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April 2 2015

Measuring Long-Term Income Growth

Rachel DiCarlo Currie

Last week I showed how and why long-term market-income growth has been significantly stronger among working-age middle-class households than it has been among all middle-class households. (When we look at all households together, we include retirees, who by definition earn very little, if any, wage or salary income, and who represent a significantly larger share of middle-class households today than they did 30 or 40 years ago.) Here’s something else to remember when you’re reading about middle-class income growth (or stagnation) since the late 1970s: The specific comparison years matter a lot.

For example, 1979 represented a peak in the business cycle, whereas 2011 -- the most recent year for which the Congressional Budget Office (CBO) offers comprehensive income data -- was only a few years removed from the worst recession since World War II. Thus, comparing 1979 incomes with 2011 incomes captures the impact of the Great Recession, but it paints a distorted picture of long-term trends. Probably the best way to measure those trends, as Manhattan Institute scholar Scott Winship and others have observed, is from one business-cycle peak to another -- e.g., from 1979 to 2007. We might also measure income growth from 1983 to 2011, to compare where households stood in the aftermath of the 1981–82 recession with where they stood following the 2007–09 recession.

CBO has compiled data for households with children in the middle income quintile (as determined by size-adjusted pre-tax, post-transfer income). It estimates that, between 1979 and 2011, their average market income (i.e., their income before taxes and government transfers) increased by 23 percent. Between 1983 and 2011, it increased by 30 percent. Between 1979 and 2007, it increased by 35 percent. Between 1983 and 2007, it increased by 43 percent.

If we look exclusively at their average income from cash wages and salaries, it grew by 13 percent from 1979 to 2011, by 21 percent from 1983 to 2011, by 22 percent from 1979 to 2007, and by 30 percent from 1983 to 2007.

Turning to non-elderly childless households in the middle quintile, their average market income grew by 19 percent (1979–2011), by 25 percent (1983–2011), by 33 percent (1979–2007), and by 39 percent (1983–2007). Meanwhile, their average income from cash wages and salaries grew by 12 percent (1979–2011), by 20 percent (1983–2011), by 25 percent (1979–2007), and by 34 percent (1983–2007).

As those figures indicate, the Great Recession effectively reversed years of gains. “You cannot put a happy face on a decade-long period that ends with the longest and worst economic slump of the post-war era,” Brookings Institution economist Gary Burtless said in 2011. That’s quite right. Yet if we take a longer view, Burtless noted, “Americans in the broad middle and at the bottom of the distribution have, on average, seen their real incomes and consumption improve over the past three decades.”


Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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