U.S. fact of the day

by on September 13, 2011 at 11:08 am in Data Source, Economics | Permalink

From Justin Wolfers, based on the new census data:

Since 2007, real median household income has declined 6.4% and is 7.1 % below the median household income peak prior to the 2001 recession.

I am increasingly puzzled by those who think this is fundamentally a story of rising consumer surplus from the internet.

rocketscientist September 13, 2011 at 11:13 am

It’s a story of rising immigration of low school labors without a high school education, and their drop out children.

Decades of Sowell on the fact that demographics are NOT about a static pool, and still we get idiocy on the topic?

Matt Waters September 13, 2011 at 11:11 pm

More low-skilled immigrants would decrease the median income, but that does not mean non-immigrants are worse off. Let’s say the median income is $60,000 and the 60th percentile is $50,000. Then the population increases by 20% with all the new workers earning $20,000, but with none of the incomes of the old population changing. The median income then goes down to $50,000, even though none of the old population is earning less.

Another issue with this stat is that it does not adjust for underemployment due to old-school excess capacity resulting from wage rigidity. For the number to really make sense, it needs to be adjusted by average hours. It also needs to be adjusted by issues such as low-skilled immigration as I show in the last paragraph. Only once adjusting for those factors does it show honest-to-goodness declining real productivity and real wages.

Peter Schaeffer September 14, 2011 at 12:38 am

MW,

You have made two pretty obvious mistakes. First, low skill immigrants impose huge costs on the rest of society (welfare, schools, crime, health care, etc.). One study found that each low skill immigrant family pays roughly $10K in taxes each year but consumes $30K in services. That’s massive. Of course, all immigrants impose congestion costs (traffic, unaffordable housing, etc.).

Second, immigrants quite literally take jobs from Americans. That makes them a direct loss to the American people. The examples below should demonstrate this point. Note that they are all from a period when the economy was doing much better than it is now.

1. “The Impact of New Immigrants on Young Native-Born Workers, 2000-2005 By Andrew Sum, Paul Harrington, and Ishwar Khatiwada” (http://bit.ly/69kSG7)

“Over the 2000-2005 period, immigration levels remained very high and roughly half of new immigrant workers were illegal. This report finds that the arrival of new immigrants (legal and illegal) in a state results in a decline in employment among young native-born workers in that state. Our findings indicate that young native-born workers are being displaced in the labor market by the arrival of new immigrants.”

“Between 2000 and 2005, the number of young (16 to 34) native-born men who were employed declined by 1.7 million; at the same time, the number of new male immigrant workers increased by 1.9 million.”

“It appears that employers are substituting new immigrant workers for young native-born workers. The estimated sizes of these displacement effects were frequently quite large.”

2. “Employment Down Among Natives In Georgia As Immigrant Workers Increased, Native Employment Declined in Georgia” (http://bit.ly/nzMBKB)

“Between 2000 and 2006 the share of less-educated native-born adults (ages 18 to 64) in Georgia holding a job declined from 71 percent to 66 percent. (Less-educated is defined as having no education beyond high school.)”

“Native-born teenagers (15 to 17 years of age) have also seen a dramatic decline in employment. Between 2000 and 2006 the share of native-born teenagers holding a job declined from 22 percent to 11 percent in the state.”

3. “Impact of Immigration In South Carolina” (http://bit.ly/qr64CL)

“At the same time that more Latinos are entering South Carolina’s work force, median wages for those at the low-skill end of the spectrum are dropping. According to the USC survey, the median annual earnings for Latinos was $20,400, far below the median earnings for South Carolinians in general. The effects of a larger Latino work force are most evident in specific industries. Construction appears to be the predominant economic activity drawing Latinos to South Carolina: this industry accounts for approximately 38 percent of Latino employment in the USC survey. The survey also found that the median annual wage for Latinos working in construction is $21,840.

According to U.S. Census data, among construction workers real median earnings for Latinos dropped approximately 12 percent from 2000 to 2005, even as the number of construction workers expanded 181 percent. Black construction labor saw inflation-adjusted earnings fall two percent. It is also surprising to find that total Black employment dropped by 24 percent during the construction boom.”

