Sunday, August 2, 2015

Are average Americans better off now than in 2008?

 - by New Deal democrat

One of my overarching themes is that the Progressive economic case is inequality, not Armageddon.  When the share of income and wealth held by the top 1% and top .01% balloons, the remainder of society stagnates or suffers. But that does't mean that the economy is always and everywhere going to hell for the bottom 99%.  Their economic position can be improving during economic expansions - just not enough to overcome the long term pressures on the middle and working class.

I mention this because elsewhere there has been a brief Doomgasm brought about by the poor nominal increase in median wages during the second quarter (about which I'll have more to say in a separate piece).  The challenge has been laid down in a political sense, with the refrain, "are people better off than they were in 2008?"

Let's take a look at that using the metrics of wages, income, and wealth.

Wages. When it comes to wages, the answer is pretty clear: as of now, both the average and the median worker are better off than they were in 2008.  In fact they are better off, by one measure, than at any point in the last 35 years.

Let's start with the median wage.  This is what was reported on Friday to have grown, according to the Employment Cost Index, at the slowest rate in over 30 years (+0.2%), in the second quarter.  The St. Louis FRED graph for this data starts in 2001, and here it is in real, inflation-adjusted terms:

As you can see, Q1 and Q2 2005 are the two highest readings in the history of the series. At the same time, consistent with my emphasis on inequality, note that there has only been about 4% growth in real median wages since the beginning of the Millennium.

Now let's look at average hourly income for nonsupervisory workers.  This data series goes all the way back to 1964. Here is its entire history, adjusted for inflation:

Again, it is quite clear that real average hourly wages are not just higher in 2015 than they were in 2008, but also higher than at any time since the 1970s.  But in terms of inequality, these are still less than 10% better than they were 15 years ago.

Income. Next, what about income, specifically, median household income?  Here the story is more complex.  The best graphic representation comes from Doug Short, using the monthly updates from Sentier Research:

 Here we see that real median household income is less than it was in 2000 or 2007, although it has come back about 2/3 off its low.

But as I have pointed out again and again and again, "income" is not "wages," and households includes the increasing legions of retirees in their 60s, 70s, 80s and even 90s. Typically retirees have income of about only half of the median working household.  So the plateau and decline once the advent Boomer generation hit 55 in 2000 should not be a surprise. (The writer of the Doomgasm made this basic mistake, employing a graph of median household income and claiming it showed that wages look really bad since 2007. Wrong. Fundamentally, basically, and completely, wrong).

Since there is no timely report on median household income for working age households, i.e., taking out the burgeoning cohort of retirees, can we make a useful estimate? I believe we can, by taking the unemployment rate into account.  Below is a graph of real median wages (again, the subject of the poor report on Friday), adjusted for inflation, and then adjusted for unemployment as well (essentially counting the unemployed as having $0 income, and then subtracting that percentage):

This tells us that median income of all non-retiree households has probably returned to its 2007 levels, and is just below its 2006 peak. But working age median household income has gone essentially nowhere good since the turn of the Millennium.

UUPDATE 8/2/2015:  After this post, I had a further exchange with Doug Short, and I took a deeper look at real median household income.  I think a better measure is to use the employment-population ratio for ages 25 - 54 rather than the employment rate:

This measure still puts the first half of 2015 slightly ahead of 2008.

Wealth. Finally, let's examine, as best we can, household wealth.

Here the record is particularly scanty.  The Census Bureau's last look is from 2011. The University of Michigan performed a study that compared 2013 with 2007.  That's the most recent work.

Here is the best write-up I found on the University of Michigan study:

[B]ecause stocks have recovered more quickly than the real estate market—the S&P reached its pre-recession high in March of 2013, while home prices are still far from their 2006 peak—average households were hurt far more than richer Americans when the housing bubble popped. When home equity is excluded from household wealth, the impact of the housing crash on average Americans is especially clear. A median household’s total net worth declined by $42,000 between 2007 and 2013, but their wealth  held in non-real estate assets declined by only $6,900.

 We have no information at all that take into account the last year and a half.  But we do have the Case Shiller house price index, to tell us what has happened with house prices, and here it is:

House prices bottomed at the beginning of 2012. They are up another 10% if we measure from the end of 2013, over 15% if we measure from mid-2013.  The median household also holds a small amount of wealth in stocks, usually via 401k's), and those are up 20% since 2013.

We honestly can't really say where household wealth stands now with any exactitude as compered with 2008.  What we can say with confidence is that it probably has improved significantly since 2013, and like median working age household income, may have pulled even with 2008.

At the same time, since older households typically have more wealth than younger households, and due to demographics and improved longevity, the population is aging, even the loss of $6,900 in non real estate net worth from 2013 is very troubling.  That same University of Michigan study found:
households in the 95th percentile of net worth had 13 times the wealth of the median household in 2003. By 2013, this disparity had increased almost twofold, with the wealthiest 5% of Americans holding 24 times that of the median.
In dollar terms, the median wealth of a US household was $87,992 in 2003, and by 2013 had decreased 36% to $56,335. In contrast, the richest 10% actually saw their net worth increase from 2003 to 2013, with the highest gains going to the top 5%. The median wealth of the households in the top five percent grew over 12% during the same time period, from $1,192,639 to $1,364,834.

So, to summarize:

  1. measured by average or median wages, the typical working American is better off now than in 2008
  2. measured by median household income, the typical working age American household is probably also better off than in 2008.
  3. it is nearly impossible to know the current status of median household wealth, but it has probably improved since 2013, and may have pulled even with 2008.

At the same time, the continued and rising inequality of wages, income, and wealth, is simply staggering.  Measured since the beginning of the Millennium, the median wage-earner or household is just treading water, while the top 1% and top .01% have seen their financial assets skyrocket.  That is not the American Dream.