Household income gains welcome in 2019 Census data, but may not be as strong as they first appear
Yesterday’s Census Bureau report on 2019 income levels showed significant gains in median household income in 2019, but it doesn’t necessarily tell the whole story. First, those gains may not be as strong as initially reported given survey non-response bias, which we explain below. Second, household incomes in 2019 provide little information on what is currently happening in the U.S. economy, because of the COVID-19 pandemic. Third, as a measure of how strong the economy can get, there is still room for improvement in terms of overall growth as well as in narrowing economic inequality and closing racial gaps.
According to the Census Bureau’s latest report, median household incomes rose 6.8% between 2018 and 2019. Ignoring the non-response concerns and taking this for face value, this represents a significant step towards reclaiming the lost decade of income growth caused by the Great Recession. The economy continued to grow in 2019 and the unemployment rate averaged 3.7% over the year. Increasing earnings as well as slowing inflation between 2018 and 2019 contributed to significant gains in household incomes.
And, yet, there’s reason to put a big old asterisk on the data for 2019. Although the data release includes information about 2019 only, the data was collected between February and April of this year, right as the pandemic began to spread rapidly and most of the country was locked down. This Census paper discusses some of the impacts the pandemic had on data collection efforts. Overall, non-response increased significantly and was more strongly associated with income than in previous years, with non-response decreasing with income, meaning that income data could be skewed higher than it actually was. Respondents were also less likely to be Black and more likely to be white or Hispanic. Using that information, researchers at the Census provided new estimates for household income over the last four years, provided as a separate working paper and not adjusted in the official Census report. The figure below provides some perspective on those changes along with other data changes in the last several years. Solid lines are reported CPS ASEC data; dashed lines prior to 2013 denote historical values imputed by applying the redesigned income methodology in 2013 to past trends and the dotted lines since 2016 represent the new imputed values from the Census working paper on non-response rates.
Real median household income, all households 1995–2019
|All households||All households- imputed series||All households- new series||All households- newest series||All households- newest series||All households- non-response bias adjustments|
Notes: Because of a redesign in the CPS ASEC income questions in 2013, we imputed the historical series using the ratio of the old and new method in 2013. Solid lines are actual CPS ASEC data; dashed lines before 2013 denote historical values imputed by applying the new methodology to past income trends. The break in the series in 2017 represents data from both the legacy CPS ASEC processing system and the updated CPS ASEC processing system. The dashed line starting in 2016 represents the CPS ASEC data adjusted for non-response bias (table 13 in this paper). Shaded areas denote recessions.
Source: EPI analysis of Current Population Survey Annual Social and Economic Supplement Historical Income Tables (Tables H-5 and HINC-02)
When correcting for non-response bias in 2019, the Census found that real median income was $66,790, 2.8% lower than reported in the official release. This represents a 4.1% increase in median income between 2018 and 2019, significantly lower than the official 6.8% figure. While 4.1% is still welcome growth, it’s not nearly as strong as the reported 6.8% would appear. After accounting for the non-response bias (as well as the 2013 redesign), median household income grew 3.6% between 2000 and 2019 versus 6.5% when failing to account for non-response bias. Further, non-response bias seems to impact those with lower incomes more than higher, leading to larger overestimates of income and income growth at lower incomes versus higher, suggesting greater income inequality than reported in the Census report.
While excitement over what looked like strong growth must be tempered by non-response bias, the deep recession that came with the pandemic this spring overshadows any of those differences. By any measure, the data for 2019 is terribly outdated. However, we may look to 2019 as the most recent labor market peak and see how well it performs. While the labor market continued to strengthen, as a metric of full employment, 2019 still falls short.
Healthier income growth in 2019 on top of two years of slower income growth illustrate just how long it has taken for the gains to a growing economy to reach those workers and households. To achieve just 3.6% growth at the median since 2000, less than 0.2% growth annually over the last 19 years, is a low bar for growth in living standards. Further, much more income growth is needed to close persistent racial disparities. Even in an economy as strong as 2019, median Black and Hispanic households had significantly less income than white households, bringing in only 61 and 74 cents on the white dollar, respectively. And, if what we’ve already learned about lower response bias is any indication, these reported income differences might be even larger in actuality.
Persistent racial disparities—deeply rooted in historical and ongoing social and economic injustices—contributed to greater susceptibility to the pandemic and the ensuing recession for Black and Hispanic workers and families. Now, because of the pandemic, we will once again be trying to recover lost ground for years to come. Policymakers should take heed of the policies that worked to help produce positive outcomes in 2019 and help get us back on the road to full employment sooner rather than later.