4. “IMMIGRATION AND AFRICAN-AMERICAN EMPLOYMENT OPPORTUNITIES: THE RESPONSE OF WAGES, EMPLOYMENT, AND INCARCERATION TO LABOR SUPPLY SHOCKS” (http://hvrd.me/ommg9j)

“Almost everybody knows that in the past 40 years, the real wages and job prospects for low-skilled men, especially low-skilled minority workers, have fallen. And there is evidence –– although no consensus –– that a rising tide of immigration is partly to blame. Now, a new NBER study suggests that immigration has more far-reaching consequences than merely depressing wages and lowering employment rates of low-skilled African-American males: its effects also appear to push some would-be workers into crime and, later, into prison…..The authors are careful to point out that even without increased immigration, most of the fall in employment and increase in jailed black men would have happened anyway. Nevertheless, the racially disproportionate effects of immigration on employment are striking.”

5. The Crider “Natural Experiment” (http://bit.ly/oFmp5e)

“After a wave of raids by federal immigration agents on Labor Day weekend, a local chicken-processing company called Crider Inc. lost 75% of its mostly Hispanic 900-member work force. The crackdown threatened to cripple the economic anchor of this fading rural town. But for local African-Americans, the dramatic appearance of federal agents presented an unexpected opportunity. Crider suddenly raised pay at the plant. An advertisement in the weekly Forest-Blade newspaper blared “Increased Wages” at Crider, starting at $7 to $9 an hour—more than a dollar above what the company had paid many immigrant workers. (January 17, 2007)”

“The Crider poultry-processing plant in Stillmore, Ga., lost two-thirds of its workforce last year after a federal immigration agency raid. Since then, Crider has scrambled to replace the employees. It has staged job fairs, boosted starting pay and even contracted for Georgia prison inmates to work on its production line. In an unusual experiment, Crider has also recruited a small group of Laotian Hmong refugees to move from Minnesota to Georgia, hoping they’ll start a new community.”

Matt Waters September 15, 2011 at 1:36 am

My post was just a hypothetical to help think about this data and the possible effect of immigration.

The issues with illegal immigrants public services, but I do not follow how they are obviously taking jobs from Americans. That assumes that immigrants spend none of the money that they earn, that labor is completely a zero-sum game. By that logic, then every new college graduate who gets a job must have taken a job from somebody currently working. It’s possible that through remitting money back home or through immigrants being disproportionately from low-skilled backgrounds, but the issue with immigrants “taking jobs” is far more nuanced than you make it out to be.

Finally, I’m familiar with your last story since I live in Georgia. Your quotes omit the fact that most of those workers ended up walking off and produced far less than the Hispanics typically produce. The standard response is that farmers just need to increase wages, but it most Americans by and large wouldn’t do this work for any reasonable wage. Before the wage gets high enough to get enough workers, the farm will switch to crops less labor-intensive.

That said, there does seem to be some truth about how low-skilled immigrants have worsened job prospects for low-skilled Americans. But the issue is not low-skilled immigration itself, but that immigration is disproportionally low-skilled. While there have been low barriers to entry for low-skilled immigrants, high-skilled immigrants still need to jump through all the hoops for immigration and get over whatever barriers to entry exist for professions such as medicine or law. If immigrat’s skill sets mimicked the current population, then the additional high-skilled immigrants’ demand would buoy demand for all low-skilled workers instead of creating a glut.

rocketscientist September 13, 2011 at 11:14 am

Low _skill_ labors and almost no school labor …

Gabe September 13, 2011 at 11:14 am

Stagnation from 70′s to 90′s…the last 11 years have been decline. Big mercantilist/facist/marxist government is causing a decline.

bob September 13, 2011 at 7:47 pm

Marxist? Have you seen the US confiscating profitable industries to hand the means of production to the workers or something?

Anthony September 13, 2011 at 8:15 pm

Not profitable industries…

Joel W September 13, 2011 at 11:16 am

I would like some panel data on this to at least look at the immigration question. We are adding people to the left end of the tail.

JohnP September 13, 2011 at 3:34 pm

I would like to see this as well.

Peter Schaeffer September 13, 2011 at 5:03 pm

JW,

John Judis
“End State Is California finished?”

