While these data tell us very little about the 2020 COVID-19 pandemic and recession, the report provides some important lessons about what is now the most recent business cycle peak. Readers should not use these data to get a read on today’s economy, because the pandemic has unquestionably increased the poverty level, reduced incomes, and reduced access to health insurance. Also, there are significant concerns about data quality, given the fall in survey response rates. It appears that nonresponse biased income estimates up and poverty statistics down so the actual reported improvement should be taken with a grain of salt.

By 2019, the labor market had been recovering from the Great Recession for just about 10 years and the unemployment rate averaged 3.7% over the year. As expected because of the low unemployment rate and growing economy, earnings and incomes rose between 2018 and 2019. While the gains were quite healthy, in part due to slowing inflation, incomes had only just now recovered from significant losses in the Great Recession, and income gaps still loomed large.

Median men’s earnings for full-time workers rose 2.1% between 2018 and 2019, while median women’s earnings rose 3.0%. In 2019, typical full-time women workers were paid just 82.3% of typical full-time men workers, an insignificant improvement over 2018. Earnings for all workers, part- and full-time, rose 1.4% between 2018 and 2019. Among all workers, women’s earnings grew faster than men’s (7.8% versus 2.5%).

Because labor market earnings are a significant portion of family income for the vast majority of households and the U.S. economy saw increases in labor force participation in 2019, household incomes rose even faster than earnings. Median household income rose by 6.8% between 2018 and 2019. Similarly, non-elderly household income rose by 6.7% over the year. These are the fruits of a growing economy that was on its way to full employment before the current recession

Between 2018 and 2019, the official poverty rate fell 1.3 percentage points. In 2019, 10.5% of the U.S. population, or 34.0 million people, lived below the poverty line.

While any reduction in poverty or increase in income is a step in the right direction, many families have just barely made up for lost ground from the Great Recession by 2019. After correcting for a discontinuity in the income data to make years before and after 2013 comparable, median household income is now 6.5% above where it was in 2000. With the strong growth between 2018 and 2019, 2019 was the first year that non-elderly household income exceeded its 2000 level. In 2019, non-elderly household income was 4.3% above its 2000 level. This translates into only 0.2% average annual growth over the 19 years from 2000 to 2019.

Household income growth was strong across all racial and ethnic groups reported. Median Asian household income grew the fastest between 2018 and 2019 at 10.6%, followed by Black households at 8.5%, and Hispanic households at 7.1%. White, non-Hispanic household income grew at 5.7% over the year. (This analysis uses Black alone or in combination whereas the Census reports data for Black alone.)

For the first time in the recovery from the Great Recession, Black households exceeded their 2007 income levels in 2019. As strong as many broad measures of the U.S. economy were in 2019, median Black household income was just 1.4% higher than it was in 2000. This is a gain of less than $700 in total between 2000 and 2019. Black household income is just 61% of white household income, lower than it was in 2000, when it was 65%. These 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.

This report shows that the gains to a growing economy take much longer to reach those workers and households, and much more income growth is needed to close persistent racial disparities and combat decades of rising inequality. 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.

Many commentators, researchers, and others have argued that the official poverty measure fails to fully take into account the government tax and transfer system, which has accomplished much to reduce absolute deprivation. Some transfer programs are accounted for in the official poverty measure,including Social Security and unemployment insurance. Others, such as food stamps, housing assistance, and the earned income tax credit are not included in the official poverty measure. The Supplemental Poverty Measure (SPM), created by the Census Bureau, effectively takes many of these into account while simultaneously altering the threshold at which poverty is measured against.

A great new paper by a prominent series of authors, including former EPI analyst Liana Fox, provides a useful historical series of the SPM back to 1967. Using their series, anchored to 2012, which appears to be the popular usage of their research, I once again predict the SPM using the relationship between GDP and the SPM from 1967 to 1979. As you can see, the SPM hits zero in the early 2000s. Poverty is erased later than in the initial analysis using the official poverty rate in part due to the fact that the supplemental poverty threshold is higher, thus has farther to fall, and partially because the slope on the official poverty regression is steeper because it includes an early period of more broadly shared prosperity. Taking all this into account, the fact remains that the predicted poverty rate falls sharply as the economy grows.

Even including government transfers in this new measure of poverty, it is clear that the poverty rate is nowhere near where it could be if economic growth was more broadly shared. In other words, if it had not been for growing economic inequality, the poverty rate would be at or near zero today.

U.S. poverty rates higher, safety net weaker than in peer countries

Among similarly developed countries, the United States stands out as the country with the highest poverty rate and one of the lowest levels of social expenditures, according to findings in U.S. poverty rates higher, safety net weaker than in peer countries, by EPI economist Elise Gould and researcher Hilary Wething.

About 46 million people fall below the official poverty line in the United States, but when compared to peer countries – those with roughly the same GDP per hour worked – both the country’s high relative poverty rate and the less effectiveness of its safety net are put in context.

“The relatively low social expenditures in the United States partially explains the high poverty rate,” said Gould.  “When it comes to alleviating the effects of poverty, the U.S. could learn from its peers.”

Using measurements from the Organisation for Economic Co-operation and Development (OECD) for the late 2000s, the report provides a general comparison of poverty and earnings distribution, then examines the resources used to provide a safety net to keep people out of poverty or help those who fall into poverty get back on their feet.  Here are the major findings:

• Despite the relatively high earnings at the top of the U.S. income scale, inequality in the United States is so severe that low-earning U.S. workers are actually worse off than low-earning workers in all but seven peer countries.
• The U.S. poverty rate, as measured by the OECD, was about 1.8 times higher than the peer country average of 9.6 percent.
• More than one in five children in the United States lived in poverty (as measured by the share of children living in households with equivalent income below half of national median household income). This level is over two times higher than the peer-country average of 9.8 percent.
• Not only is child poverty greater in the United States, but children living in poverty in the United States face higher relative deprivation than impoverished children in other developed countries.
• Among peer countries, the United States’ tax and transfer system does the least to reduce the poverty rate. The average peer countries’ tax and transfer programs achieves a poverty-rate reduction of 17.4 percentage points—an effect nearly two times greater than that produced by such programs in the United States.

This report presents a preview of data from the 12^th edition of “The State of Working America.” EPI will release an advance copy of “The State of Working America, 12^th Edition” in August.  Contact news@epi.org for an advance copy.