Household Income Stagnation

Over the past fifteen or so years, median real household incomes have stagnated. This observation is widely evoked in arguments that America’s middle class is faring poorly. It is used as a basis for asserting that the US economy does not serve regular Americans’ economic interests well.

Real income means inflation-adjusted income, a metric that is used in an attempt to differentiate genuine raises from those that merely reflect changes in general prices. For example, the median household in 1947 received about $3 thousand in income, but that money could purchase more then because prices were generally lower. At current prices, the Census Bureau estimates that this $3,000 (the prevailing nominal income at that time) is equivalent to (a real income of) about $27,000 today.1 This implies that the median household, whose income was about $60 thousand in 2012, has somewhere between twice and three times (rather than twenty or so times) the purchasing power of its post-WWII counterpart.

The figure below depicts canges in median US real household income from 1949 to 2012. Data are drawn from the Census Bureau.2

Median Income Stagnation


Between 1950 and about 1970, median household incomes rose quicky and steadily. Median real incomes grew at an average annual rate of about 3.5% per year, compared to an average rate of 0.9% from 1970 to 2000 and -0.1% from 2001 onwards.

These seemingly modest differences in growth rates amount to big income differences over time. For example, had real income continued to growth at its mid-century pace, real median income in 2012 would have been somewhere around $236 thousand, instead of $64 thousand. Had it maintained its 0.9% annual growth rate from 2000 onward, median incomes would have been somewhere around $75,320 by 2012. Had incomes not fallen since 2000, the median household would have about $5000 income in inflation-adjusted terms.

Over time, median wages have slowed. Their decline over the past 15 years makes the slow, steady growth of the 1970s through 1990s look like the “good old days.” However, the middle class prosperity of the past 40 years was far inferior to what was experienced in the 1950s and 1960s, at least insofar as real incomes are concerned.

Over the past several decades, the US economy has largely failed to secure rising incomes for its middle class. Policy has failed to create an environment in which regular Americans have been able to earn more money relative to prices. Of course, discerning how it has failed is a much more complicated (and different) topic.

  1. Census Bureau (2014) “Table F-5: Race and Hispanic Origin of Householder – Families by Median and Mean Income: 1947 to 2012” Data table.
  2. Ibid.

Download the R Markdown file and raw data here

Am I Rich? Musing about Income and Wealth Differences across Economic Class Lines

How much money does it take to be part of the upper class? The lower class? These types of questions are troublesome. There are undeniably wealthy people who think that they are middle class, and some patently poor people who self-identify as part of the middle class. Drawing economic class lines is complicated.

Still, it is interesting to draw hypothetical lines. The exercise gives us some indication of what different classes’ personal finances might look like, and where someone seems likely to lie on the country’s economic hierarchy.

According to a 2012 survey by the Pew Research Center,1 about 32% of US society self-identifies with the lower or lower-middle class. Another 49% identify with the middle class proper. A further 15% identify with the upper-middle class, and 2% with the upper-class. Without data on these respondents’ personal finances, we cannot create a profile of how households’ finances differ across (self-identified) economic classes.

Drawing Class Lines with Data

Perhaps another solution is to ask how household finances differ across classes if people were to correctly identify their own economic class. For example, if the 2% of respondents were correct that they were at or above the 98th percentile of income or wealth, then how much would they earn or possess? We can answer this question using data from the Survey of Consumer Finances2. The table gives the implied income and net worth ranges:

Class Income Range Net Worth Range
Lower Class
(min to 7th pctl.)
below $11,565 below -$9,018
Lower-Middle Class
(7th to 32nd pctl.)
$11,566 – $30,435 -$9,019 – $18,210
Middle Class
(32nd to 82nd pctl.)
$30,436 – $109,914 $18,211 – $483,420
Upper-Middle Class
(82nd to 98th pctl.)
$109,915 – $417,175 $483,421 – $4.4 million
Upper Class
(above 98th pctl.)
above $417,176 above $4.4 million

I would imagine that the income figures make sense to readers, but not the wealth figures. In general, people seem to draw economic class lines based on income, and they often fail to appreciate how wealth varies and the impact of wealth on a household’s overall economic situation. Conretely speaking, the middle class has wide ranges in wealth, which sit between the rough equivalent of a year’s worth of poverty line income and nearly a half million dollars.