“At the gathering, held in a plush conference room, one of the experts projected tables and graphs comparing various states. It was there that I had my own “AHA!” moment. The states with thriving educational systems were generally northern, predominately white, and with relatively few immigrants: the New England states, North Dakota, and Minnesota. That bore out the late Senator Patrick Moynihan’s quip that the strongest factor in predicting SAT scores was proximity to the Canadian border. The states grouped with California on the lower end of the bar graph were Deep South states like Mississippi and Alabama with a legacy of racism and with a relative absence of new-economy jobs; states like West Virginia that have relatively few jobs for college grads; and states like Nevada, New Mexico, and Hawaii that have huge numbers of non-English-speaking, downscale immigrants whose children are entering the schools. California clearly falls into the last group, suggesting that California’s poor performance since the 1960s may not have been due to an influx of bad teachers, or the rise of teachers’ unions, but to the growth of the state’s immigrant population after the 1965 federal legislation on immigration opened the gates.”

Michael Lind
“Innovation and education won’t save our economy”
“The overall PISA scores of American students are lowered by the poor results for blacks and Latinos, who make up 35 percent of America’s K-12 student population. Asian-American students have an average score of 541, similar to those of Shanghai, Hong Kong, Japan and South Korea. The non-Hispanic white American student average of 525 is comparable to the averages of Canada (524), New Zealand (521), and Australia (515). In contrast, the average PISA readings score of Latino students is 446 and black students is 441.”

Rice U. demographer Steve Murdock:

“By 2040, only 20 percent of the state’s public school enrollment will be Anglo, he said. Last year, non-Hispanic white children made up 33.3 percent of the state’s 4.8 million public school enrollment…. “The state’s future looks bleak assuming the current trend line does not change because education and income levels for Hispanics lag considerably behind Anglos, he said. “Unless the trend line changes, 30 percent of the state’s labor force will not have even a high school diploma by 2040, he said. And the average household income will be about $6,500 lower than it was in 2000. That figure is not inflation adjusted so it will be worse than what it sounds. ““It’s a terrible situation that you are in. I am worried,” Murdock said.”

You can go to http://nces.ed.gov/nationsreportcard/naepdata/ and get test data by race, state, school type, etc. More or less invariably, Hispanic score are somewhere between white scores and black scores, but much closer to black levels. A useful note is that the percent of Hispanics with “advanced” skills appears to always round to zero.

rocketscientist September 13, 2011 at 11:16 am

Most of the 15-30 million illegal aliens who have have come to America in the last 20 years have an 8th grade education or less.

The drop out rate in the Los Angeles Unified school district is around 50% ….

Peter Schaeffer September 13, 2011 at 2:04 pm

rocketscientist,

“The drop out rate in the Los Angeles Unified school district is around 50% ….”

You are way too optimistic. A large majority of 12th graders in LA test below-basic or basic on the NAEP tests. They may get a diploma. However, they are high school graduates in name only. The actual high school graduation rate in LA (in terms of folks with a high school education) is well below 25%, perhaps below 20%.

What does all of this “prove”? America has a shortage of unskilled labor and needs to import if from the third world. Obviously.

KLO September 13, 2011 at 2:22 pm

NAEP’s 12th grade tests are part of a pilot program that has not been administered in California. Where are you getting these results for LA? I am interested in them.

Peter Schaeffer September 13, 2011 at 5:51 pm

KLO,

Good observation. There isn’t any publicly available 12th grade NAEP data for Los Angeles or California that I know of. However, there is national 12th grade data and 8th grade data for Los Angeles and California. Los Angeles and California score consistently below national averages for each demographic group and overall (California is a real laggard). The national data shows that a majority of Hispanics are “below basic” in the 12th grade. Presumably the California data is considerably worse judging from the 8th grade data.

L. Zhang September 13, 2011 at 11:18 am

If the proportion of college students who is female rose from 50% in 1990 to 57% in 2007, does that mean that 7% of college students have gone through sex change operations?

Laserlight September 13, 2011 at 1:01 pm

:-) No, because you have to expect that some of them had the operation in the other direction. Therefore it has to be more than 7%. Might be 100%.

