Income Growth across the Income Scale
Median wages have been stagnating over the past fifteen or so years. This suggests that those who live near the middle of America’s income scale haven’t experienced serious income growth for a long time. But medians only capture what is happening to those who are at the very middle of the income scale. What is happening to those who are in the higher and lower ranks of that scale?
On one hand, we might expect those with lower incomes to experience faster income gains, because their incomes have more “room to grow.” Presumably, it is easier for someone to double their income by moving from a $15,000 to $30,000 a year job than it is for someone who earns $150,000 to find a $300,000 a year job.
On the other, most of us have some sense that those with more money tend to prosper more. Those with higher paying jobs tend to be better trained, their work is less likely to be outsourced to low-income foreign countries, and their overall income is probably supplemented by the investment opportunities aforded by their higher incomes (e.g., stock dividends, capital gains, business income)
The figure below uses Census Bureau data1 to depict changes in household incomes at different points of the country’s income scale. The lines depict changes in the lines that divide income quartiles. Those who earn less than the 20th percentile income are earning less than 80% of the population. Those whose earnings surpass the 95th percentile are in the top 5% of earners. And so on.
The graph shows how high income earners have seen their incomes grow faster over the 46 years depicted. In 1967, an income of at least $60,813 would have put you in the top 5% of earners. This translates into an income of $115,863 in 2013 dollars. By 2013, 95th percentile incomes grew by nearly 69%, to $196,000. By comparison, 80th percentile income thresholds rose by about 47% during this period, 60th by 29%, 40th by 12%, and 20th by 14%.
These differences were produced by minor differences in year-on-year income growth. Incomes at the top of the pyramid enjoyed growth rates that were less than one percentage point higher than those at the bottom, but the cumulative effect of these different growth rates are large. The table below describes how mean annual real income growth rates varied across the income scale.
Mean Annual Growth Rates of Real Household Income, US, 1967–2013
In addition to the observation that higher income people tend to earn more money, the data also suggest that incomes have been stagnating to falling across the income scale since 2000. Mean income growth rates were negative across the board, although the upper 20 percent’s negative rates are barely distinguishable from zero. Still, no one seems to be getting a raise in the 21st century economy, except perhaps those at the very, very top of the income scale. One possibility, which I will discuss at a later date, is that those closer to the top of the income scale are getting richer, but they are accumulating wealth through the appreciation of assets they own, as opposed to earning higher incomes.
- Census Bureau (2014) “Table H-1: Income Limits for Each Fifth and Top 5 Percent of All Households: 1967 to 2013” Data table.http://www.census.gov/hhes/www/income/data/historical/household/↩