Ten Years After the Start of the Great Recession, Middle-Class Incomes Are Only Just Catching Up

On Wednesday, the Census Bureau released its annual report on poverty and income in the United States. The report is always informative, and this year’s version, which covers 2017, allows us to look at how various groups have fared in the decade since the Great Recession began, in 2007. Because this week marks the tenth anniversary of the collapse of Lehman Brothers, it is especially timely, and the report’s findings present an alarming picture. Though many of the banks and bankers that got bailed out in 2008 rebounded long ago and went on to rake in even greater riches, many ordinary Americans are only now recouping their losses.

In 2017, the first year of the Trump Administration, inflation-adjusted median household income—the income of the household in the very middle of the income distribution—rose a modest 1.8 per cent, to $61,372. To be sure, any rise is welcome. And last year was the third year in a row in which median household incomes increased, with a particularly strong jump coming in 2015, the penultimate year of the Obama Administration. Compared with its 2014 figure, median household income in 2017 was about ten per cent higher. That’s obviously a positive development. But these numbers don’t take account of other findings in the new report, which present a grimmer picture.

First, the weekly wages of typical middle-class workers didn’t rise at all last year. In fact, they fell slightly, as a pickup in prices bit into inflation-adjusted pay. The “real median earnings of men and women working full-time, year-round each decreased . . . by 1.1 percent,” the report read. This decrease in wages came during a year in which the official unemployment rate fell from 4.8 per cent to 4.1 per cent, which is a low level by historic standards. Even a tightening labor market wasn’t enough to generate a rise in wages.

How can a household’s income go up when its wages are stagnant or falling? The answer is by working longer hours: the number of people working part time fell markedly last year. Giving workers the opportunity to do longer hours helps them take home more money, but it’s only a stopgap measure. To generate a significant and lasting improvement in the living standards of middle-class Americans, we need to see a significant and lasting increase in hourly and weekly wages. Wednesday’s report showed that this didn’t materialize in 2017.

Another point to note is that, despite the pickup in incomes since 2014, many middle-class American households are only now making up for the large losses they suffered in previous years. In 2007, according to the Census Bureau’s figures, median household income was $59,534, just three per cent below the 2017 level. That’s disturbing enough, but it doesn’t tell the full story. For its 2013 report, the Bureau changed one of the surveys that it uses to measure median household income, and the changes raised the estimates by about three per cent. If you adjust the pre-2013 figures for these changes, according to Trudi J. Renwick, a senior official at the Census Bureau, “the 2017 median household income is not statistically different from the pre-recession estimate for 2007.” In other words, middle-income Americans have experienced a lost decade.

And, actually, it’s been longer than that, because middle-class incomes were also stagnant or falling in the period before 2007, despite the fact that the economy was expanding. Renwick said that median household income in 2017 wasn’t statistically different from median household income in 1999, the peak of the Clinton-Greenspan boom. If you do the adjustments for the changes made in 2013, and omit from the comparison elderly households, which tend to rely on Social Security and other forms of retirement income, the picture is even more disturbing. “Altogether, from 2000–2017, the median income for non-elderly households fell from $71,577 to $69,628, a decline of $1,949, or 2.7 percent,” Elise Gould and Julia Wolfe, two researchers at the Washington-based Economic Policy Institute, noted. “In short, the last three years should not make us forget that incomes for the majority of Americans have experienced a lost 17 years of growth.”

That’s a remarkable development, and it has occurred while the richest households in the country were enjoying sizable income gains. The E.P.I.’s analysis shows that, since 2007, the inflation-adjusted incomes of households in the top five per cent of the income distribution—counting elderly and non-elderly households together—have risen by eight per cent, whereas the incomes of households at the sixtieth percentile have risen 2.9 per cent, and incomes at the fortieth percentile have fallen slightly. Broadly speaking, the less rich you were starting out, the worse you have fared, in absolute and relative terms.

Going back to 2000, the differences are even more glaring. Between 2000 and 2017, the richest households saw their incomes rise by 9.3 per cent, whereas the incomes of households at the fortieth percentile and twentieth percentiles fell by 2.1 per cent and 4.1 per cent, respectively. (In coming up with these numbers, the E.P.I. analysts adjusted the Census Bureau data to account for the Bureau’s survey change for 2013.)

The over-all picture is clear, then. It was ordinary, non-rich Americans who bore the greatest costs of the Great Recession and its lengthy aftermath. And, despite some welcome gains in median household income in recent years, the long-standing problem of middle-class-wage stagnation—a problem that goes back to the nineteen-seventies—is still with us. Even if the modest wage increases that showed up in last week’s employment report from the Department of Labor endure, there is an enormous distance to go in order to restore the broadly shared prosperity that the American economy enjoyed in the decades after the Second World War.

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