Troy September 13, 2011 at 11:25 am

I have a question (on the same publication).

What defines ‘poverty’? I’m not asking what is the dollar threshold (which is $22k per family of 4). I am asking why that number in particular. I couldnt find the source on the Census website nor the Office of Management and Budget website.

Can anyone help? Thanks!

Derek September 13, 2011 at 3:27 pm

roughly 3 x the yearly spending on food.

http://www.irp.wisc.edu/faqs/faq2.htm

Chris Stucchio September 13, 2011 at 11:26 am

If real household income (i.e., income measured in terms of goods and services it can purchase) has decreased, then which goods or services are households purchasing less of?

Are houses now smaller? Do people consume less food? Own fewer cars? Consume less medical care?

joshua September 13, 2011 at 1:35 pm

Excellent question. I’m not yet convinced that real purchasing power has decreased.

msgkings September 13, 2011 at 2:04 pm

Purchases can be maintained with debt even with declining incomes. Although, obviously since 2008 consumer debt has decreased not increased, but I doubt it’s back to 2001 levels.

Jay Bradfield September 13, 2011 at 2:10 pm

Excellent point. Your questions address the quantity of goods, the same sort of questions also apply to the quality of goods.

I guess my computer should be slower, my cell phone bigger, and my iPad nonexistant.

Having said that I do believe that we’re paying more for for the same amount of healthcare, education, and quite likely housing. However, I’m not so sure that the inflation in these categories has caused to buy “less” of other stuff.

spencer September 14, 2011 at 9:30 am

Yes, but education, healthcare, housing, food and energy account for over 80% of consumer spending as compared to computers, cell phones and iPads accounting for something like 5% of consumer spending.

I get so tired of people thinking a cell phone offsets soaring energy prices on consumer well being.

Can’t anyone here ever but thing in perspective.

TallDave September 15, 2011 at 7:51 am

Healthcare, education, and housing… all heavily regulated/subsidized… funny how that works.

The education subsidy is truly horrifying. We’ve thrown 2-3x more money at education and gotten essentially zero marginal benefit.

KLO September 13, 2011 at 2:33 pm

New car sales 2000: 17.4 million.
New car sales 2010: 11.6 million.

I would say that people are buying fewer cars.

“The decline in the average square footage of new homes in recent years is the sharpest since the U.S. Census Bureau started tracking such data in the mid-1970s. New homes shrank more than 5 percent since the 2007 peak, when the average nationwide was 2,521 square feet.”

http://www.oregonlive.com/business/index.ssf/2011/09/new_homes_shrank_in_recession.html

I would say that people may be building smaller houses.

tom September 13, 2011 at 2:54 pm

Of course it’s easy to put twice the miles on a car today, maybe we’re ahead in that respect.

Chris Stucchio September 14, 2011 at 2:28 am

According to your data source, newly constructed houses are 67 square feed bigger than in 2001 (the graph doesn’t go back to 2000). Further, the current stock of housing is even larger, since the houses built at the peak have not vanished in the past few years.

Martin M September 15, 2011 at 9:18 am

I for one am purchasing way less retirement security.

Guy in the Veal Calf Office September 13, 2011 at 12:00 pm

I wonder about changes in households. Are two earner households forming later than they did in 2001. Are there more or fewer?

Also, what effects did the tax cuts have on after-tax (i.e., take home) median household income?

Ryan September 13, 2011 at 5:23 pm

What is the relevance of paragraphs 4, 5 and 6 below to these statistics?
http://www.thefiscaltimes.com/Articles/2011/07/22/AP-A-boom-in-corporate-profits-a-bust-in-jobs-wages.aspx#page1

Roger Koppl September 13, 2011 at 12:16 pm

It sure looks like real decline to me. If free-market types believe their own theories they should be concerned about this seeming decline and wondering whether the hand of the state mightn’t be at work. I think it is. For example, occupational licensing requirements have continued to grow as noted lots of places including this WSJ piece:

http://online.wsj.com/article/SB10001424052748703445904576118030935929752.html

Add in the growth in the anti-terrorist industry, war finance since 2011, and the increased importance of too-big-to-fail and you have good reason to suspect that the decline is real and should be blamed on government. Why haven’t pro-liberty economists (“The Great Stagnation” aside) been working harder to along such lines?

jtg September 13, 2011 at 12:41 pm

So, we are becoming, demographically, a Latin American country.
Why are we surprised to find we are becoming, economically, a Latin American country.
Demographics is destiny.