An alternative, ad hoc division might look like this. The typology captures how a very large proportion of society has next to no wealth. While 7% of society’s households are “poor” in income terms, nearly a quarter of them are “wealth” poor. The middle 50% has some wealth, but not enough to cover a few years at the poverty line. Like income, wealth is concentrated in the top quarter, and most of this is concentrated in the higher ranks of this top quartile:

Wealth Class Net Worth Range
Bottom 25%
(min to 25th pctl.)
below $8,784
Middle 50%
(25th and 75th pctl.)
$8,785 – $81,456
(75th to 90th pctl.)
$81,457 – $315,712
Lower Top 10%
(90th to 95th pctl.)
$315,713 – $943,656
Top 5%
(95th to 99th pctl.)
$943,657 – $1.9 million
Top 1%
(99th to 99.9th pctl.)
$1.9 million – $7.9 million
Top 0.1%
(above 99.9th pctl.)
above $7.9 million


  1. Rich Morin and Seth Motel (2012) “A Third of Americans Now Say They Are in the Lower Classes” Research report from Pew Research Center.
  2. Federal Reserve Board (2014) Survey of Consumer Finances Database at Data were analyzed in R using scripts that were adapted from prior work of Anthony Damico, at

Studying the Rich: Wealth More Important than Income


Over the past several years, discussions about the rich have focused on the top 1% — those who have more than 99 out of 100 Americans.  But the top 1% of what?

To most people, the most obvious answer is income.  We tend to understand people’s economic situation with reference to their incomes. Income is the money that flows into people’s bank accounts in a given time period (e.g., a month, a year).  People are classified as poor when their incomes fall below the poverty line. We also tend to think that incomes distinguish the rich.  Most Americans think that a $150,000 a year in income is enough to make someone rich.1  

This focus is natural because income is what distinguishes people’s economic situations over the bottom, middle, and even upper-middle reaches of the economic pyramid.  From this presumption, the press began to pin the dividing line between the “rich” and non-rich at around $390,000 a year, the 99th percentile of adjusted gross income reported in 2011 returns.  Who is in this group?

They were executives at non-financial companies, financial professionals, doctors, lawyers and an occupational category that lumps together computer, math, engineering and technical jobs in non-financial firms.

This made the one percent look like the hard-working professionals who operate in your local community.  They are almost regular Joes, but with good jobs.

The Importance of Wealth

Social scientists who study inequality often use wealth (or net worth) to distinguish the wealthy from the rest of society. In many ways, someone with a high net worth is in a much better position that someone who has a high income. Imagine how the economic situations of two hypothetical households would differ. Household A has a median income and a 99th percentile net worth, and the Household B has a median net worth and a 99th percentile income. In all other respects, these households are the same. Their situations would look like this:

A Household with a Median Income and Top Percentile Net Worth versus One with Median Net Worth and a Top Percentile Income

Household Income Net Worth
A $47 thousand $7.9 million
B $696 thousand $81 thousand

Note that these are real estimates.  They represent the top 1% of households (not tax returns), and they are based on survey reports of households’ gross incomes, rather than their adjusted gross income (i.e., it includes income that is exempted or deducted from tax forms’ reported adjusted gross income).  Figures are based on data from the 2013 Survey of Consumer Finances.

Obviously, it would be nice to be either. But who is better off? The household that earns a high income could eventually get to an $8 million net worth, but it would take some good fortune and a long time. A person would have keep that high-paying job or maintain that highly-profitable business for decades to accumulate $8 million in wealth. Meanwhile, a 5% return on that $7.9 million in assets would deliver an income of $395,000. The only reason a high net worth person would report a $47,000 income is (a) spectacularly bad decision-making or (b) accounting tricks to avoid paying taxes.

Income and Wealth are Different

Income and wealth can be quite different. For example, among the 9% of US households worth $1 million or more, about 5% earn less than $36,000 and 10% earn less than $60,500. These are often retirees whose wealth is largely comprised of their home, which is generally a non-performing asset. Although these people show up in the data as being of modest means in terms of income, the truth is that they have access to quite a bit of money if they needed it.

The main reason to distinguish wealth from income is that the wealthy can manage their assets in a way that do not result in income.  When a person’s home values rise or their stock portfolios appreciate, accountants do not count that as income.  It is a capital gain, or asset appreciation.  The wealthy can accumulate wealth with very little income, as long as their assets are rising in value.

Although we focus on income when judging people’s economic situations, their wealth is usually a better gauge of whether or not they are in an economically strong position. High incomes can be fleeting, but it takes some very bad financial decision-making to go bankrupt from a position of high wealth.

  1. Jeffrey M. Jones (2011) “Americans Set”Rich” Threshold at $150,000 in Annual Income” Report. Gallup. December 8.