Is each American generation doing better?

From Tyler Cowen. 

"We construct a posttax, posttransfer income measure from 1963 to 2023 based on the Current Population Survey Annual Social and Economic Supplement that allows us to consistently compare the economic well-being of five generations of Americans at ages 36–40. We find that Millennials had a real median household income that was 20% higher than that of the previous generation, a slowdown from the growth rate of the Silent Generation (36%) and Baby Boomers (26%), but similar to that of Generation X (16%). The slowdown for younger generations largely resulted from stalled growth in work hours among women. Progress for Millennials younger than 30 has also remained robust, though largely due to greater reliance on their parents. Additionally, lifetime income gains for younger generations far outweigh their higher educational costs.

That is from Kevin Corrinth and Jeff Larrimore in Demography.  Via the excellent Kevin Lewis."

The Growth of Family Income Isn’t Primarily Explained by the Rise of Dual-Income Families

By Jeremy Horpedahl. Excerpts:

"most of the growth of high-income families can not be explained by the rise of dual-income families. The basic reason is that the growth in dual-income families had mostly already occurred by the 1980s or 1990s (depending on the measure). So the tremendous growth since about 1990, when just about 15 percent of families were above $150,000 (in 2024 dollars), is better explained by rising prosperity, not a trick of more earners."

"You can see this in a number of ways. First, here is the share of married couples where both spouses are working. I have presented the data including all married couples (blue line), as well as only married couples with some earners (gold line), since the aging of the population is biasing the blue-line downwards over time."

 

Two trends are clear in this first chart: dual-income families do rise from the 1960s (and likely before that if we had data), but the rise is complete by the late 1980s or so: the figures for 2019 are almost identical to about 1987. There is some business cycle effect, especially with the blue line, but there is no upward trend. In fact, overall by 2019 (pre-pandemic, I include 2020 but it’s probably unreliable), these figures were noticeably lower than the late 1990s. Among couples with earners (that is, primarily excluding retirees), the majority of married couples were dual-income families as early as 1973.

The data in the first chart comes from a BLS report on women in the labor force, but they haven’t updated it with comparable data since 2020 (so far as I can tell). But we can use a related series from BLS in their “Employment Characteristics of Families” report. Although it only goes back to the early 1990s, we can see the same pattern of not much increase since then. This report allows us to look specifically at married couples with children at home. Admittedly, this is a subset of all families, but it is probably exactly the kind of family people envision when they think of rising dual-income families.

 

Dual-income parents peaked in the late 1990s (as a share of married couples with children), declined during each of the three recessions since then, and post-COVID have recovered and exceeded the late 1990s peaks. But only about 2 percentage points. And notice also that this was already clearly the majority situation as far back as BLS calculated it, as it was over 60 percent in 1992"

"We can see this a few other ways too. For example, in a great paper by Kevin Corinth and Jeff Larrimore (I wrote about it here), they show that total hours worked in the household by married couples did indeed rise from the Greatest Generation and the Silent Generation through the Boomers, but after the Boomers there is no increase. In fact, by their late 30s, Boomers were working slightly more hours (the combined couple hours) than the next two generations! The median Boomer is in their late 30s right around — you guessed it — 1990."

 

"while women are working more hours, total hours haven’t changed much since about 1990. That means that male working hours must have decreased slightly. This factor alone would push family income in the other direction: women earn, on average, less than men! We won’t get into the very detailed literature on why this is so today, but as more of the family market labor is from women, this alone would cause family income to fall (recall though that when we include non-market work, women have always worked more than men). So given that change in full-time wife employment, combined with flat family working hours, the increase in total family income is even more impressive."

"the share of US families with over $150,000 of income (in 2024 inflation-adjusted dollars) was 5.2% in 1967, 15.4% in 1990, and 33.8% in 2024. The change from 1967 to 1990 is impressive, with share tripling, though some of this is likely explained by the rise of dual-income families. But the increase from 1990 to 2024 is even more impressive: while it’s just a little more than a doubling, it is a growth over 18 percentage points!" 

One-Third of US Families Earn Over $150,000

From Alex Tabarrok.

"It’s astonishing that the richest country in world history could convince itself that it was plundered by immigrants and trade. Truly astonishing.

From Jeremy Horpedahl who notes:

This is from the latest Census release of CPS ASEC data, updated through 2024 (see Table F-23 at this link).

In 1967, only 5 percent of US families earned over $150,000 (inflation adjusted).

  

And even though it says so in the chart and in the text let me say it again, this is inflation adjusted and so yes it’s real and no the fact that housing has gone up in price doesn’t negate this, it’s built in. We would have done even better had NIMBYs not reduced the supply of housing.

See also Asness and Strain.

Addendum: Note it isn’t the rise of dual-earner households which haven’t increased for over 30 years."

