What Is Average Income in the USA? Family, Household, History

Why Incomes Haven't Recovered From the Great Recession

Average income levels
Average income levels have been falling since 2000. Photo: Pamela Moore / Getty Images

Definition: Average income is any statistic that describes how much money an individual, family, or household makes. The U.S. Census Bureau reports average U.S. incomes in September of each year.

The Census reports two kinds of averages. The mean sums up all incomes and divides by the number of people reporting. The median income is the point where half the people make more and half make less. The mean income is usually higher.

That's because the few people who make enormous amounts of money skew the results higher. In the mean, they outweigh the many who make low incomes. That gives an inaccurate estimate because it's affected by the income inequality in the United States. Therefore, most reports use the median income.

The Census reports average income for three different groups.

  1. Income per person is the income for each person age 15 or older. It's more commonly known as income per capita
  2. Family income is average for a family of two or more related people living in a household. They can be related by birth, marriage, or adoption.
  3. Household income is the average income of all people living in a housing unit. It doesn't matter if they are living alone, or with a family, or a group of unrelated individuals. 

Real income removes the effects of inflation. To compare income levels over time, you must use real income. Nominal income ignores the changing cost of living.

That's also the difference between real versus nominal GDP.

When looking at average income, you must pay attention to what it measures specifically. Always determine whether it's the mean or median. Find out whether it's per capita, family, or household. Last but not least, be sure you know whether it's real or nominal.

 

The Census breaks out average incomes for many different groups. These include age, relationship to the household, race, education, and type of housing. It reports income levels in $2,500 increments. The Census will release the next report, on 2017 average incomes, in September 2018. 

Current Average Income

The 2016 nominal median income per capita was $31,099. The mean income per capita was $46,550. The Census Bureau reports those in the Current Population Survey, Table PINC-01.

Real median household income was $59,039 in 2016. That's the first time income exceeded the 2007 level of $58,149. It's also slightly higher than the 2015 income of $57,230. The first increase since the Great Recession was in 2015. All are reported in 2016 dollars. The Census report household income in Table A-1.

The federal government uses the median household income to establish poverty levels. That determines eligibility for Obamacare subsidies and welfare programs

Real median family income was $72,707 in 2016. That's higher than the 2007 peak of $71,024 (as measured in 206 dollars). It's also more than the 2015 level of $71,590. The government uses the family income for statistical purposes, such as reporting the poverty threshold.

The Census reports family income in Table F-6.

U.S. Average Income Has Finally Caught Up 

The table below compares the change in income through the 2000 and 2008 recessions. Incomes didn't start improving until 2006, just as the seeds of the 2008 financial crisis were being planted. That's when the Fed raised interest rates. As mortgages became more expensive, homes prices fell. Mortgage defaults began to rise. But the crisis didn't spread to the general economy until 2008. The Dow hit its peak in November 2007.

Most of the jobs created before the recession were in financial services and construction. Those jobs did not return in 2009. Instead, jobs were in low-paying areas such as retail and food services. Many employers hired temporary or freelance workers instead of offering full-time positions.

To make matters worse, the government did not create jobs. The Bush administration relied on tax cuts and military spending to boost the economy. Neither are good job creators. Obama had the right idea in spending more on education and public works. Those types of programs are the best unemployment solutions.

After the 2010 mid-term elections, the Republican majority in Congress focused on reducing the debt instead of creating jobs. The unemployment rate fell, as people dropped out of the labor force, but incomes did not rise.

In 2013, the Fed did what it could by keeping interest rates low. But those low rates created an asset bubble in the stock market, which hit new highs. At the same time, average income levels briefly rose.

In 2014, new technology in shale oil drilling boosted incomes in Montana, Wyoming, North Dakota, South Dakota, Nebraska. Washington DC and the states around it (West Virginia, Virginia, and Maryland) also improved. But incomes fell along with oil prices.

In 2015, income levels rose as unemployment fell. The situation further improved in 2016, when the income exceeded the prerecession peak.

