Wednesday, November 19, 2008

Middle class economic stagnation is a myth

A new study by the Minneapolis Fed says the myth of long-term middle class economic stagnation is due to flaws in measurement:
  • The U.S. Census Bureau reports that median household income stagnated from 1976 to 2006, growing by only 18 percent. In contrast, data from the Bureau of Economic Analysis indicate that income per person was up 80 percent.
  • Three data issues adversely impact reported median household income gains: the choice of price index, a change in the mix of household types and the measure of income used.
  • After adjusting the Census data for these three issues, inflation-adjusted median household income for most household types is seen to have increased by 44 percent to 62 percent from 1976 to 2006.

The claim that the standard of living of middle Americans has stagnated over the past generation is common. An accompanying assertion is that virtually all income growth over the past three decades bypassed middle America and accrued almost entirely to the rich.

The findings reported here...refute those claims. Careful analysis shows that the incomes of most types of middle American households have increased substantially over the past three decades. These results are consistent with recent research showing that the largest income increases occurred at the top end of the income distribution. But the outsized gains of the rich do not mean that middle America stagnated.
Hat tip: Greg Mankiw.

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