Thursday, August 22, 2013

Dear Kevin Drum, CNN Money, CNBC, ABC News, Huffington Post, and AP: No, household income does not equal "compensation" or "earnings"

- by New Deal democrat

If you were wondering why I spent so much time and effort researching the the "median wage " and "median income" question, Kevin Drum becomes the latest economic observer to conflate the two, reprinting Sentier Research's latest graph of household income with the observation that
median household income today isn't just below the level of 2007, it's below the level of 2000. If you add in health benefits, the picture is brighter, but only modestly: Total household compensationtoday is still below its level in 2000 even when you count healthcare premiums. We are now well into our second decade of flat incomes for the non-rich.
[my emphasis]

As I showed last week, household income includes things like interest, and it's decline from both 2007 and indeed 2000 is almost completely accounted for by Baby Boomer retirements and the decline in the labor force itself. Wages are higher than they were in 2000, equal to what they were in 2007, and about 2% to 3% below their level of 2009 due to the effects of $3+ gasoline feeding through into the general economy.

The conflation of these two metrics is obviously endemic. Drum's error was repeated as fact in the blog Prairie Weather. But I intend to continue to point it out.

Update:Doug Short does his usual terrific work on this issue. If you haven't already, you should add him to your reading list. Here's a chart from his latest:

Take a look at what the Boomer cohort is doing to the age 55 through 74 cohorts, and take a look at the median income for those cohorts compared with younger working age cohorts.

UPDATE 2: And the Huffington Post and ABC News also repeated the error. It looks like all of these erroneous comflations began with an AP report that started: "The average American household is earning less than when the Great Recession ended four years ago, according to a report released Wednesday."

Kudos to the New York Times, which avoided the error.

UPDATE 3: This is from the Sentier report itself (pdf):
The decline in real median annual household income for households with an unemployed householder far exceeded that of any other subgroup. Median income for households with an unemployed householder declined by 21.0 percent, from $41,806 to $33,036, during the post-recessionary period. This decline reflects, in part, the continued high number of long-term unemployed. In contrast, the median income for households with a working householder declined by only 4.1 percent, from $71,191 to $68,275.
In other words, once you strip out "an unemployed householder" (they don't define how that applies in dual-income households), the decline is very close to that of wages alone. The report does not directly address the issue about Boomer retirements.

UPDATE 4: Add CNN Money to the list of media that completely got the facts wrong. Their story reads:
The nation may be in better economic shape, but that doesn't mean Americans' paychecks are. Median annual household income has fallen
EVERY SINGLE COMMENTER at these outlets, from what I have read of them, thinks that that the Sentier report is about wages.

UPDATE 5: CNBC copies and pastes the AP misreporting as well. Shouldn't a network that devotes itself to business know better?