The average IQ of America is dropping. As the dumber, lower castes out-breed the higher castes and immigrants are increasingly drawn from lower-IQ nations.

We should try and get as many Chinese immigrants as possible since they are one of the only high IQ nations exporting people these days.
We should impose a skills/IQ requirement on immigrants.

Otherwise we will become ever more Latin. We will become ever more unstable. The government will swing wildly between left-wing socialists and right-wing authoritarians. We will get the Latin disease.

This is all probably inevitable at this point. Just wait another decade or two when the children of the Mexican illegals start voting in large #s. Not gonna be pretty.

FYI September 13, 2011 at 1:53 pm

Excuse, are you from the past? Or just dumb?

Peter Schaeffer September 13, 2011 at 2:06 pm

What an intelligent rejoinder. What color crayon did you use?

FYI September 13, 2011 at 2:19 pm

Ah, another fellow traveler from the past. Are you also afraid of foreigners and their incredibly low IQ? Any additional eugenics based argument you want to add to jtg’s masterpiece?

jtg September 13, 2011 at 3:22 pm

The IQ data has been verified, repeatedly, hundreds of times. There’s no serious doubt that there are large IQ differences between ethnic groups.

The only question is how much is genetic and how much environmental.

Some suggest that higher disease loads in tropical climates cause the lower IQs observed in Africa, South America, and South Asia. But high IQ tropical countries like Singapore argue against that. And the extremely low IQs (<60) of Pygmies are clearly genetic. (BTW, Pygmies are, to this day, routinely kept as slaves by the dominant Bantu tribes in Congo. Not even slaves, really, more like pets.)

Japanese people have higher IQs than Guatemalans or Ugandans. This is a fact of the world whether we like it or not. In the same vein, Danish people are taller than Japanese people.

Height is about 60% heritable. IQ is likely about the same. Westerners are afraid to research this question. But the Chinese are doing some good IQ genetic research.

Reality is that part of the world which, even if you don't believe in it, doesn't go away.

FYI September 13, 2011 at 3:37 pm

Link to the IQ studies please.

Jamie_NYC September 13, 2011 at 4:58 pm
FYI September 13, 2011 at 6:29 pm

No Jamie. I am just asking jtg (and other time traveler friends) to prove their own claims. The link you sent has no info about a scientific proof of anything. it just shows that the Chinese are studying the role of some genes in IQ. That is not the same as proving that certain ethnic groups have a lower IQ.

Again, I am waiting for such study to be shown here. Until then I will consider you and your friends lunatics.

The Anti-Gnostic September 13, 2011 at 7:53 pm

FYI – Read Rushton and Jensen. Read Hernstein. The IQ gap is well-documented, and also shows up on every standardized test thru the graduate level. There’s also a huge federal statute you might have heard of that’s premised on the existence of a gap between Hispanic and black educational attainment and everybody else. The only debate is whether and to what extent the gap is due to genetics or environment. Look at rates of criminal pathology as well.

And back at ya: link to the studies that show equal IQ and standardized test scores among racial groups.

FYI September 13, 2011 at 11:57 pm

I was expecting you mentioning The Bell Curve but honestly I have never heard about Rushton and Jensen until now. Just the fact that the so called hereditarians still attribute 50% of the IQ influence to be environmental tells me that this is ultimately a fools errand. You can never be 100% certain of where the line is and what can be even considered environment (Is Africa an environment? Is the Bronx and environment? Is public school an environment? what weight each one of them have?)

In any case, I see no reason or logic to associate this to immigration. After all, we all consider the US the best country in the world right? Who is to say that these poor immigrants don’t have a great genetic code but have not been able to develop exactly because of their original environment?

