Thursday, October 13, 2011

Have median incomes really stagnated?

Tyler Cowen claims that median incomes has stagnated since 1973 and Russ Roberts asks a good question: What does it mean for median incomes to stagnate? Does this mean the the standard of living of the median household in 2010 is the same as it was in 1973? Like Russ Roberts, I find this hard to believe.

First, some data issues. Googling “personal median income” turned out very few hits so I would imagine that Tyler is referring to household income. There were some rather unwieldy tables on the Census website but DaveManuel has reproduced most of it in an easy to read form here from 1975 to 2010. Except for the huge dive that it took in 2009 (for real close up view, see Felix Salmon’s post), it is difficult for me to say that household income has actually stagnated. In real dollars, based on DaveManuel, the 1975 household median was $43,000 and in 2010 was $49,000. (We can quibble about statistical significance but let’s not.) In the intervening years, median household income rose and fell with a peak of $53,000 in 1999.

I would say that Tyler is over exaggerating the extent of stagnation but if he were to say that median incomes have stagnated in the past 10 years there would be no argument from me. In order to address the question of whether the standard of living of the median households have actually stagnated I would compare median households in 2000 with the current median household (or if Tyler believes that 1973 is in fact when median incomes stagnated, I would also throw the 1973 median household in the mix).

Compared to the median households of the past, do the median households of today have more “stuff” and I think of stuff in a very narcissistic (economist type) way. What is the percent of median households today with broadband access? Or cable TV? Owned their own homes? Or the average size of the home? Or number of electronic gadgets?

Assuming that the median households of today have more stuff than those of the past then the obvious question is that if incomes have stagnated, how did they own all this stuff? Is it a result of previous periods of “unstagnated” incomes? Did they go into more debt to get more stuff? And if more debt is the answer, then is this good or bad in the sense that are households more vulnerable to economic shocks? Vulnerable could be taken to mean greater fluctuation in consumption or higher propensity to file for bankruptcy.

At the end of the day, the stagnation of median incomes is interesting but not that interesting.

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