Economic snapshot | Inequality and Poverty

Raising Wages is Key to Improving Incomes of Low-Income Americans

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Efforts to boost living standards for low-income families often focus on government assistance. While transfers and tax credits are clearly important to families in the bottom fifth, this group depends on pay from the labor market for the majority of their income. This means improving income for low-income families depends on intensifying efforts to increase their wages.

Over the last three-and-a-half decades, wages and wage-related safety-net income (from such sources as the Earned Income Tax Credit) have grown in importance to low-income households. This is the case because their work hours have increased and government support through cash assistance has diminished as programs such as Temporary Assistance to Needy Families (TANF) have become far less generous.

The figure below displays the major sources of income for households in the bottom fifth of the income distribution from 1979 to 2010. It shows that incomes of the bottom fifth are increasingly dependent on their earnings from work. Wages, employer-provided benefits, and tax credits that are dependent on work made up 69.7 percent of bottom-fifth incomes in 2010, compared with only 57.5 percent in 1979. While government in-kind benefits from sources such as Supplemental Nutrition Assistance Program (SNAP) and Medicaid have increased from 13.2 percent of bottom-fifth incomes in 1979 to 18.3 percent in 2010, cash transfers such as welfare payments have declined 8.2 percentage points (from 18.7 percent to 10.5 percent). The safety-net system has clearly become increasingly tied to work through programs such as the EITC and the child tax credit, which overwhelmingly benefits households with labor earnings. Efforts to improve the incomes of low-income households must feature efforts to boost labor earnings.

Economic Snapshot

Wages and wage-related income are of growing importance to low-income households: Share of income of the non-elderly* bottom fifth accounted for by wage-related income, in-kind income, and cash transfers, 1979–2010

Cash transfers (e.g., Social Security, UI, TANF) In-kind benefits (e.g., SNAP, Medicaid) Wage-related income (wages, benefits, and tax credits [e.g., EITC])
1979 18.7% 13.2% 57.5%
1980 19.4% 13.5% 56.6%
1981 19.2% 13.5% 56.9%
1982 20.3% 14.3% 56.0%
1983 20.0% 15.4% 55.1%
1984 17.1% 13.3% 57.6%
1985 17.9% 14.5% 56.8%
1986 17.1% 14.8% 56.5%
1987 17.6% 16.9% 54.5%
1988 17.1% 16.5% 55.1%
1989 15.2% 16.1% 57.5%
1990 14.5% 17.5% 57.8%
1991 14.6% 17.7% 58.2%
1992 14.3% 17.9% 59.6%
1993 14.1% 18.5% 58.1%
1994 13.7% 18.7% 59.6%
1995 11.9% 16.7% 63.4%
1996 11.6% 16.0% 65.1%
1997 10.7% 14.0% 67.5%
1998 9.6% 13.2% 69.8%
1999 9.3% 12.5% 69.1%
2000 9.1% 12.6% 69.1%
2001 8.6% 15.6% 70.2%
2002 9.5% 15.2% 69.5%
2003 9.0% 15.5% 70.1%
2004 8.6% 15.9% 70.1%
2005 7.5% 15.7% 71.7%
2006 6.7% 15.8% 71.9%
2007 6.6% 16.1% 71.3%
2008 7.7% 16.7% 74.3%
2009 10.2% 18.6% 70.3%
2010 10.5% 18.3% 69.7%

* Data are derived from weighted average of non-elderly childless households and households with children.

Note: Wages and benefits, cash transfers, in-kind income, and tax credits comprise 98.5 percent of all pretax income for the bottom fifth non-elderly population in 2010. The other 1.5 percent is made up of capital gains, proprietors’ income, other business income, interest and dividends, and other income.

Source: Authors’ analysis of Congressional Budget Office (2013)

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This Economic Snapshot is part of EPI’s new project Raising America’s Pay, a research and public education initiative that seeks to make wage growth an urgent national priority. Over the next three years, Raising America’s Pay will highlight our failure to provide broad-based wage growth, research and explain the role of labor market policies and practices in depressing wage growth, and identify policies that will boost wages for the broad-middle class.


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