The notion that hard work is all that’s needed to achieve a prosperous or even comfortable living in the United States has come under increasing scrutiny in recent years as stagnant wages for most workers have led to talk about the demise of the American Dream.

Randy Schutt, a long-time progressive activist and researcher, has created a simple model to help illustrate just how much dumb luck, mere chance and circumstance, can play a role in who becomes wealthy and who remains poor.

The project, intended to illustrate certain nuances about economic inequality to students and researchers, is called “The Chancy Islands: A Land of Equally Capable People But With Unequal Luck.”

His imaginary archipelago includes places like Rugged Island and Mercy Island, the first unforgiving, the latter much less so, and everything in between—Flat Island, Combo Island, Parity Island, etc.

“We’re always told that if you work hard and persist through adversity that you can rise above your humble (or horrible) circumstances and become wealthy. But that isn’t true,” Schutt said. “Most people are so beaten down by our economic system that they have to be lucky just to get by. And they have to be very lucky to do well and extremely well to get super rich.”

The statistics bear our Schutt’s narrative. Economic mobility, defined as the chance that someone born in the bottom fifth of the income distribution can sweat their way to the top fifth, is extremely low in the United States (around 7.5%)—and actually much lower than other rich nations, because of a much weaker social safety net.

You can explore the models for yourself by going to the website. But Schutt comes to the following conclusion after having examined all of the different combinations and possibilities exhaustively:

“It turns out that even with absolutely no differences in talent or effort, severe inequality can still arise just from the random shocks of wealth-depleting natural events such as serious illnesses, bad accidents, and natural disasters,” said Schutt. “Some households will amass vast fortunes without having done anything to justify their windfall; others will slide into poverty and homelessness without having done anything to warrant their impoverishment.”

Schutt adds, on a hopefully note, that his model also suggests “a few simple mitigation measures can almost completely rebalance such a society, essentially eliminating any long-term inequality.”

Such policies include, perhaps unsurprisingly, taxing the wealthy in ways that are becoming increasingly popular with the American electorate.

Josh Bivens, director of research at EPI

The Federal Reserve meets this week against a backdrop of mounting evidence of a slowing economy. Since the last Federal Open Market Committee (FOMC) meeting, revised data on gross domestic product (the widest measure of the nation’s economic activity) and job growth have shown that 2018 saw much slower growth than previously reported.

Between April 2018 and March 2019, for example, the economy created 500,000 fewer jobs than had originally been reported. Only 105,000 jobs were created in August if temporary Census positions are excluded: this is roughly half the pace of growth that characterized pre-revision estimates of average job growth in 2018.

These clear signs of an economic slowdown raise the obvious question, “Why has growth faltered?”

While many pundits and economists have blamed the escalating trade conflict between the Trump administration and China, there are much more obvious sources of this slowdown: the Fed’s own premature interest rate increases between December 2015 and 2018 and the utter waste of fiscal resources that was the Tax Cuts and Jobs Act (TCJA) passed at the end of 2017.

To be clear, the Trump administration’s trade conflict is stupid and destructive, and its attempt to pin the blame for the slowdown on the Fed is self-serving. And the Trump administration’s scapegoating others for the weak economy takes real hubris given that its signature economic policy initiative—the TCJA—has been such an obvious failure in terms of spurring growth.

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Yesterday’s Census Bureau report on income, poverty, and health insurance coverage in 2018 shows that while there was a slowdown in overall median household income growth relative to 2017, income growth was uneven by race and ethnicity. Real median income increased 4.6% among Asian households (from $83,376 to $87,194), 1.8% among African American households (from $40,963 to $41,692), 1.1% among non-Hispanic white households (from $69,851 to $70,642), and only 0.1% among Hispanic households (from $51,390 to $51,450), as seen in Figure A. The only groups for which income growth was statistically significant were Asian and Hispanic households.

In 2018, the median black household earned just 59 cents for every dollar of income the median white household earned (unchanged from 2017), while the median Hispanic household earned just 73 cents (down from 74 cents).

