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Incomes Are Down, Poverty Is Up

According to the latest Census Bureau data, real median income dropped from about $50,600 in 2009 to about $49,500 in 2010. That's a 2.3 percent drop for the year (all dollar amounts in this article are adjusted for inflation to be comparable to dollar amounts in 2010). These numbers reflect all money income that households receive, such as social security, pension checks, and unemployment or disability compensation, but do not reflect nonmonetary governmental assistance such as subsidized public housing or food stamps. Also, income is reported on a pretax basis.

Over the longer term, both mean and median household incomes have returned to levels last seen in the mid-to-late 1990s. This has prompted journalists to refer to the past 10 years as a lost decade in terms of U.S. incomes.

Figure 1. Median and Mean Real Household Income

A natural question to ask is to what degree these trends in household income are driven by the high and persistent level of unemployment that we have experienced since the most recent recession. Looking at only at the earnings of men and women who have full-time employment reveals that real earnings have roughly held steady since 2007 for both men and women. In fact, the earnings of full-time employed women are about the same as they were in 2002. Before then, they had been climbing steadily. In contrast, the median real earnings of full-time employed men have been roughly unchanged since the beginning of the 1970s.

Figure 2. Median Earnings for Full-time Workers

In terms of real 2010 dollars, the fraction of households with more than $100,000 in income has stayed near 20 percent since 1998, while the fraction earning between $25,000 and $100,000 has fallen by about 2 percentage points. This means that the fraction of households with income below $25,000 has risen by about 2 percentage points since 1998.

Figure 3. Income Dispersion

The recent increase in the fraction of households with income under $25,000 is also reflected in the poverty rate, which has risen by about 2 percentage points since 2007.

The U.S. Census Bureau measures poverty by comparing a family's income to a threshold which varies by the size of the family and the ages of its members, but does not vary geographically. The threshold is updated each year to reflect inflation. It was originally derived in the early 1960s and based on food budgets and the share of income that was spent on food at that time. The Census Bureau plans to begin releasing preliminary estimates using its new Supplemental Poverty Measure this month, which will address some of the critiques of the current measure. However, the current report is broadly consistent with anecdotal evidence that economic hardship has increased for many people since 2007. Incomes are down and poverty is up.

Figure 4. Poverty Rate

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