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

What They Mean, Why They're Falling

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

Definition: Average income is statistics 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 for 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.

For more detail, see Real vs Nominal GDP.

Therefore, when looking at average income, you must pay attention to what it is measuring specifically. Always determine whether it's the mean or median. Find out whether it's per capita, family, or household. Last but not lease, 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 2016 average incomes, in September 2017. (Source: 2015 Income Tables, U.S. Census.)

Current Average Income

The 2015 nominal median income per capita was $30,240. The mean income per capita was $44,410. (Source: "PINC-01. Selected Characteristics of People 15 Years and Over," American Community Survey Statistics,  U.S. Census, September 15, 2016.)

Real median household income was $56,516. This is reported in 2015 dollars. It is 5.2 percent higher than the real median household income in 2014 of $53,718. That's the first increase since the Great Recession. But it's still lower than in 2007, the year before the recession. The Federal government uses household income to establish  poverty levels. That determines eligibility for Obamacare and welfare programs

Real median family income was $72,165. That's 5.3 percent higher than the 2014 family income of $68,504. The government uses the family income for statistical purposes, such as reporting the poverty threshold.

 (Source: "Table 1. Income and Earnings Summary Measures by Selected Characteristics: 2014 and 2015," U.S. Census.)

U.S. Average Income Isn't Keeping Up 

Current real median household income of $56,516 is still lower than the record $70,057 in 2007. It's also 5.1 percent lower than the $69,741 made in 2000. 

The table below compares the change in income through the 2000 and 2008 recessions. It's clear that Incomes didn't really start improving until 2006, just as the seeds of the 2008 financial crisis were being planted. That's when the Fed raised interest rates, causing homes prices to fall, which triggered mortgage defaults held by banks. It took a while for the crisis to spread to the general economy, and the Dow hit its peak in 2007.

Most of the jobs being created 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 or were the temporary or freelance.

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. For more, see 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.

The Fed did what it could by keeping interest rates low. This created an asset bubble in the stock market, which hit new highs in 2013.

New technology in shale oil drilling boosted incomes in Montana, Wyoming, North Dakota, South Dakota, Nebraska and Iowa in 2014. The states surrounding Washington DC (West Virginia, Maryland, and DC) also improved. In 2015, a surplus in oil hurt those states, as well. 

Historical Real Median Family Income, Economic Growth and Unemployment

Year      Income ChangeGDP Growth Jobless Rate     Events
1997$54,506 3.1% 4.5% 4.7%Asian currency crisis.
1998$56,510 5.4% 4.5% 4.4%LTCM crisis.
1999$57,909 3.6% 4.7% 4.0%Y2K scare boosted NASDAQ.
2000$57,790 -0.3% 4.1% 3.9%Tech bubble burst. 
2001 $56,531  -3.0% 1.0% 5.7%EGTRRA.  9/11 attacks.  
2002$55,871 -1.6% 1.8% 6.0%War on Terror.
2003$55,823-0.1% 2.8% 5.7%JGTRRA
2004$55,629 -0.4% 3.8% 5.4%Business growth.
2005$56,224 1.3% 3.3% 4.9%Incomes improve.
2006$68,582 0.2% 2.7% 4.4%Fed raised rates.
2007$57,423 1.6% 1.8% 5.0%Subprime mortgage crisis.  
2008$55,376 -4.1% -0.3% 7.3%Financial crisis.
2009$54,988 -0.8% -2.8% 9.9%ARRA
2010$53,568 -2.9%  2.5% 9.3%Obama tax cuts
2011$52,751 -1.7% 1.6% 8.5%Austerity measures
2012$52,666-0.2% 2.2% 7.8%See US 2012
2013$54,525 3.6% 1.7% 6.7%LFPR drops.
2014$53,719-1.5% 2.4% 5.6%Unemployment drops.
2015$56,5165.2%2.6%5.0%Strong dollar.

(Source: "GDP by Year,"  "Unemployment Rate by Year,"  "American Community Survey," Table F.6, U.S. Census, September 2016.)

Poverty

As a result of the worsening of the average income, nearly a third of Americans are having difficulty making ends meet. This includes 45.3 million who live below the federal poverty threshold. That's $23,624 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. That's because, although wages increased 3.7 percent, prices increased even more. U.S. wage levels must stay low 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 global spread of English is making it easier to employ foreign workers for many new types of jobs, such as call centers and computer programming. To remain competitive in the global market, U.S. companies must employ these lower-cost, skilled employees or lose market share.

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. For more, see 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. 

More U.S. History