Tuesday, August 26, 2008

Household Income Gains—The Bad News

With the economy in a tailspin, the Census Bureau reported in a news conference this morning that median household income in 2007 had grown over the past year. What a surprise. The $50,233 median of 2007 was 1 percent greater than the $49,568 median of 2006, after adjusting for inflation. This is good news, right?

Wrong. A look at the factors that are driving median household income reveals more bad news than good. The only reason for the increase in the overall median is the rise in the incomes of householders aged 55 to 64. Between 2006 and 2007, this age group was the only one to experience a statistically significant increase in median household income (up 2.2 percent, after adjusting for inflation).

A longer view provides a better understanding of the dynamics at work. Take a look at household income trends by age since 2000:

Percent change in median household income, 2000 to 2007 (in 2007 dollars):

Total households -0.6
Under age 25 -5.2
Aged 25 to 34 -4.6
Aged 35 to 44 -4.0
Aged 45 to 54 -5.7
Aged 55 to 64 +6.3
Aged 65 or older +1.8

Note that householders aged 55 or older are the only ones who made any gains since 2000. Householders aged 55 to 64, in particular, experienced the biggest increase in income between 2000 and 2007. During those seven years, the number of households in the age group increased by an enormous 42 percent as it filled with baby boomers, boosting the share of households headed by 55-to-64-year-olds from 13 to 17 percent. The growing share of householders in the age group, coupled with their rising incomes, explains why overall median household income increased between 2006 and 2007 and fell by just 0.6 percent between 2000 and 2007.

What accounts for the rising incomes of 55-to-64-year-olds? In a word, work. Between 2000 and 2007, the labor force participation rate of men aged 55 to 64 climbed by 2.3 percentage points, to 69.6 percent, as boomer men postponed retirement. The labor force participation rate of women aged 55 to 64 climbed by an even larger 6.4 percentage points, to 58.3 percent, as the working women of the baby-boom generation filled the age group. Without the increasing labor force participation of 55-to-64-year-olds, their household incomes would not have grown, nor would the nation's median household income.

The rise in overall median household income between 2006 and 2007 may look like good news, but looks can be deceiving. In fact, most of the nation's households are losing ground.

Source: Census Bureau

Thursday, August 21, 2008

Who Cares about Polar Bears?

Global warming could cause the extinction of the polar bear, but do Americans really care? Maybe not so much.

When asked how much it would bother them if global warming caused polar bears to become extinct, only 46 percent of the public says it would bother them "a great deal," according to the General Social Survey. An almost equally large 44 percent say the extinction of polar bears would bother them only "some" or "a little," and 10 percent say it would not bother them at all.

It takes something more personal to alarm the American public. When asked whether it would bother them a great deal if global warming caused sea levels to rise more than 20 feet, a much larger 71 percent of the public says yes. No one wants to give up their week at the beach.

When the General Social Survey probed the public's attitude toward five global warming problems, the rise in sea level was the issue that concerned Americans the most. Number two was the melting of the northern ice cap. The extinction of polar bears ranked a lowly fourth, behind the threat to the Inuit way of life. Worries about arctic seals came in last.

The General Social Survey also asked the public how much influence environmental scientists should have in formulating global warming policy. The results are disturbing: only 49 percent of Americans think environmental scientists should have a "great deal" of influence on global warming policy.

The Middle Class Just Blinked

The back-to-school season is losing its luster. The traditional college student population is shrinking, according to the Census Bureau--an unexpected development that may be a harbinger of worse times to come for the higher education industry. The number of full-time students attending four-year colleges fell by 337,000 between 2005 and 2006 (the latest data available). This 4 percent decline, to 7.7 million, is unprecedented and occurred although the number of high school graduates is at a record high. The decline also defied projections by the National Center for Education Statistics, which had forecast a rise in full-time enrollment at four-year schools to 8.2 million.

The drop in traditional college enrollment is a sign that the increasingly strapped middle class has reached the tipping point. According to Pew Research Center, 79 percent of Americans say it is harder than it was five years ago for the middle class to maintain its standard of living. That is putting it mildly. Staring down depreciating houses, gas guzzling cars, rising food prices, stagnant wages, unaffordable health insurance, tightening credit standards, and spiraling college costs, the middle class just blinked. It can no longer afford to keep up appearances--even for the sake of the kids. You know families are in crisis when parents are forced to cut back on their investment in their children. The downturn in full-time college enrollment marks the beginning of a new era for the middle class as it reevaluates the costs and benefits of the traditional college experience.

It's about time. For decades, the nation's 2,600 four-year colleges have brazenly raised prices much faster than the cost of living and still had students knocking down their doors. The college experience became yet another bubble market. The question was not whether the kids would go to college, but which college they would go to. College brands were as much of a status symbol as a Lexus in the driveway. In the competitive frenzy to get their children into the best school at any cost, parents ceased to consider the fundamentals. This explains why the cost of a college education could double between 1976 and 2006 while median family income grew by only 16 percent, after adjusting for inflation. It also explains why two-thirds of bachelor's degree recipients graduate with debt. The biggest increase in debt has occurred among students from the middle class, according to the National Center for Education Statistics.

With the economy teetering on recession, credit tightening, and housing values falling, the cost of the traditional college experience now far exceeds what the middle class can afford. The bubble has burst. To be sure, millions of young adults still yearn for the traditional college experience and are scrambling to pay the bills. Applications for federal student aid were up 17 percent through the first six months of this year, according to U.S. News & World Report. But many will be disappointed with the increasingly meager federal handouts. Four-year colleges have become so expensive that the maximum Pell grant covers only 32 percent of the average price of a public school--down from 52 percent two decades ago, according to the College Board.

The American middle class is rearranging its priorities. This may be bad news for overpriced four-year schools. But it is not necessarily bad news for financially savvy families, who have boosted the number of full-time students at two-year colleges to an all-time high.

Thursday, August 14, 2008

The New Population Projections

The most interesting thing about the Census Bureau's new population projections, released today, is the huge increase in the projected Hispanic population compared with the numbers produced by the bureau just four years ago. The bureau foresees a total population of 439 million in 2050, up from 420 million in the earlier projection series. A larger Hispanic population accounts for the difference.

The Census Bureau now expects the Hispanic population to expand to 133 million by 2050, up from 103 million Hispanics projected for 2050 in the earlier series. Hispanics should account for 30 percent of Americans in 2050, according to the new projections, up from the 24 percent projected in the old series and double the 15 percent share of today.

The non-Hispanic white population, in contrast, will not grow as much as previously projected. The 210 million non-Hispanic whites which the bureau had projected for 2050 (50.1 percent of the population) has been reduced to 203 million in the new projections (46.3 percent of the population).

In the year 2050, 40 percent of babies born in the United States will be Hispanic, and only 37 percent will be non-Hispanic white.

Source: Census Bureau, 2008 National Population Projections