Typical families see income and earnings decline

Snapshot for September 5, 2007.

American families today are increasingly feeling the pinch of higher energy prices, housing market uncertainty, and growing health care costs. Historically, typical families could expect to see annual increases in their earnings to help cope with financial challenges, improve their standard of living, or just save for a rainy day. These expectations of economic progress are no longer being met.

Last week the Census Bureau released new estimates of inflation-adjusted household incomes and individual earnings. Median real household income in 2006 was $48,201, an increase of $356, or about 0.7%, from 2005. At this point in the economic recovery, we should expect to see an increase. But it is important to put this increase in historical context, as well as closely examine the causes.

In an alarming reversal of past progress, real household income for the typical family has declined over the last seven years. Despite increases over the prior two years, median household income for 2006 (the last year for which data are available) is still $1,043 below its peak in 1999. As the Figure shows, the three decades prior to 2000 saw average annual household income increases that ranged between 0.4% and 0.9%. This is in stark contrast with a 0.33% decline in the 2000s since hitting a peak in 1999.

For full-time, year-round workers, earnings for both men and women have fallen for three years in a row, and between 2005 and 2006, annual median earnings fell by $482 for men, and $388 for women. These median earnings are $2,353 below peak levels for men and $1,335 below peak levels for women.

Taken together, the increase in household incomes at the median was likely due to an increase in full-time workers, more hours worked, and/or changes in family composition.1 These estimates suggest that typical families are finding it increasingly difficult to maintain real income levels. Even with additional members seeking full-time work, families are still seeing little improvement in their bottom line as median earnings continue to fall.

Chart source: U. S. Census Bureau, Income, Poverty, and Health Insurance in the United States: 2006.

Endnote
1. Family incomes can differ from full-time earnings of men and women if either family composition changes or if there is a change in the employment status of one or more family members. For example, total family income could increase from one year to the next if one spouse moved from part-time to full-time employment, even if full-time earnings decreased.

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