American households finally earn more than they did in 1999, but poverty and inequality are on the rise

From today’s Los Angeles Times “Business” section by Don Lee:

Income inequality

After a long period of plodding economic growth, significant earnings gains over the past two years have finally enabled the average American household to surpass the peak income level it reached in 1999.

The median household income in the U.S. climbed to $59,039 last year, up 3.2% from 2015 after adjusting for inflation, the Census Bureau reported Tuesday.

That comes on the heels of a 5.2% jump in income in 2015, the highest annual percentage increase on record.

The back-to-back increases brought the median income — in which half of households earn more and half less — above the previous peak of $58,665 in 1999.

The median household income in California rose 3.4% last year to $66,637, surpassing the earlier high of $65,852 in 2006.

The national measure of poor people in America also improved significantly for the second year in a row: The poverty rate fell last year to 12.7%, from 13.5% in 2015 and 14.8% in 2014.

That translates into a decline of about 6 million people in poverty over the last two years.

The latest poverty rate is comparable to 2007, the year before the Great Recession took hold. But there were still 40.6 million poor people in the nation last year. A household with two adults and two children is considered poor if their total income was less than $24,339.

“We consider 2015 and 2016 to be the turning point on the real median household income front, as employment and wage gains, combined with modest consumer price inflation, have boosted the well-being of many American households,” said Chris G. Christopher Jr., executive director of IHS Markit, an economic research firm.

“Real median household income has finally completed its nine-year slog of digging out of the ditch,” he said.

But the annual Census report was not as glowing beneath the surface, and economists are concerned that budget proposals curtailing things like food stamps could thwart continuing progress.

The impact of Trump’s promised tax reform could also change trends for the poor and middle class.

While the latest data showed solid gains for blacks and Latinos and younger adults, median incomes for full-time, year-round workers, men and women, were essentially flat in 2016, reflecting sluggish wage growth that has persisted into this year.

What’s more, a key measure of income disparity remains at the highest level in at least a half century.

And although the median income for urban dwellers jumped 5.4% last year to $61,521, households in rural areas saw their earnings basically stagnate at less than $46,000.

Read the entire article here.

What the Poverty Rate Tells Us About the Overall Economy

From yesterday’s NYT “The UpShot” Blog by Jared Bernstein:

On Tuesday, the Census Bureau will tell us whether the share of population that’s officially in poverty went up, down or stayed the same in 2013. There’s tons of other data in the release, like the change in the real income for the median household and information on health insurance coverage.

Because the data is a year old, financial markets ignore it. But political markets pay a lot of attention, as do policy analysts and advocates who work on poverty and middle-class economics. And, of course, these being the early days of the Affordable Care Act, the health coverage data will doubtless also get a close look. My own interest is that of the policy wonk who focuses on the nexus between the overall, or macro, economy and living standards of middle- and low-income families.

It’s an important set of numbers. Although one must always be careful not to read too much into one year’s data, 2013 represents the fourth full year of an economic recovery that officially began in the second half of 2009. Yet this recovery has been uniquely unforthcoming for the poor, the unemployed and even many people in the middle class.

Poverty, as officially measured, has held steady at about 15 percent of the population since 2010, and unfortunately, I expect it to do so again this year. I expect the real median household income to do a little better, up by maybe 1 percent.

Why, if I’m right, should the poor and middle class have gained so little by Year 4 of the recovery? That relates to the answer I tend to give when someone asks me how the economy is doing: Whose economy are you talking about?

Yes, various indicators improved in 2013. Real G.D.P. was up, but no faster than the year before (a bit above 2 percent); same with payrolls. And while the unemployment rate fell seven-tenths of a percentage point in 2013, from 8.1 percent to 7.4 percent, more than half of that was from people dropping out of the labor force. That’s not exactly a sign of strength. In fact, the share of the working-age population with a job barely budged last year.

The real wages of low-wage workers were generally as torpid in 2013. For example, if we look at the hourly wage of those in the bottom third of the pay scale, it averaged a bit above $10 per hour over both 2012 and 2013. However, a stagnant low wage is actually an improvement, because real low wages fell sharply earlier in the recovery. And the real median hourly wage went up 1 percent last year, providing a slight bump to the middle class.

Government policy didn’t help much in 2013, though the official poverty rate captures only some of the antipoverty spending by federal and state governments. For example, unemployment insurance benefits are counted, but the value of nutritional support or the earned- income tax credit (a wage subsidy for low-wage earners) is not.

Fiscal drag — fiscal policy that slows economic growth — was actually a big negative last year, taking 1.5 percentage points off economic growth by most estimates. The relevant parts of that policy for low- and middle-income households would include the ending of a tax break for wage earners (the payroll tax holiday) and less in unemployment insurance benefits.

I used statistical models that forecast the 2013 poverty rate based on the movements of the variables discussed above. Because it’s hard to make a case that the rising tide lifted too many rowboats last year, the models I run predict no statistically significant change in the poverty rate. (The rate could tick down a tenth or two, but that would be statistically indistinguishable from no change at all).

That said, there’s some chance the poverty rate will come down more than I expect. First, there’s just the momentum of a cyclical variable: Eventually the recovery sprinkles at least some of its benefits on low-income households and poverty falls a bit.

Also, there were some changes in the composition of the population last year relative to earlier years that could push the rate down. There was slower growth in immigration and a smaller share of the population in mother-only households (both groups have higher-than-average poverty rates).

Finally, inflation was low in 2013, only 1.5 percent, and that means a smaller nominal gain in income becomes a larger real gain. That’s one reason I predict that nominal median household income grew a bit faster than 2 percent last year. So it is possible they eked out a small real gain thanks in part to such minimal price growth. I expect real growth in the median household income in the 0.5 to 1 percent range.

It’s important to put these results in historical context. I expect poverty to still be 2.4 percentage points above its rate of 12.5 percent in 2007; that’s an additional 7.5 million poor. And even if I’m right about the bump in the real median income, it will still be 7.6 percent below the 2007 level, representing a loss of over $4,000.

In other words, if I’m in the ballpark, Tuesday’s release will be another reminder of why many Americans still feel pretty gloomy about the recovery: It hasn’t much reached them.

Republicans oppose minimum wage, but claim they want to curb poverty?

From the January 10, 2014  New York Times Editorial:

A similar dynamic is developing around the drive for a higher minimum wage. In the December jobs report, the average hourly wage for most workers was $20.35. That means that the minimum wage, at $7.25 an hour, is only one ­third of the average, rather than one ­half, as was the case historically. Raising the wage to $10.10 an hour, as Democrats have proposed, would help to restore the historical relationship. But even that would fall far short of the roughly $17 an hour that workers at the bottom of the wage scale would be earning if increased labor productivity were reflected in their pay, rather than in corporate profits, executive compensation and shareholder returns.

Republicans, however, are opposed to any increase, as if the numbers don’t speak for themselves. Their stance also dismisses research, and common sense, which says that raising the wages of low­ and moderate­ income workers is essential for lessening both poverty and inequality. Instead, in the past week, they have introduced ostensibly “antipoverty” ideas, most prominently Senator Marco Rubio’s plan to transform federal safety net programs into state block grants, another of the shopworn Republican ideas that also include privatizing federal services and slashing domestic spending. Block grants have allowed states to disregard the needs of the least fortunate. The proposal would set back the debate on wages, poverty and inequality.

The December jobs report is telling Congress what it needs to do. Unfortunately, that will not lead to action anytime soon.

Read the entire article here.