US incomes fall to 1989 levels. How did that happen?
A Census report signals that for much of America, the economic downturn has produced not one lost decade but two. But the data also show that federal safety-net programs helped keep people out of poverty.
The typical US household saw its income fall last year to 1989 levels.Skip to next paragraph
Subscribe Today to the Monitor
That news, contained in a US Census Bureau survey released Wednesday, points to difficult questions of how the US can get back on a track of job growth and rising prosperity.
Median incomes fell 1.5 percent in 2011, while the official poverty rate remained essentially unchanged at 15 percent.
A family right in the middle of the income spectrum had an income of $50,054, which is actually lower than the 1989 median level of $50,624 expressed in 2011 dollars. The implication: For much of America the economy has produced not just one lost decade but two. Stagnation has even hit wealthier and more educated households (the 95th percentile in the Census data) for the past decade.
Why the hard times? And what can be done about it?
Those questions were already urgent before this latest data release. The presidential election campaign is pivoting largely around the economy and what role the government should play in it. This year, since the time period of the Census data, conditions have improved somewhat – with about a million Americans gaining jobs and hourly wages rising about 5 cents an hour. But the unemployment rate remains high, as does economic anxiety, even among people with jobs.
Economists haven't reached a consensus about what forces have caused the middle-class stagnation, but they have pointed to some that may be involved to varying degrees:
- Globalization: The rest of the world is playing catchup to the nation that came to dominate in technology and sheer productive muscle during the 20th century. In theory, the US can still prosper as emerging nations from China to Brazil rise, but recent years have seen fierce global competition. America needs to boost its skills faster to stay in the game.
- Technology: As with globalization, in theory this isn't a job-destroying force, just one that causes the nature of jobs to change. But some argue that rapid technological advances are having an especially hard impact on many middle-wage jobs that can be largely automated.
- Inequality: A wage premium for the educated, the decline of labor unions, and the failure of the minimum wage to keep up with inflation have been among the factors widening the income gap between the rich and the middle class or poor. Some economists say that gap makes for a less vibrant nation. "Lack of opportunity means that its most valuable asset -- its people -- is not being fully used," Joseph Stiglitz of Columbia University has argued. When the rich are able to win big tax cuts it "leads to underinvestment in infrastructure, education and technology, impeding the engines of growth."
- Debt and government: Another line of reasoning, taken by some conservative economists, is that economic growth is slowing as America becomes more of a European-style welfare state, with more people receiving public services and government spending accounting for a larger share of the economy. Some say the rising level of public debt, in particular, is emerging as an obstacle to be reckoned with. Others cite high levels of regulation and "crony capitalism," in which government policies favor some industries or companies at the expense of others.
Two other factors, mentioned by Census officials as affecting the recent data, are demographic aging of the population (income typically goes down as people hit retirement age) and a skewing of new jobs in 2011 toward the lower end of the wage spectrum.