Family Income, Size, and Work Hours

September 15th, 2011 at 8:16 am

Regarding my post about the lost decade in middle-class incomes, a number have commenters have raised questions about changes in family size and work effort.  A quick response:

Size-adjusting doesn’t change much at all: the trends are the same…the decade of the 2000s remains a bust.  Census provides a useful figure that adjusts for size by dividing family income by the poverty line for that sized family (e.g., the income of a family of four is divided by the poverty line for a family of four, about $22,000).   They provide the data by income fifth–I’ve plotted the middle-fifth, the average income of families between the 40th and 60th percentile.

The figure, as you see, tracks that of the median household income here.

Source: Census Bureau, Table f-21, middle-fifth

As for family work effort, as some folks noted, the weakness in the long-term income trends is in that sense understated, since, as I show in figure 3 and table 1 here, families are generally spending more hours in the paid labor force.  Yet, despite greater work effort, sluggish real wage trends, especially for men, have diminished the growth impact of that extra work.

Also, note that the “extra-hours-of-work” strategy broke down to some extent in the 2000s—an issue I discuss in the link above.

At any rate, dynamics in family size or work effort don’t change the story.

 

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3 comments in reply to "Family Income, Size, and Work Hours"

  1. Tyler says:

    Here’s how we can ensure the next round of census data isn’t so depressing:

    - Lower the Social Security eligibility age to 60.
    - Eliminate the FICA tax.
    - Eliminate the corporate income tax.
    - Extend unemployment insurance, with a trigger for it to expire when the unemployment rate falls under four percent.

    Of course, this would require explaining to the American people that we can never go bankrupt because we are a monetarily sovereign nation.


  2. Sandwichman says:

    Dynamics of family size and work effort may not change the statistical picture but that leaves open the question of how they may impel the story.

    Assume for the sake of argument that a household requires an income of, say, $30,000 a year to subsist. If wages decline, that household will have to supply additional hours of work to make ends meet. But what if there is not sufficient effective demand for those additional hours of work or if the additional hours are less productive than the previous ones? The household ends up on a treadmill where supplying more hours does quite make up for declining incomes but actually exacerbates the downward pressure on hourly wages.

    In the above scenario, we have virtually a summary of Ira Steward’s political economy of shorter working time, exemplified in the doggeral: “Whether you work by the piece or by the day, decreasing [increasing] the hours, increases [decreases] the pay.” Seventy-nine years ago, Dorothy W. Douglas (former wife of Cobb-Douglas production function co-author, Paul Douglas) affirmed the relevance of Steward’s theory to the (last) Depression. “Ira Steward on Consumption and Employment,” Journal of Political Economy, vol. 40 no. 4., August 1932.


    • Sandwichman says:

      I meant to say “supplying more hours does NOT quite make up for declining incomes.” I want to add that it is not just a question of more or fewer hours of work but more importantly what work we do during those hours and during the leisure time presumably set free by technological progress. Arlene Goldbard has posted a wonderful two-part essay exploring “The Jobs Plan We Need”:

      “Who are we? What do we stand for? How do we want to be remembered; what is our legacy to the future?

      “Of course, plenty of other questions come after those: What’s the best way to accomplish our aims? How shall we pay for it? Have we fully considered the possible consequences? How will we reckon success? But those are details of the journey; our destination matters most. If our driving public purpose is not to husband our commonwealth; ensure the well-being of citizens and guests; live as good neighbors to the other peoples of the world; cherish mother earth; and knit the social fabric that holds us all, then we are on the wrong track, plain and simple.

      “In these times, those who stand for telling the story right, for doing the right thing, must be willing to risk ridicule. But as risks go, it isn’t fatal, and once you get used to it, kneejerk ridicule fades to the background, like the buzzing of flies. Go ahead, take the risk, you won’t regret it.”


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