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Record Middle Class Income Not Such Good News After All

The Census Bureau announced this week that real median household income rose to a record high in 2016 — but some labor market observers aren’t ready to cheer the increase.

Median income went up for two years in a row, rising 3.2 percent between 2015 and 2016, and the number of Americans living in poverty fell to pre-recession levels.

“It’s a number to be applauded, but it’s not a case of a rising sea lifting all ships,” said Jeff Strohl, director of research at Georgetown University’s Center on Education and the Workforce.

WH and problems facing the middle class 6:22

In inflation-adjusted dollars, the current median household income of $59,039 is barely above the $58,665 (in 2016 dollars) an American household at the median earned in 1999. Meanwhile, the Gini, a commonly used measure of income inequality, has climbed steadily since then.

“Pretty much every portion of the household income distribution except households in the top 5 percent are essentially no better than they were in 2007, and the lowest 20 percent of households is about 3 percent down from where they were in 2007,” said David Cooper, senior economic analyst at that Economic Policy Institute.

Census data also revealed that the median individual earnings of full-time workers, both men and women, didn’t rise significantly over the past year.

Salary Stagnation

This seeming contradiction between rising household income and stagnant personal income indicates that, while there are more workers in today’s economy, real wages have not kept up, said Greg McBride, chief financial analyst at Bankrate.com.

“More people are getting back to work. People that were on the sidelines as the economy grows and the labor market gets tighter are getting jobs,” he said.

Families who were getting by on a single income, for instance, might now have a second worker contributing.

Gary Burtless, a labor economist at the Brookings Institution, suggested that the labor market was tightening to a degree that workers with fewer skills and earnings prospects were coming off the sidelines. “There are more people who have earnings — it could very well be the extra people who have earnings are coming in at the lower end of the income distribution,” he said.

Education Nation

Some economists view the inability for the middle class to see real gains during a time when the top quintile and top 5 percent of all households have seen their income soar as a question around what type of jobs are held by the American middle class, and what it takes to get those jobs.

“Skill-biased technological change… requires workers with post-secondary education, the B.A. being the gold standard for that,” Strohl said, pointing out that even traditional blue-collar jobs like auto mechanic now require a degree of technological proficiency.

“It’s not just a computer — it’s also the growing complexity of the workplace,” he added.

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Unlike the richest Americans, who realize earnings from investments in real estate, the stock market and other assets, the rest of the country relies on earned income — that is, wages — to fill their bank accounts.

“To raise income for those folks, the solutions have to come through ways to try and increase pay for people,” Cooper said.

Slow Growth

While gains in the stock market have boosted the fortunes of the already-wealthy, real wage gains have hovered in the 2 percent to 2.5 percent range for much of the recovery. Although the buying power of these increases is magnified by a persistent low-inflation environment, economists say the low productivity growth accompanying it makes it harder for earnings to grow.

“We’ve got a slow growth economy, with productivity growth that’s abysmally low,” McBride said. “If revenue is only growing at about 2 percent a year, unless you’re getting more productivity growth, there’s not a lot of extra you can pass onto employees.”

One silver lining is that low inflation is good for American consumers, as is a global economy that keeps prices on everything from smartphones to shoes low. But globalization cuts two ways by threatening American workers, especially those at the low end of the skill spectrum.

“In a global economy, we’re not just competing within our own borders,” McBride said. “The growth in income is disproportionately tilted towards those that have unique skills.”