Census data on income distribution reveal evidence of rising income levels for a rising share of American households

Great post by Mark Perry of "Carpe Diem." Excerpts:

"Let’s start with the household income distribution data in the chart above which shows the following for the three household income groups: a) $25,000 and under, b) $25,000 to $75,000, and c) $75,000 and over, with all household income measured in 2009 constant dollars.

4. In 1967, 55.8% of American households were earning between $25,000 and $75,000 in constant 2009 dollars, one income range that might be used to describe America’s “middle class.” Also in that year, only about one out of seven (14.4%) American households had income above $75,000 (“upper-income”), and slightly less than 30% of American households were earning $25,000 or less, an income category that might be described as “low-income.”

In 1967, there were almost four American households earning a middle-class income ($25,000 to $75,000) for every high-income household earning above $75,000. Further, there were almost two “middle-income” households for every one “low-income household,” so the middle class American households earning between $25,000 and $75,000 clearly represented a significant share of US households in 1967.

Here’s what happened over time:

5. The share of lower-income households fell over time by 4.7 percentage points, from 29.8% of all US households in 1967 to only 25.1% of all US households in 2009 (see blue line in chart), while the share of middle-income households decreased by 12.5 percentage points during that period, from 55.8% in 1969 to 43.3% in 2009 (see brown line in chart). So where did those 17.2% of households go that disappeared from the lower income and middle income categories in the 42-year period between 1967 and 2009? They “disappeared” into the upper-income category of incomes above $75,000, which increased by 17.2 percentage points, from a 14.4% share of American households in 1967 to a 31.6% share in 2009. Whereas “middle class” households were so numerous that they outnumbered “upper class” families by a ratio of almost 4-to-1 in 1967, so many American “middle class” households have moved by the 2000s to the “upper class” by income, that by 2009 the ratio of middle-income to low-income households had  decreased to only 1.37-to-1. Stated differently, in 1969 there were almost 400 “middle-class” households to every 100 “high-income” household; but by 2009 there were only 137 “middle-class” households per 100 “high-income” households.

Now let’s analyze household income distribution over time using the revised income categories: a) $35,000 and under for “low-income” households, b) $35,000 to $75,000 for “middle-income” households, and c) $75,000 and over for “upper-income” (same as before), see second chart above.

6. The share of US households in the revised lower-income category ($35,000 and below) declined from 43.6% in 1969 to 36% in 2009, while the share of households in the revised middle-income category decreased from 42.1% to 32.3% over the four-decade period. Like before, the share of “upper-income” households in the unrevised category of $75,000 and above increased from 14.4% to 31.6%. With these revised income categories for low- and middle-income households, we can say that in 1969, the number of American households in both the low- and middle-income categories outnumbered “upper-income” American households by 3-to-1. But by 2009, the share of American households in the three income categories were almost equal (36% low-income, 32.3% middle-income and 31.6% upper-income).

Finally, the bottom chart above displays income distributions over time for US households based on the three new income categories: a) $50,000 and under for “low-income” households, b) $50,000 to $100,000 for “middle-income” households, and c) $100,000 and over for “upper-income” households.
Once again, I think the results are pretty striking:

7. The share of “middle-income” Americans (defined here as US households earning between $50,000 and $100,000 in constant dollars) has remained relatively stable over the last 40 years at about 30%.

8. At the same time, the share of low-income households earning $50,000 or less has decreased by 13.50 percentage points from 63.6% to 50.1% from 1969 to 2009, while the share of high-income households earning more than $100,000 has increased by 14 percentage points from 6.1% to 20.1% over that period.

According to this last analysis, middle-class households earning $50,000 to $100,000 have remained a fairly constant share of all US households over time, while there has been a significant increase in the share of high-income households that has offset the decline in the share of low-income households.  Stated differently, in 1969 there were more than ten low-income American households making less than $50,000 for every high-income household making more than $100,000; by 2009, that ratio had fallen to only 2.5 low-income households per high-income household.

Bottom Line: The top two charts above show that the share of American “middle class” households making either: a) $25,000 to $75,000 or b) $35,000 to $75,000, did decline starting in the 1970s, but it was because a greater share of American households were moving up to a higher-income category ($75,000 and above), not down into a lower-income category (which were declining as shares of all households, though at a lower rate than the decline in the share of middle-income households). And that movement of the middle-class (and the lower-income group) was so significant that between 1967 and 2009, the share of American households earning incomes above $75,000 more than doubled, from 14.4% to 31.6%. Further, the bottom chart above shows that the share of US households earning $100,000 or above has more than tripled from 6.1% in 1969 to 20.1% in 2009.

On the previous CD post, Ken commented that although “Many prominent people like Paul Krugman claim that the middle class has been in decline since the 1970s, that assertion is incredibly and verifiably wrong.” According to the percent distribution of household income in Table 690 from the Census Bureau, I think Ken is exactly right. Despite all of the reports on stagnating household income, decreased mobility for the middle-class, the top 1% reaping all of the benefits of income/wealth gains over time, increasing income inequality, current generations doing worse than their parents, the general decline of the middle class, etc., the Census Bureau data and the charts above tells a different story of an America with documented evidence of rising income levels for a rising share of American households."