Figure A

Real median household income by race and ethnicity, 2000–2018

Year	White	Black	Hispanic	Asian	White-imputed	Black-imputed	Hispanic-imputed	Asian-imputed	White	Black	Hispanic	Asian	White	Black	Hispanic	Asian
2000	$66,712	$43,380	$48,500		$69,069	$44,614	$46,989
2001	$65,835	$41,899	$47,721		$68,161	$43,091	$46,234
2002	$65,646	$40,839	$46,334	$73,660	$67,965	$42,001	$44,890	$79,501
2003	$65,388	$40,633	$45,160	$76,231	$67,698	$41,789	$43,753	$82,276
2004	$65,178	$40,292	$45,670	$76,631	$67,481	$41,438	$44,247	$82,708
2005	$65,458	$39,898	$46,360	$76,873	$67,771	$41,033	$43,846	$84,991
2006	$65,449	$40,116	$47,169	$78,291	$67,762	$41,257	$45,699	$86,560
2007	$66,676	$41,388	$46,958	$78,343	$69,032	$42,565	$45,495	$86,616
2008	$64,923	$40,154	$44,326	$74,913	$67,217	$41,296	$42,945	$82,824
2009	$63,895	$38,423	$44,628	$74,982	$66,153	$39,516	$43,238	$82,901
2010	$62,857	$37,114	$43,433	$72,402	$65,078	$38,170	$42,080	$80,048
2011	$62,001	$36,215	$43,217	$71,139	$64,192	$37,245	$41,870	$78,653
2012	$62,465	$36,945	$42,738	$73,415	$64,672	$37,996	$41,406	$81,169
2013	$62,915	$37,547	$44,228	$70,687	$65,138	$38,615	$42,850	$78,153	$65,138	$38,615	$42,850	$78,153
2014					$63,976	$37,854	$45,114	$78,883	$63,976	$37,854	$45,114	$78,883
2015					$66,721	$39,440	$47,852	$81,788	$66,721	$39,440	$47,852	$81,788
2016					$68,059	$41,924	$49,887	$85,210	$68,059	$41,924	$49,887	$85,210
2017					$69,806	$41,584	$51,717	$83,314	$69,806	$41,584	$51,717	$83,314	$69,851	$40,963	$51,390	$83,376
2018													$70,642	$41,692	$51,450	$87,194

 

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The data underlying the figure.

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 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. White refers to non-Hispanic whites, Black refers to Blacks alone or in combination, Asian refers to Asians alone, and Hispanic refers to Hispanics of any race. Comparable data are not available prior to 2002 for Asians. Shaded areas denote recessions.

Source: EPI analysis of Current Population Survey Annual Social and Economic Supplement Historical Poverty Tables (Tables H-5 and H-9).

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Based on EPI’s imputed historical income values (see the note under Figure A for an explanation), 11 years after the start of the Great Recession in 2007, only African American households remained below their pre-recession median income. Compared with household incomes in 2007, median household incomes in 2018 were down 2.1 percent for African American households, but up 0.7% for Asian households, 2.3% for non-Hispanic white households, and 13.1% for Hispanic households. Asian households continued to have the highest median income, despite large income losses in the wake of the recession.

The 2018 poverty rates also reflect the patterns of income growth between 2017 and 2018. As seen in Figure B, poverty rates for all groups were down slightly or unchanged, but remained highest among African Americans (20.7%, down 1.0 percentage point), followed by Hispanics (17.6%, down 0.7 percentage points), Asians (10.1%, up 0.4 percentage points), and whites (8.1%, down 0.4 percentage points). African American and Hispanic children continued to face the highest poverty rates—28.5% of African Americans and 23.7% of Hispanics under age 18 lived below the poverty level in 2018. African American children were more than three times as likely to be in poverty as white children (8.9%).Read more

**Correction: The SSI number in Figure B was corrected to 2,949,000 from 3,949,000.**

From 2017 to 2018, the official poverty rate fell by 0.5 percentage points, as household incomes rose modestly, albeit at a slower pace than the previous three years. This was the fourth year in a row that poverty declined, but the poverty rate remains half a percentage point higher than the low of 11.3% it reached in 2000.

Since 2010, the U.S. Census Bureau has also released an alternative to the official poverty measure known as the Supplemental Poverty Measure (SPM).

The SPM corrects many deficiencies in the official rate. For one, it constructs a more comprehensive threshold for incomes families need to live free of poverty, and adjusts that threshold for regional price differences. For another, it accounts for the resources available to poor families that are not included in the official rate, such as food stamps and other in-kind government benefits.

As shown in Figure A, a larger proportion of Americans are in poverty as measured by the SPM than as measured by the official measure. (Importantly, however, researchers who constructed a longer historical version of the SPM found that it shows greater long-term progress in reducing poverty than the official measure.) In 2018, the SPM increased by 0.1 percentage points to 13.1%. Under the SPM, 42.5 million Americans were in poverty last year, compared with 38.1 million Americans under the “official” poverty measure.Read more

Today’s report from the Census Bureau shows a marked slowdown in median household income growth relative to previous years. Median household incomes rose only 0.9%, after rising 1.8% in 2017 and following impressive gains in the two years prior: a 5.1% gain in 2015 and a 3.1% gain in 2016. Median nonelderly household income saw a similar rise of 1.0% this year after gaining 2.5%, 4.6%, and 3.6% in the prior three years, respectively.

After falling for both men and women by 1.1% each in 2017, inflation-adjusted full-time annual earnings for both men and women rose in 2018, by 3.4% and 3.3%, respectively. Men’s earnings are finally above both their 2007 and 2000 levels.

