Median incomes aren’t keeping up with growth- however closely you look

By now a lot of people are aware that median incomes haven’t moved all that much in a long time. Many people are even starting to accept that this is evidence the economy is buggered, from an ordinary person’s point of view. This distressing reality is pretty well communicated by this chart:

However one occasionally sees people trying to argue that this apparent income stagnation isn’t real, and is merely an artefact in how the incomes are measured. The two main lines of argument are:

1. The measurements focus on median income, but households have grown smaller over the years, with fewer wage earners, so of course median household wages haven’t been keeping up with GDP per capita.

2. Non-wage benefits for employees, such as healthcare and pensions, have been booming. This isn’t reflected in median household income, but it really should be.

Answering these objections takes about two minutes additional research. Simply A) use median individual income instead of median householdincome and B) work out the level of non-wage employee benefits to median income earners and add them in.

The only slight difficulty is finding information on how much the median person earns in non-wage benefits. What we do have is information on the scale of non-wage supplements to employee income, which has remained stable as a proportion of total income for the period 1986 to 2015 at around 11%.

We then make an assumption which is extremely generous to critics of the median income stagnation thesis. We assume that the median individual earns the mean level of non-wage compensation. In truth, it’s probably considerably lower than this due to inequality.

Plug in these figures, and here we have our evidence for median income stagnation relative to economic growth, scarcely diminished at all while fully accounting for the household size and non-wage income objections:

The blue line is GDP per capita. The red line is individual median income plus per capita share of non-wage benefits. I picked 1986 to 2015 because 2015 was the latest figure available for median individual income, and 1986 is about when the size of non-wage employee benefits stabilises.

Sometimes a disconcerting graph is exactly what it looks like, and there’s no clever meta-contrarian story about how everything is really going fine. Over the period 1986–2015, the size of the economy per person grew by about 59%, whereas individual median salary income plus our estimate of non-wage compensation grew by about 31%.

A final note. The two points we talked about here -non wage benefits and median household versus personal income- follow a pattern that’s distressingly common in the discourse. Someone will make a reasonably intelligent point. Someone else will make a reasonably intelligent reply. And for reasons unknown, rather than just check who is right after both points are accounted for, people will throw their hands up and say ‘experts disagree’. This question in particular is glorified accounting. There are right and wrong answers and dammit, you can check which is which.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s