Average Income in the U.S.

Income by Family and Household

An illustration of three groupings of people. The first is a woman and two men, the second is a couple, and then a family of three, the third is a home and five faceless people. Text reads: "Groups for which census reports average family incomes: income per person, or income for each person at age 15 or older. Income for two or more people in one household related by birth, marriage, or adoption. Household income of all people living in a housing unit, whether related or not"

The Balance / Evan Polenghi

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. For this reason, most reports use the median income.

The Census reports average income for three different groups:

  1. The income per person is the income for each person at 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, with a family, or with 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 adjusted for inflation) 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 2019 average incomes in September 2020. 

Key Takeaways

  • Measuring the income level of the United States’ working citizens helps establish poverty standards. 
  • Median and real values of income more accurately represent how much money people in the United States are earning.
  • The most effective way to increase income is through higher education.
  • Middle and lower class wages are not increasing as quickly as those of upper-class workers.

Average Income in 2018

The 2018 nominal median income per capita was $33,706. The mean income per capita was $50,431. However, the real median household income was $63,179. According to an analysis done by the Federal Reserve Bank of St. Louis, this household income set a new record. 

The real median family income was $78,646. The real mean family income was $106,045. The government uses the family income for statistical purposes, such as reporting the poverty threshold. It also uses it to establish the poverty levels that determine eligibility for Obamacare subsidies and welfare programs.

U.S. Average Income: 1997 to 2018

The table below compares the change in income through the 2001 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 Federal Reserve raised interest rates. As mortgages became more expensive, home 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. President Obama had the right idea of 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, and Nebraska, but incomes fell in those areas when oil prices did. Washington D.C. and the states around it, specifically West Virginia, Virginia, and Maryland, also improved.

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

Sources: Income GDP Growth Rate Jobless Rate

Poverty

As a result of the worsening of average income, 38.1 million Americans lived below the federal poverty threshold. In 2018, that threshold was $25,465 for a typical family of four. This number living below the poverty limit is more than just the usual suspects—such as undocumented immigrants, inner-city poor, and the homeless—it is every third person you meet today. 

In 2018, real wages were $22.65 an hour. Real wages measure the purchasing power of a family's income. It’s barely changed since 1964 when it was $20.27 an hour.

People earning the minimum wage struggle to rent apartments in major cities, which disproportionately affects housing options for those living in cities and working part-time jobs. Additionally, there's a large racial disparity, in that BIPOC are less likely to be hired in full-time, salaried positions. For example, in 2018 black men and women comprised less than 8% of white-collar professionals.

Even though the nominal wage was $2.50 an hour in 1964, it bought as much as $20.27 today.

Does the minimum wage keep you out of poverty? No. If you were earning the U.S. minimum wage and you were the only earner for a family of four, you would fall beneath the poverty line. The minimum wage pays a full-time worker $7.25 an hour, or $15,080 a year. That's less than the $26,200 or $12.60 per hour needed to keep a family of four out of poverty.

Congress has kept the minimum wage the same since 2009. If the minimum wage had been adjusted for the cost of living since 1968, it would be $10.15 an hour. However, even this wage would not keep a family of four out of poverty.

Article Sources

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  20. Pew Research Center. "For Most U.S. Workers, Real Wages Have Barely Budged in Decades." Accessed June 15, 2020.

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