While the gains in household income are markedly slower than in previous years, they nonetheless represent another small step toward reclaiming the lost decade of income growth caused by the Great Recession. Part of the slowdown in income growth in 2017 and 2018 relative to 2015 and 2016 is driven by increases in the pace of inflation. However, as discussed below, this year’s report reminds us that the vast majority of household incomes (when corrected for a break in the data series in 2013) have still not fully recovered from the deep losses suffered in the Great Recession.

Nonelderly household incomes improve

The Census data show that from 2017 to 2018, inflation-adjusted median household income for nonelderly households (those with a householder, or head of household, younger than 65 years old) increased 1.0%, from $70,944 to $71,659, as shown in Figure A. Median nonelderly household income is an important measure of an improving economy, as those households depend on labor market income for the vast majority of their income. This continued, albeit much slower, increase after larger gains in the prior three years is better than nothing. Median household income for nonelderly households, which finally recovered to its pre-recession level in 2017, was 1.2%, or $876 above its 2007 level in 2018. It’s important to note that the Great Recession and its aftermath came on the heels of a weak labor market from 2000 to 2007, during which the median income of nonelderly households fell significantly, from $73,322 to $70,783—the first time in the post–World War II period that incomes failed to grow over a business cycle. Altogether, from 2000 to 2018, the median income for nonelderly households fell from $73,322 to $71,659, a decline of $1,663, or 2.3%. In short, the last four years should not make us forget that incomes for the majority of Americans have experienced a lost 18 years of growth.Read more

Next Tuesday is the Census Bureau’s release of annual data on earnings, income, poverty, and health insurance coverage for 2018, which will give us a picture of the economic status of working families 11 years into what is now the longest economic expansion in United States history. This data is particularly important because it gives us insight into how evenly (or unevenly) economic growth has been distributed across U.S. households. Other data sources that are released more than once a year too often provide only averages or aggregates— but next week’s Census release gives a much more textured picture of how the U.S. economy is working for typical households. In particular, next week’s release will help us chart the progress made by the typical American household in clawing back nearly two decades of lost income growth—the result of a failure of incomes to return to the business cycle peaks of 2000 during the slow early-2000s recovery and expansion, and the Great Recession. We’ll be paying particular attention to differences in the recovery across racial and ethnic groups.

What happened with incomes in recent years?

After adjusting the series to account for changes to the survey made in 2013, in 2017 real (inflation-adjusted) median incomes for American households rose just 1.8 percent and only managed to return to their pre-Great Recession peaks, even coming off of two years (2015 and 2016) of impressive across-the-board improvements. It is important to note, however, that some of the improvements in inflation-adjusted income we saw in 2015 and 2016 were driven by atypically low inflation—0.1% in 2015, and 1.3% in 2016. We didn’t get a similar boost from low inflation in 2017 (inflation increased 2.2% in 2017), and don’t expect one in 2018 (inflation increased 2.4% in 2018). We anticipate that an additional year of even modest growth will likely bring the broad middle class back to 2000 incomes. But, for non-elderly households, the latest data will be likely still below the peak reached 18 years prior.

Income

Real median household income, all and non-elderly, 1995–2017

	All households	All households- imputed series	All households- new series	Non-elderly households	Non-elderly households- imputed series	Non-elderly households- new series
1995	$54,600	$56,330		$62,727	$64,677
1996	$55,394	$57,150		$63,898	$65,885
1997	$56,533	$58,325		$64,722	$66,734
1998	$58,612	$60,470		$67,372	$69,467
1999	$60,062	$61,966		$69,079	$71,226
2000	$59,938	$61,838		$69,419	$71,577
2001	$58,609	$60,466		$68,324	$70,448
2002	$57,947	$59,784		$67,650	$69,753
2003	$57,875	$59,709		$67,031	$69,115
2004	$57,674	$59,502		$66,246	$68,305
2005	$58,291	$60,138		$65,792	$67,837
2006	$58,746	$60,608		$66,698	$68,772
2007	$59,534	$61,421		$67,015	$69,098
2008	$57,412	$59,232		$64,817	$66,832
2009	$57,010	$58,817		$63,932	$65,920
2010	$55,520	$57,280		$62,280	$64,217
2011	$54,673	$56,406		$60,775	$62,664
2012	$54,569	$56,298		$61,346	$63,254
2013	$54,744	$56,479	$56,479	$61,605	$63,520	$63,520
2014			$55,613			$62,667
2015			$58,476			$65,541
2016			$60,309			$67,917
2017			$61,372			$69,628

ChartData Download data

The data below can be saved or copied directly into Excel.

The data underlying the figure.

Note: 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 denote historical values imputed by applying the new methodology to past income trends. Non-elderly households are those in which the head of household is younger than age 65. 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)

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What do we expect in this year’s release?