FACTS September 13, 2011 at 2:16 pm

It’s even worse than that, really. Crime rates for 2nd generation Mexican immigrants are even higher than their parents. Integrating into American culture seems to bring out the worst in Mexicans, rather than the best. While Euro-ethnic immigrants up to 1925 eventually integrated into middle class white culture, latinos are integrating into black ghetto culture.

So, we have that to look forward to.

mw September 13, 2011 at 3:21 pm

oh totally! and you know what the worst part about the Mexican labor force is? they do a terrible job on italian food.

Tyler Cowen September 13, 2011 at 12:53 pm

The trends for non-Latino households don’t much differ, see Lane Kenworthy, immigration won’t do it, see the footnotes in TGS. It is a real phenomenon,, not a statistical artifact.

Michael K September 13, 2011 at 1:24 pm

From the document:

Median income for households maintained by native-born householders declined between 2009 and 2010 in real terms. The change in the median income of all foreign-born households was not statistically significant. (See Table A.)

The Anti-Gnostic September 13, 2011 at 1:24 pm

Of course there are other things going on: monetary inflation, public sector parasitism, bad tax policy, etc. But importing millions of people on the left end of the distribution ain’t helping.

DKN September 13, 2011 at 2:11 pm

But Tyler, demographics is destiny. Destiny! Surely the racists are right. It’s destiny! Your data must be wrong.

Jim September 13, 2011 at 3:22 pm

Could we get a grad student somewhere to graph the number of racism accusations vs. instances of actual racism in the US? I think it would be hilariously informative.

Or if we needed someone with more free time, perhaps we could use a NYT reporter.

Popeye September 14, 2011 at 7:52 pm

If you think that some races are fundamentally inferior to others, then why would you be ashamed to be called a racist?

albatross September 15, 2011 at 1:48 pm

Popeye:

It depends on whether you think racist is a sterile descriptive term or a moral or political label. Almost everyone uses it as a moral or political label. And evaluaiting factual claims on the basis of their moral or political implications is nuts.

If you want to know whether, say, Salvadoran immigrants’ kids will do well or poorly in the US in the future, I can think of some ways to try to find out. (The most obvious is to look at how Salvadoran immigrants’ kids are doing now, two or three generations in. Another is to look for roughly parallel cases–say, Mexican or Guatemalan immigrants and their kids and grandkids.) But I can promise you that deciding what to believe based on which side’s moral or political implications you prefer won’t give you any help figuring out what reality looks like.

mw September 13, 2011 at 3:26 pm

@everyone with statistical concerns–aren’t we missing the bigger picture problem? seems to me that “median” is just a biased statistic. I mean, think about how many more poor people there are than rich people. is it really fair for them to count so much more? you know? besides, those rich guys have got a ton of money! that’s gotta count for something right? clearly the 50% mark isn’t fair. we should use the mean. or exclude brown people. or maybe just switch to only reporting income growth for the top percentile?

Roger Koppl September 13, 2011 at 1:24 pm

jtg: google “Flynn effect”

The Anti-Gnostic September 13, 2011 at 1:40 pm

Topping out or declining in some regions. Not an observed phenomenon in others.

Cliff September 13, 2011 at 2:06 pm

Not really meaningful since it is not g-correlated

Pragmaticon September 13, 2011 at 1:33 pm

What is the Tyler Cowen explanation/hypothesis for the phenomenon?

rjs September 13, 2011 at 1:34 pm

hard to get out of a balance sheet recession with numbers like that…

Jonathan c September 13, 2011 at 1:53 pm

Anyone know how the census is coded for income and how it has changed. I have seen like 3 seminars by Richard Burkhauser on this and it seems to have a pretty large impact of how we view income inequality in the us. Just look up his papers on the subject.

mw September 13, 2011 at 1:55 pm

who on god’s green earth cares about the median household?

have you seen the dough the top 0.1% have been raking in? that’s what matters–they’re the “job creators”! the only thing is, while they’ve got a lot, it’s not yet quite enough to start creating the jobs. if we eliminate all government spending and also abolish the FDA, EPA, and so forth, they’ll get the confidence they need, and then all that remains is to cut their taxes just a wee bit more, and then they’ll employ everyone–promise, scout’s honor.

we’re almost there folks, just hold on a little longer!

jdm September 13, 2011 at 2:18 pm

classic!

