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The Bush Economy in Action

Incomes Down; Poverty Up

by JARED BERNSTEIN


and LAWRENCE MISHEL

The inflation-adjusted income of the median household was unchanged in 2004, remaining $1,700, or 3.8%, below its most recent peak in 1999, according to today’s release by the U.S. Bureau of the Census. The 2004 level of median income-$44,389-was slightly below 2003’s level, but the change was not statistically significant.

The main factor explaining this significant, ongoing decline in household income appears to be ongoing weakness in the job market, especially regarding real annual earnings, which fell significantly for both men (-2.3%) and women (-1.0%).

The real income of the typical household has fallen five years in a row, despite the fact that the last three of the those years, 2002, 2003, and 2004, have been years of economic expansion.

The number and share of persons in poverty also increased last year, from 12.5% to 12.7%, the fourth consecutive increase since poverty bottomed out at 11.3% in 2000, the end of the last expansion. Since that year, 5.4 million more persons, including 1.4 million children have been added to the poverty rolls.

The key factor behind the deterioration of real household income and poverty is the prolonged labor market slump that began in 2001. Although the job market expanded consistently in 2004-today’s release shows that addition of 1.5 million workers in 2004 over 2003-this addition was not faster than the growth of households and not enough to absorb the labor market slack left over from the longest jobless recovery on record.

The unbalanced nature of the economic recovery is also documented in today’s release. While the share of total national income flowing to the bottom 60% of household was essentially unchanged, the share going to the top 5% was up 0.4 percentage points, from 21.4% to 21.8%. As of 2004, the top fifth of household held 50.1% of all income, tied with 2001 for the highest share on record. Similarly, while the average real income of middle-income households fell $300-from $44,759 to $44,455-that of households in the top 5% grew by over $4,000, from $260,045 to $264,387.

JARED BERNSTEIN is a senior economist at the Economic Policy Institute and Lawrence Mishel is president of the Economic Policy Institute.