FAMILY INCOME...GOING NOWHERE?

There has been a lot of talk about income inequality lately, much of it simply assuming that income equality is the holy grail that must be attained. Once we achieve it, many think, all our problems will be solved and everyone will be happy. But it is not so.
Obscured in this discussion, often, is the more important issue of income growth. Do we care about inequality if incomes are growing? if they are flat or declining? Whatever one's views on inequality, there should be no question that growing inequality accompanied with declining income is the worst of all worlds. And currently, for the U.S. at least, lack of income growth is the more serious problem.

Here I take a look at family income data recently released by the Federal Reserve Bank, based on its triennial Survey of Consumer Finances. The picture for the last few years that emerges out of this survey is not pretty. Median income fell 3% in 2010, as a result of the 2008 recession, compared to its level three years before. Moreover, median income rose only 2% in the following three years; this means that income in 2013 is below what it was six years before in 2007.

Note that the chart reflects income that is not adjusted for inflation. If we account for inflation, the drop is even more dramatic.  Regardless of which figure we use, the fact is that family incomes have dropped over the last 6 years. Median income was $47,300 back in 2007 and, following the 2008 economic recession when it fell to $45,800, had only recovered to $46,700 by 2013- this is still 1% below its level six years before.

But yet more disturbing is the distribution of the loss of income among various age groups. The chart below shows the change in median income between 2007 and 2013 for several age groups. Most noticeable is that median income for young people, those younger than 35 years, was 6% lower in 2013 than what it was in 2007. Also, curiously, income for the middle group aged 45 to 54 yrs. also fell during this period. At the other end of the age scale, we see that those 65 years and older have seen their income increase robustly- at an average of roughly 3-4% annually during this period. It seems that being older may be preferable to younger- at least from an income gain standpoint.

But the drop in income among the younger set is not good news for the nation. After all, they are the ones that are being burdened by our current government budget deficits, coupled with the greater demands originating from social security payments for now retiring baby boomers.