Ironman September 13, 2011 at 1:58 pm

For anyone who wants to see what percentile their income from 2010 puts them, here’s a tool where you can do just that. (We’ll be releasing a similar tool for household income tomorrow.)

Bill September 13, 2011 at 2:34 pm

You should also use some of the IRS data on income and also federal tax as a percent of AGI and Total Income to really get people interested in the data. You could also show how cap gains and dividend income tax adjustments, along with rate changes, changed the tax distribution.

Pat September 13, 2011 at 2:12 pm

I anxiously await your link to anyone on Earth who has claimed that decrease in wealth since 2007 is “fundamentally a story of rising consumer surplus from the internet.”

Benny Lava September 13, 2011 at 6:48 pm

You don’t need a link, just search marginalrevolution.com for “the great stagnation”, especially click on the comments. Good times.

Floccina September 13, 2011 at 2:38 pm

Since 2007, real median household income has declined 6.4% and is 7.1 % below the median household income peak prior to the 2001 recession.

Most is due to the current unemployment problem and the rest is due over stating inflation.

Bill September 13, 2011 at 3:15 pm

Did inflation measurements change during this period. If inflation is measured the same way across periods, what changed? Aren’t same inflation adjustments for income are the same ones for poverty levels?

I don’t get it. Please explain.

Floccina September 13, 2011 at 3:34 pm

@Bill,
All that I am say is that things (apart from the recent unemployment which I think is a monetary problem) are getting better all the time. I have no reason to doubt that Tyler when he says that things are improving slower from 1974 to now than they were from 1800 to 1973.

Bill September 13, 2011 at 9:49 pm

Still don’t understand. Inflation is measured the same in both periods, regardless of whether it is measured correctly, so a delta is a delta.

Popeye September 14, 2011 at 7:56 pm

“Most is due to the current unemployment problem”? What does this mean? “Most of the decline in household incomes is due to people making less money.”

Bill September 13, 2011 at 2:45 pm

From the Census department press release, it is worth noting that not only did the median income decline from 2001, but poverty increased:

“The nation’s official poverty rate in 2010 was 15.1 percent, up from 14.3 percent in 2009 ─ the third consecutive annual increase in the poverty rate. There were 46.2 million people in poverty in 2010, up from 43.6 million in 2009 ─ the fourth consecutive annual increase and the largest number in the 52 years for which poverty estimates have been published.

The number of people without health insurance coverage rose from 49.0 million in 2009 to 49.9 million in 2010, while the percentage without coverage −16.3 percent – was not statistically different from the rate in 2009.”

Here is the link to the press release and the census data: http://www.census.gov/newsroom/releases/archives/income_wealth/cb11-157.html

Ted Oliver September 13, 2011 at 2:51 pm

The arguments based on purchasing power that reference consumer electronics — i.e., thinner notebooks, smaller phones, faster computers, bigger TVs — do they take into account nearly all of those items used to be semi-durable goods, but they are now essentially disposable goods with a 2-3 year life cycle (perhaps longer for TVs, but still much shorter than in the past).

Honest question. I’m a luddite who makes a living doing IT work, with a 8 year old tube tv, and while we have 5 or 6 computers, they are all cast-offs from work or family. Yet I can do work, my kids can do school work and play games, maybe not as stylishly but seemingly nearly as effectively. No smartphone, just basic flip-phones, yet I can communicate with people. It just seems to me a lot of the technology gadgets are more like a form of conspicuous consumption when they used to be more like a durable good. Does this affect the purchasing power argument? Does it affect how we should think of GDP when the contribution essentially is gone in a few years (i.e., thrown away?).

Floccina September 13, 2011 at 3:19 pm

they are all cast-offs from work or family. Yet I can do work, my kids can do school work and play games, maybe not as stylishly but seemingly nearly as effectively.

Yes, so people can get computers that used to cost about $1,000 for free that is worth something. BTW I do the same thing, I take them home and load Linux and Google Chrome on them and they run fester than new computers with Widows and I use Google docs free that is in some ways better than MS Word.

