Submitted by CARPE DIEM

From The Skeptical Optimist:

Median household income since 2001 looks stagnant at best, doesn’t it (see chart above)? Something must have been really wrong with a growing economy that left the median household out of all that growth, don’t you think? No wonder we hear so much about it from our politicians.

Hold on though. Try to think of one company — just one, large or small — that has ever written a payroll check to a “household.” For example, has Microsoft Corp. ever written a payroll check to “The occupants of the house at 2345 Main Street, Redmond, Washington”? No, of course not.

A household has a group of people in it; most of those groups contain at least one specific person who earns a paycheck. The U.S. Census Bureau calls those people “Earners.” The amount of money income received by a household depends to a great degree on the number of “earners” in that household (Census data here).

So the question about stagnated incomes is really a multi-part question. Here is the better question, and its multi-part answers:

1. Did household income stagnate or decline for households with no earners at all? YES.

2. How about for households that had a decline in the number of earners? YES.

3. How about those that had the same number of earners? NO.

4. How about those that had an increase in the number of earners? NO.

By now it should be obvious that an even better question is: Did the middle class income earner participate in the overall economy’s growth? It’s a better question because it removes the confusion caused by differences in the number of earners per household.

So let’s take a look at how “income per earner” did for each of the quintiles of household income.

The chart below shows the result for the period 1994-2007. Note that any possible definition of the “middle class” would show that middle class earners’ incomes did not stagnate or decline. In fact, they grew in tandem with the 3.2% average growth rate of overall disposable income per capita (a derivative of GDP).

Bottom Line: A previous CD post highlighted 5 problems with the Census Bureau’s data on median household income, and showed that on a “per household member,” real median household income actually reached an all-time high in 2007.

The Skeptical Optimist now provides evidence that on an “income per earner” basis, income grew at about the same rate (3.4% to 3.9%) for all income groups between 1994 and 2007, and actually grew the fastest (3.9%) for the bottom quintile (see chart above). In other words, between 1994 and 2007, the rich have gotten richer, the middle class has gotten richer, and the poor have gotten richer, all at about the same rate.

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