The Family Income Conundrum

By Wilson, Mark | The World and I, March 1997 | Go to article overview

The Family Income Conundrum


Wilson, Mark, The World and I


Paradoxically, real median family income is rising while real median weekly earnings are falling.

Last fall, the Census Bureau announced that real median family income had increased in 1995 for the second time in a row.

At the same time, the Bureau of Labor Statistics reported that the real median weekly earnings of full-time workers continued to decline. On its face, this apparent paradox is puzzling. How can wages be falling while income is rising?

The answer lies in the press-release details that often go unreported. In fact, the fine points of the family income report show that, while some American families are making gains, many others are losing ground. Economists posit that only increases in the labor force participation of women, income from other sources, and the number of full-time workers working at a second job have helped to keep the level of family income from falling across the board.

Nationally, family income may be slowly increasing, but when analysts break down the numbers--by region, age, marriage, or education--the typical American family has seen real income stagnate or decline compared with the economic recoveries of the 1960s, '70s, and '80s. This dismal economic performance, coming despite lower unemployment, explains why many American workers continue to believe they're working harder and harder yet failing to get ahead.

By most measures--family income, employment, wages, or economic growth--the current economic recovery has been by far the slowest since the end of World War II. After reaching a historical high of $42,049 (in 1995 dollars) in 1989, real median income declined by 7.2 percent from 1989 to 1993. Since then, real median family income has increased 4.2 percent, but it remains 3.4 percent below the 1989 peak.

The family income conundrum arises because, even though real family income has grown slowly for the past two years, the real weekly earnings of full-time workers have declined. From 1993 to 1996, the weekly paychecks for men working full time, adjusted for inflation, declined by 0.2 percent. For women working full time, the decline was even worse: 2.4 percent.

This apparent anomaly of falling wages and increasing income arises because the weekly earnings of full-time workers are only one part of family income. Other sources of family income include second jobs and the earnings of spouses and children.

Family income also includes interest income, dividends, and Social Security, which have all been growing faster than wage and salary income since 1993. Many analysts say that only the increasing labor force participation of women and income from other sources have kept family incomes from falling overall.

The decline in real median weekly earnings since 1993 also raises a serious question about claims that most of the new jobs created since 1992 are high-paying. If it is true that most of the recent employment growth has been in jobs paying above median wages, real median weekly earnings should be increasing. The data show, however, that the real median weekly earnings for both men and women declined from 1991 to 1995, suggesting that most of the job growth since the last recession has been occurring in lower-paying (below the median) jobs. …

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