Sbard September 13, 2011 at 4:28 pm

I would say that computers are more “durable” now then they have been in a long time. If you bought a computer in 1995, you would be way behind the technology curve in 1998. Nowadays, as long as you aren’t a big gamer, most anything made within the past 6 years will take care of almost all your computing needs. In the past, buying a budget computer meant significant compromises in functionality. Nowadays, a $400 laptop will handle pretty much any nongaming consumer workload without breaking a sweat.

Norman Pfyster September 13, 2011 at 3:29 pm

The numbers don’t support TGS theory. 6.4% drop since 2007 can’t be due mainly to long-term declines in productivity. I wonder how much of the 0.7% decline between 2000 and 2007 is due to lower interest rates and other investment income.

Guy in the Veal Calf Office September 13, 2011 at 3:52 pm

I think the non U.S. world might agree with Calamity Jane in Deadwood:

Reverend H.W. Smith: When I read the Scriptures, I do not feel Christ’s love as I used to.

Calamity Jane: Aw, is that so? That is too bad! Join the fuckin’ club of most of us!

Lou September 13, 2011 at 4:25 pm

I like the snarky comment at the end, but the internet is just one example of how inflation statistics are not meant to be used for anything more than marginal year-to-year comparisons.

I would assume that the drop from 2007-present is the result of the ongoing recession, which you may or may not have noticed has reduced income significantly for many households.

Slocum September 13, 2011 at 4:39 pm

I am increasingly puzzled by those who think this is fundamentally a story of rising consumer surplus from the internet.

Seriously? No, I don’t think anyone is arguing against claims of stagnation since 2007 — it’s the claims that 1973 represented some kind of peak and that it’s all been downhill (or at least flat) since then that a lot of us aren’t buying. But general stagnation during the economic downturn? Of course.

That said, innovation certainly hasn’t come screeching to a halt. The iPhone was first sold in 2007 (and the first iPad not until April of last year). Netflix didn’t allow unlimited streaming until 2008. The first Kindle was released at the end of 2007.

Brian Garst September 13, 2011 at 5:07 pm

How have households changed over the same period? Or have they?

andy September 13, 2011 at 5:09 pm

“Since 2007, real median household income has declined 6.4% and is 7.1 % below the median household income peak prior to the 2001 recession.”
I am increasingly puzzled by those who think this is fundamentally a story of rising consumer surplus from the internet.

When I draw the classical supply/demand graph, the thing that gets added to houshold income is the final price. The consumer surplus is something, that is _not_ reflected in the final price, which means it is not reflected in houshold income. Unless some statistician in BEA guesess some number and adds it to the statistics.

How else would you expect to find consumer surples reflected in median houshold income?

TA September 13, 2011 at 9:08 pm

I agree with Tyler, regarding the consumer surplus from the internet.

As to Wolfer’s plaint about household income, I don’t see where it has anything to do with this argument, one way or another. We are in a terrible recession, you know, so what’s the lack of progress from the peak of the last business cycle to the depths of this one supposed to prove.? The BEA publishes a number which is real personal income less social transfers — that is, income from work and on savings, less social insurance taxes, taking out the vagaries of welfare transfers and income taxes. The growth in that number, per capita, from 2000 to 2007 is about 8%, same as the growth from 1989, the peak of the previous business cycle to a time 7 years later.

I don’t think you can make an argument from these numbers that the post 2000 economy was particular bad, even before the recession, it that’s Wolfer’s point. And I don’t know what this has to do with consumer surplus.

themusicgod1 September 14, 2011 at 3:39 am

What is the ‘consumer surplus’ of being able to find the consumer surplus of the internet in an obscure statistic on an obscure econ pseudo-journal vs. a blog on the internet?

To read the equivalent of this blog…I’d probably have to have been subscribed to a magazine(at some nontrivial cost, compared to essentially free internet), I’d have to *know* it exist(and searching for such information and having it provided to you was a non-trivial cost even a decade ago, nevermind before google)…

Sure we’re facing pressure from peak oil and whatnot but, the internet adds so much it’s hard to measure.

Bishop Jordan September 14, 2011 at 1:27 pm

All the more reason why we need to lean on eachother these days. A strong family connection can certainly help stabilize morale while enduring these tough economic times.

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