Historical Real Median Household Income, Economic Growth and Unemployment

Year      Income ChangeGDP Growth Jobless Rate     Events
1997$55,218 2.1% 4.5% 4.7%Asian crisis.
1998$57,248 3.7% 4.5% 4.4%LTCM crisis.
1999$58,665 2.5% 4.7% 4.0%Y2K scare.
2000$58,544-0.2% 4.1% 3.9%NASDAQ bubble burst. 
2001 $57,246 -2.2% 1.0% 5.7%EGTRRA.  9/11 attacks.  
2002$56,599-1.1% 1.8% 6.0%War on Terror.
2003$56,528-0.1% 2.8% 5.7%JGTRRA
2004$56,332-0.3% 3.8% 5.4%Business growth.
2005$56,935 1.1% 3.3% 4.9%Incomes improve.
2006$57,379 0.8% 2.7% 4.4%Fed raised rates.
2007$58,149 1.3% 1.8% 5.0%Subprime crisis.  
2008$56,076-3.6%-0.3% 7.3%Financial crisis.
2009$55,683-0.7%-2.8% 9.9%ARRA
2010$54,245-2.6% 2.5% 9.3%Obama tax cuts
2011$53,401-1.6% 1.6% 8.5%Austerity measures
2012$53,331-0.1% 2.2% 7.8%See US 2012
2013$55,214 3.5% 1.7% 6.7%LFPR drops.
2014$54,398-1.5% 2.6% 5.6%Strong dollar.
2015$57,230  5.2% 2.9% 5.0%Natural jobless rate.
2016$59,039  3.2% 1.5% 4.7%Presidential race.

(Table sources: "American Community Survey," Table F.6., U.S. Census, September 2017. "GDP by Year,"  "Unemployment Rate by Year."  )

Poverty

As a result of the worsening of the average income, 43.1 million Americans live below the federal poverty threshold. In 2016, that was $23,339 for a typical family of four. This is more than just the "usual suspects," such as illegal immigrants, inner-city poor and welfare cheaters. This is every third person you meet today. How did this happen?

In 2008, real wages decreased 0.8 percent. Real wages measure the purchasing power of a family's income. Although wages increased 3.7 percent in 2008, prices increased even more.

U.S. wage levels are compressed to compete with pay levels in foreign countries such as China and India. They have a much lower cost of living. At the same time, the education and skill level of their labor forces are increasing. Furthermore, technology and the spread of English makes it easier to employ foreign workers. Outsourcing has hit hardest in call centers and computer programming. Capitalism requires U.S. companies to employ these lower-cost, skilled employees. Otherwise, they will lose market share to international competitors.

Does the minimum wage keep you out of poverty? No. In fact, if you earn the U.S. minimum wage of $7.25 an hour, and you were the only breadwinner for a family of four, you would be beneath the poverty line. The minimum wage pays a full-time worker $15,080 a year. That's less than the $23,050 needed to keep a family out of poverty (equivalent to $10.60 per hour).

Congress has kept minimum wage the same since 2009. If the minimum wage had been adjusted for the cost of living over the last 40 years, it would now be $10.41 an hour. If it had kept up with executive level pay increases, it would be $23/hour. Then the minimum wage would be a living wage.

At the same time, prices of food and oil increased, when the dollar declined between 2000 and 2006. The Clean Energy Act raised prices by diverting corn crops to the production of ethanol. That raised the price of corn, a primary feedstock for beef, also leading to higher food prices.

Middle-Class Income

The U.S. economic crisis spread the pain felt by America's poor and working poor to the middle class. While the cost of food and gasoline rose, wages stayed the same. The resultant squeeze on the middle class led to unprecedented debt levels. Families racked up credit card debt just to pay for their daily lives.(Sources:  "Table 1. Income and Earnings Summary Measures by Selected Characteristics: 2014 and 2015," U.S. Census.)

More U.S. History

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