Economic Stagnation May Be Over (If We Can Avoid a Recession Soon)

By Jeremy Horpedahl. 

"The Census Bureau recently released a massive amount of new data on Americans and the US economy, as they do each year with their “Income, Poverty, and Health Insurance Coverage in the United States” release. The latest data cover the year 2024 and contain a lot of good news about how Americans are faring. In this post, I will focus on the income data that was released in this report. 

The most recent data show a convincing, optimistic story: contrary to the pessimistic, populist narrative that dominates our current political moment, the data show that last year, Americans of all stripes enjoyed record incomes and that gains appear to have accelerated since the mid-1990s. We should probably expect more gains in the years ahead—unless another recession ruins them.

It will probably not surprise you that the past five years have been a rocky time in the US for household and family incomes. The brief but sharp recession in 2020 knocked down incomes, and then the inflation that ramped up in 2021 and peaked in 2022 made it hard for incomes to keep up. And we can see this in the data. Thankfully, real (inflation-adjusted) income growth resumed in 2023, and by 2024, most measures of income in this report had returned to or even exceeded their 2019 levels.

This first chart shows inflation-adjusted median incomes for US households and families (which are a subset of households that contain related people living together), but we can get into more detail than just the median with this data release, too. Here are the long-run outcomes: since 1967, real median family income has increased by 74 percent, household income has increased by 53 percent, and personal income has increased by 71 percent. That’s all adjusted for inflation.

 

For the wonks interested in different inflation adjustments, I am using the Census’s preferred measure of inflation, the chained CPI back to 2000 and the retroactive CPI before that. If we had used a chained inflation measure throughout the series, such as the Personal Consumption Expenditures price index, the gains would have been even larger (e.g., 88 percent for family income, rather than 74 percent).

Five years of no or slight growth in incomes might not seem like much to celebrate, unless you realize this was probably the most turbulent economic period in the living memory of most adults today. It’s also useful to put those 2019 and 2024 peaks in historical perspective. And the return to growth and recovery of pre-pandemic income levels happened rather swiftly, at least as compared to recent history. 

For example, if we were looking at this data a decade later in 2014, we would notice that there had been essentially no improvement in median incomes since the year 2000, thanks to the slow recovery from two recessions in the 2000s. We observe this pattern throughout the history of the income data: when recessions happen frequently, median income stagnates, never getting a chance to surpass its prior peak. That’s the cautionary tale of this history: if another recession hits the US soon, we could be returning to a long stagnation of staying near the 2019 peak in income.

The chart above shows median income, the middle of the distribution. But it is also useful to look across the distribution of income to see if all are benefiting from economic growth. As the chart below shows, real household income declined across the distribution, bottoming out in 2022, and then recovered to at least the level of 2019. It’s true that growth has been best at the top of the income distribution, but the recovery happened across the distribution. In other words, Americans at all income levels are now at record high incomes (as always, adjusted for inflation).

 

Another way we can examine income changes across the distribution is to take a longer historical perspective and look at the percent of families (here I am switching from households) that fall within certain income ranges. 

 

Where the breaks between groups should be isn’t an exact science, but I use about $50,000 above and below the median family income as reasonable cutoffs for the middle-income group. As we can see, the middle-income group was over half of the total in 1967, but this group’s size gradually shrank by about 10 percentage points over the next almost six decades. But notice that the lower-income groups shrank too. That’s because this chart shows one astonishing fact: the number of rich American families has skyrocketed, with over one-third now having at least $150,000 in income.

These trends are not sensitive to choosing different income cutoffs: if we use $200,000 as our definition of rich, the number has grown from 2 percent of families in 1967 to 21 percent in 2024. It also is not a trick of using families instead of households, as Mark Perry’s similar chart using households (and different income cutoffs than my chart) shows the same general trends.

What can we learn from these income trends?

The long-run positive trends show us that the American Dream is not dead, incomes are rising, more and more Americans are becoming quite wealthy, and the gains are spread across the distribution. While free markets in the US are infringed on by governments and special interests using government to tilt outcomes in their favor, the market continues to deliver the goods.

The decline of incomes through 2022 and the continued uncertainty equally show the folly of those government interventions. Government restrictions on business activity caused or, at the very least, contributed to the economic downturn in 2020. And the federal response through both monetary and fiscal policy in response to the downturn in many ways made things worse, especially the disastrous inflation of 2021–2023. The dramatic expansion of the money supply in 2020 was combined with multiple rounds of fiscal stimulus. Especially noteworthy is the 2021 American Rescue Plan, which was passed well after the initial crisis when the labor market had already been in recovery mode for almost a full year."

Over 1/3 of American families now have over $150,000 of income, the first time in history (yes, it's adjusted for inflation)

Tweet from Jeremy Horpedahl. 

 

 

Median incomes in different countries