Absent full employment or a bubble, middle class income and wealth will fall.

September 15th, 2014 at 8:45 am

Robert Samuelson covers some useful ground this morning, reviewing income and net worth trends from the recent Survey of Consumer Finances, a triennial (it comes out every three years) survey of family income and wealth. I wanted to add a few points regarding timing of the trends he cites.

First, Samuelson notes that if you look at the endpoints 1989 and 2007, real median family income rose 14%, or 0.7% per year. But it’s worth pointing out, as the figure below reveals (red line, which if you know the DC subway system, is an appropriate color choice), that this growth was wholly a 1990s phenomenon.

That’s important for two reasons. First, I’ve often emphasized the relationship between the 1990s full employment labor market and higher median incomes, as both hourly wages and hours worked rose significantly over that period. Such favorable labor market dynamics were notably absent in the 2000s.

Second, while Samuelson stresses the damage done by the Great Recession, it’s important to recognize that in fact, middle incomes have stagnated or worse now since 2000, almost a decade and a half, such that they’re now back to their 1989 level.

Real net worth (assets, including home values, minus debts), on the other hand, rose strongly for the middle class in the 2000s, up 60%, 1989-2007 (blue line in the figure). But the 2000s growth in net worth for the middle class was a function of the housing bubble, and when in burst in 2007, net worth fell so sharply that by 2013, middle-class (median) net worth was actually lower by $3,600 than in 1989 (see Samuelson’s table for the numbers).

So, roughly speaking, over the last few decades, two phenomena have driven middle class well-being: full employment in the 1990s and a housing bubble in the 2000s. Absent either one, the current recovery has meant steady losses in both middle incomes and net worth.


Source: SCF

Update: Apparently, that line for real median family income is orange, not red. My bad, but I’m color blind for that part of the spectrum…and ftr, friends tell me the Orange Line has issues too.

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2 comments in reply to "Absent full employment or a bubble, middle class income and wealth will fall."

  1. Tyler says:

    Whatever happened to raising the federal minimum wage?

    The federal minimum wage should be $20, not $7.25. Also, there should not be a separate minimum wage for tipped workers. That’s cruel.

    • smith says:

      At $15/hr you get around $30,500/year and pay roughly $2,500 in federal taxes leaving $28,000. Figure $1,000/month rent and $500/month for car expenses leaves $10,000 or about $800/month. Take off $250 for health insurance and we’re down to $550/month or about $140/week or $20/day for food, clothing, laundry, internet, phone, entertainment. Not much left, but that’s why it’s called minimum. If you stay at minimum and want more, that’s a different problem that needs to be addressed. In high tax states, urban areas may cost more for rent, less for car, and really I’ve overloaded the rent and car expenses by possibly double what most areas of the country would entail.

      Where you come up with $20/hr I don’t know. Too high a figure would tend to discredit those advocating for a fair wage.