Given the data we’ve seen for 2018 from other sources, it is likely that earnings, income, and poverty in the 2018 Census data will show some improvement over the past year. But it is also likely that this pace of improvement will be significantly slower than the average of the previous three years. As the economy steadily strengthens, we’ve seen progress in key labor market indicators, including participation in the labor market and payroll employment, which should boost household labor earnings. The unemployment rate ticked down another 0.5 percentage points in 2018, similar to the drop between 2016 and 2017. The overall labor force participation rate was unchanged between 2017 and 2018, but the employment-to-population ratio continued to increase, 0.3 percentage points overall and 0.8 percentage points for the prime-age population (25-54 years old). These are similar to the increases found between 2016 and 2017.

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There’s a reason millions of American workers are still feeling left out from what on the surface looks like a fairly strong economy: a distinct absence of consistently strong wage growth.

The unemployment rate has stayed at or below 4.0 percent since March 2018. But, nominal wage growth continues to be weaker than expected and, in fact, appears to be decelerating this year so far. In our nominal wage tracker that measures year-over-year changes, wage growth has flat-lined in recent months and has yet to reach the Federal Reserve’s target zone (given inflation targets and productivity potential). Looking at more-recent trends—wage growth between the first and second quarters of this year—there has actually been a deceleration in wage growth this year. The Employment Cost Index, released last month, also shows a marked deceleration in private sector wage growth.

Last month, the Bureau of Labor Statistics (BLS) also released preliminary benchmark revisions to payroll employment for April 2018 through March 2019. Each year, the BLS benchmarks total nonfarm payroll employment to state unemployment insurance tax records. While revisions in most years tend to be relatively small and don’t get officially incorporated into the historical numbers until the final revisions are released in February, this year’s revisions came in much higher. The preliminary estimate of the benchmark revision indicates a downward adjustment to March 2019 total nonfarm employment of -501,000. This means that, between April 2018 and March of 2019, there were a half million fewer jobs created than initially reported. Over the last ten years, preliminary revisions averaged about -92,000, so -501,000 is large in comparison. And, usually the difference between the preliminary revision and final is plus or minus 40,000. Therefore, it’s likely the final revisions will also be around 500,000 fewer jobs in that period.

The figure below illustrates what this means for job growth over the last two years. Here, I’m comparing April 2017 through March 2019, linearly interpolating the 501,000 losses equally over the 12-month period. Initially, it appeared that payroll employment growth increased between the year ending in March 2018 and March 2019, with monthly employment growth going from an average of 193,000 to 210,000. With these sizable downward revisions, average monthly employment growth actually fell from 193,000 to 168,000 over those two periods.Read more

Raising the federal minimum wage, which has now lapsed for the longest ever period without an increase, will benefit millions of low income workers and lift more than one million Americans out of poverty.

There is widespread agreement in the economics profession these days that, in contrast to outdated textbook theories, higher minimum wages have done exactly what they’re supposed to do: raise pay for low-wage workers with little, if any, effect on employment.

That’s why it was surprising to see Mitch Albom, a millionaire fiction author and sports columnist, argue so vocally and misguidedly against the prospect of an increase in a recent opinion piece in the Detroit Free Press.

The Raise the Wage Act, which boosts the minimum wage from the current paltry $7.25 per hour to $15 an hour by 2025, has passed the House of Representatives, but Senate Majority Leader Mitch McConnell refuses to even bring it up for a vote in the Senate.

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During the 2019 legislative session, lawmakers in a number of states including Maine, Maryland, New Hampshire, Rhode Island, and Washington passed laws limiting employers’ ability to impose noncompetition agreements (noncompetes) on low and middle-income workers. Noncompetes have traditionally been used to protect highly confidential information or trade secrets, and the trend to restrict them is in part a response to outrageous examples of employer overuse of noncompetes to prevent very low-wage workers like sandwich makers and security guards and even no-wage workers like unpaid summer interns from going to work for competitors. These new laws are important steps to safeguard employees’ ability to move jobs and employers’ ability to hire qualified candidates.

Yet while noncompetes matter tremendously, they are only one part of a larger story about how anti-competitive contracts—sometimes not even disclosed to workers themselves—are negatively impacting workers’ wages and mobility in our economy.

As Dr. David Weil documented in his landmark book, The Fissured Workplace, as companies have grown increasingly more specialized, our workplaces have concurrently grown more fragmented. For example, during most of the twentieth century, a commercial bakery would have employed almost every person in the line of production and distribution: the workers on the assembly line, the delivery drivers, the custodians, the office staff, and the accountant. Today, many of those positions would be outsourced to employees of different specialized firms: the temporary staffing company, the logistics company, the janitorial company, and the outside accounting firm.

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