2021 Census Data Preview: A growing economy and government relief measures matter for earnings, incomes, and poverty
The vast majority of families and households in the United States rely on a combination of labor earnings from work and public assistance to make ends meet, especially throughout the pandemic recession and recovery.
Next week, the Census Bureau will release their latest data on earnings, incomes, poverty, and health insurance for 2021, which will inform our understanding of people’s economic wellbeing last year. Below, I provide context for the data next week by looking at how an expanding economy—the robust bounce-back in the labor market— and vital public programs sustained workers and their families in 2021.
These two phenomena are related, as public policy directly led to the robust recovery we experienced in the wake of the pandemic recession. Public policy further helped workers and their families stay afloat with expanded and enhanced unemployment insurance, economic impact payments, and child tax credits, to name a few.
Let’s take a step back and first examine the labor market and related metrics leading up to, including, and since 2021.
- After rising sharply in the spring of 2020, the unemployment rate fell dramatically, a drop from an average annual rate of 8.1% in 2020 to 5.3% in 2021, then down to an average of 3.7% so far this year.
- After a significant drop in employment in the spring of 2020—a fall of 22 million jobs in two months—the labor market grew quickly. On average between 2020 and 2021, there were nearly 4 million more jobs. That growth has continued at a swift pace in the first eight months of this year, exceeding pre-pandemic employment levels this summer.
- Inflation jumped this year in response to continued supply chain bottlenecks as well as rising energy prices, but those bottlenecks were already experienced in 2021, as inflation grew 3.5 percentage points between 2020 and 2021.
- Hourly wages rose quickly in 2020 as the bottom dropped out of the labor market. In 2021, wages fell due to rising inflation as well as a return of disproportionately lower-wage jobs to the labor market. Those lower-wage workers experienced faster wage growth in 2021 than any other group, with the bottom 30% of wages rising faster than inflation.
Fiscal support bolstered the recovery and helped families make ends meet through 2021.
- Federal fiscal relief at the scale of the problem led to a faster recovery from the pandemic recession, recovering about eight years faster than the prolonged recovery from the Great Recession. In the last few months of 2020, job growth slowed, but was bolstered again with the additional fiscal support that was passed in December 2020 and the American Rescue Plan, which added 9.2 million jobs added in 17 months.
- Relief measures including enhanced and extended unemployment insurance, economic impact payments, and child tax credits were vital to keep families afloat and to kickstart a strong economic recovery through 2021.
- In 2020, these measures lifted millions of families out of poverty.
Each of these features of the economy will play out in the earnings, income, and poverty measures released on Tuesday.
Inflation will surely take a bite out of any expected growth in living standards while fiscal supports will continue to sustain families during this time. It’s possible we will see stronger income growth near the bottom of the income distribution as lower-wage jobs returned with faster wage growth. Social Security will continue to be the largest poverty reducer, with the 2021 supports helping families make ends meet. Unfortunately, though the labor market continued to grow in 2022, many of those fiscal supports expired.
Some additional key factors to keep in mind when analyzing the Census report:
- The 2020 and 2021 data will be re-weighted based on the decennial census so comparisons to early periods should be made with caution, depending on the scale of the change.
- The Census reported significant nonrandom collection issues during the pandemic, which will likely be discussed again.
- The composition of the labor market shifted significantly in this peculiar pandemic recession and that composition will likely matter for trends in earnings in 2021.
EPI’s census research team will be tracking the data throughout next week. Highlights include:
- Ben Zipperer and Asha Banerjee will examine the role public programs played in lifting people out of poverty in 2021.
- Valerie Wilson will analyze recent trends in income and poverty by race and ethnicity.
- Kyle Moore will take a deeper dive into the relationship between race and health insurance.
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