Lost Decade for Family Income

From the Wall Street Journal | Sept 17, 2010 | By CONOR
DOUGHERTY And SARA
MURRAY

The downturn that some have dubbed
the "Great Recession" has trimmed the typical household's income
significantly, new Census data show, following years of stagnant wage
growth that made the past decade the worst for American families in at
least half a century.

Conor Dougherty and Mark Whitehouse discuss
two sides of America's strained economy: a poverty rate that has climbed
to its highest level since 1994 and the increasing income volatility
among the rich.

The bureau's annual snapshot of American living
standards also found that the fraction of Americans living in poverty
rose sharply to 14.3% from 13.2% in 2008—the highest since 1994. Some
43.6 million Americans were living below the official poverty threshold,
but the measure doesn't fully capture the panoply of government
antipoverty measures.

The inflation-adjusted income of the median household—smack in the
middle of the populace—fell 4.8% between 2000 and 2009, even worse than
the 1970s, when median income rose 1.9% despite high unemployment and
inflation. Between 2007 and 2009, incomes fell 4.2%.

"It's going to be a long, hard slog back to what most Americans think
of as normalcy or prosperous times," said Nicholas Eberstadt, a
political economist at the right-leaning American Enterprise Institute.

U.S.
Income and Poverty in 2009

See
poverty rate, income by race, gender and region, and other measures.

The data, released
Thursday, underscore the extent to which U.S. households relied on
government benefits—and each other—to weather the recession and how
living standards at the middle of the middle class have stalled. The
report comes as the economy is at the center of a vigorous debate over
how government policy can best help the poor and unemployed.

President Barack Obama, in a statement, said the report showed that
because of stimulus spending, "millions of Americans were kept out of
poverty last year." Republicans, meanwhile, saw the report in a
different light.

"By any objective standard, the stimulus failed to deliver on the
promised results," said a spokesman for Congress Paul Ryan (R-Wis.).

The median household income fell 0.7% to $49,777 in 2009, down 4.2%
since 2007, when the recession started, the Census Bureau said.

The bureau said that the drop in income in the recent recession, so
far, wasn't much different from those recorded in the early 1990s and
early 2000s recessions, and was actually smaller than the 6% drop
recorded in the deep recession of the early 1980s.

But there is a difference this time: In the prior three recessions,
incomes fell after years of upswing, then resumed growing once the
downturn ended. The decline this time comes on top of a long period in
which incomes stagnated even through the recovery of 2003 to 2007.

The decline in incomes cuts across age, race and class, with some
exceptions. Hispanics and Asians saw small increases in their median
incomes.

The recession
has been particularly hard on young workers and young families, in part
because they aren't eligible for as many government benefits as older
workers. Younger workers have a harder time qualifying for unemployment
benefits because they have a shorter work history.

That has prompted many young adults to move in with family, or put
off leaving home in the first place. The number of 25-to-34-year-olds
living with their parents rose 8.4% to 5.5 million in 2010 from 2008.
Within that age group, 42.8% fell below the poverty threshold—$11,161
for an individual.

The report also showed a steep rise in child poverty, to 23.8% for
kids under six in 2009, compared to 21.3% a year earlier.

The Census snapshot indicated that the gap between the best-off and
worst-off Americans widened a bit more in 2009, a long-standing trend,
but not by much. The top fifth of households accounted for 50.3% of all
pre-tax income; the bottom two-fifths got 12%. In 1999, the top fifth
claimed 49.4% and the bottom got 12.5% of the income.

Some Americans weathered the slump the old-fashioned way—by merging
households. The Census Bureau noted a big jump in the number of
individuals and families doubling up. The number of multifamily
households jumped 11.6% from 2008 to 2010, while the total number of
households rose 0.6%.

Carol Hanlon, 58, is struggling with
the basics. She makes about $15,000 a year at her job packing boxes at a
printing company. Her wages and hours were cut this year, and she is
now supporting her unemployed husband, who is without health insurance
because her company stopped offering health insurance for spouses.

"I got double whammied," says Ms. Hanlon, who lives in Easton, Penn.,
and is receiving food stamps and heating-oil assistance.

The oldest Americans endured last year better than their younger
counterparts. Those 65 and above saw a substantial increase in real
median income, up 5.8% for the group.

That is largely because the fortunes of older workers are tied more
to Social Security checks than the job market. Without Social Security
income, the report showed, some 14 million people eligible for benefits
would have fallen below the poverty line.

 

The threshold for poverty in the
U.S. in 2009 was a family of four earning $21,756. But this only takes
into account monetary income, while omitting the many benefits that now
form the backbone of the government efforts to lift the poor. Such
programs include subsidized housing and the Earned Income Tax Credit.

The poverty rate "misses most of the programs that have been added or
expanded in the last 20 years to reduce poverty," says Bruce Meyer, an
economist at the University of Chicago.

For instance, the government estimates if the food stamp program was
counted, it would have lifted 3.6 million people above the poverty
threshold last year.

Write to Conor
Dougherty at conor.dougherty@wsj.com
and Sara Murray at sara.murray@wsj.com