty rate--copying and pasting from the bullet points of the Census Bureau's press release. Sure, poverty is an important problem, but its rise is perhaps the least surprising finding in the 2010 numbers. Poverty is a small part of the bigger story: the massive decline in the standard of living of the great majority of Americans. The media's failure to report the big story gives cover to the many politicians who are intent on ignoring the elephant in the room as they fatten their wallets for the 2012 elections.

Somebody has to tell the story. Why not an obscure blog about demographic trends? So let's begin at the bottom of the age distribution and work our way up.

The young. If the world is in the midst of an historic technological and economic transformation caused by the Internet revolution (it is, in my opinion), then the consequences will emerge first among the youngest adults--the pioneers in the emergent society. That's what the 2010 income statistics show. The median income of householders under age 25 fell by a stunning 20 percent (to $28,322) between 2000 and 2010, after adjusting for inflation. This startling decline occurred despite the fact that many young adults have given up entirely and moved back home with mom and dad. The number of households headed by people under age 25 has been declining even as the population has been growing. Increasingly, the young adults left fending for themselves are the ones without parents with the resources to take them in.

The middle aged. The Census Bureau reports that a substantial 14 percent of adults aged 25 to 34 now live with their parents. Many have had little choice but to move back home since the median household income of this age group fell 11 percent between 2000 and 2010, after adjusting for inflation. Householders aged 35 to 44 did not fare much better, with a 9 percent decline in their median income. Then we get to the real horror story: householders aged 45 to 54. Their median income fell by 14 percent between 2000 and 2010, a decline second only to the one experienced by the youngest householders. The 45-to-54 age group has seen its median income fall by more than $10,000 since 2000! So precipitous has been this decline that the age group--once the nation's peak earners--now makes only 26 percent more than the average household, down from a margin of more than 40 percent in the 1990s. The household income gap between the 35-to-44 and 45-to-54 age groups once exceeded $8,000. By 2010 it had shrunk nearly tenfold to just $841.

Older generations. It might seem as though there is more stability in the older generations. The median income of householders aged 55 to 64 fell just 0.4 percent between 2000 and 2010, after adjusting for inflation--but only because they are working harder to stay even. During the decade, the labor force participation rate of men aged 55 to 64 climbed from 67 to 70 percent and that of women from 52 to 60 percent. Half of married couples in the 55-to-64 age group are now dual earners, up from 44 percent in 2000. The only seeming bright spot in the income statistics is among householders aged 65 or older, with a 7 percent rise in their median income during the decade. But again, labor force participation rates are rising in the age group, and whatever financial stability older Americans possess cannot be passed down to younger generations since it exists in the form of defined benefit pensions and Social Security and Medicare benefits--all of which have been axed or are being threatened by mad-as-hell politicians intent on cutting the deficit at any cost.

History will show, in my opinion, that the Internet is behind the upheaval in our society. But the dire situation in which the middle class now finds itself has been caused primarily by the failure of our politicians to respond appropriately to the challenges and opportunities the digital society presents.

For a comparison of median household incomes by age in 2010 and 2000, see this Demo Memo blog post.

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