Category Archives: income

Inflation and Average Earned Income in the U.S.

Earlier this year, we introduced a new near-real time economic indicator based on average individual earned income. The metric itself is almost as simple as it comes. It is determined by dividing the aggregate received wages and salaries for individuals in the U.S. by the nation's estimated resident population.

That introduction represents a snapshot in time from January 2021. Half a year and a significant revision in the source income data later, we now have data through June 2021. Here's the new snapshot through that more recent point in time, showing all updated data from January 2000 onward.

Average Individual Earned Income in the 21st Century: Nominal and Adjusted for Inflation, January 2000 to June 2021

The updated chart shows some remarkable events, particularly during the coronavirus recession and the period since:

  • Nominal (not inflation adjusted) earned income (red) peaked at $29,538 in February 2020 as the U.S. economy peaked just ahead of 2020's coronavirus pandemic lockdowns that threw the nation into recession. They bottomed at $26,479 in April 2020, marking the bottom of the Coronavirus Recession. The inflation-adjusted data (blue) shows nearly the same pattern in 2020. In terms of constant June 2021 dollars, average income per capita in the U.S. peaked at $30,989 in February 2020, bottomed at $28,059 in April 2020.
  • Average nominal income recovered to its pre-Coronavirus Recession peak in November 2020, and in December 2020 for the inflation-adjusted data.
  • Nominal average earned income per capita has continued to rise to $30,606 through June 2021 based on the month's initial estimate.
  • After adjusting for inflation, real average earned income earned income per capita has fallen by 1.6% from its December 2020 peak of $31,119. The bulk of the decline has taken place since January 2021, with high rates of inflation eroding the purchasing power of American wage and salary earners. Their purchasing power is roughly at the level it was in December 2019, despite average earned income per capita in June 2021 being 6% higher than December 2019 in nominal terms.

So what has happened in 2021? Tyler Cowen offers an explanation:

You may remember that I’ve been predicting that repeatedly, while much of “Twitter economics” was suggesting that “running the labor market hot” would boost real wages, I was claiming it was far more likely that rising employment would be correlated with falling real wages. (Try here.) This did not represent any great insight on my part, rather I was simply refusing to make the mood affiliation move of denying the tradeoff, and I had read Keynes’s General Theory. Here is the latest:

Companies big and small are raising wages to attract workers and hold onto employees as the economy revs back into gear.

But those fatter paychecks aren’t going as far, thanks to rising inflation.

In fact, compensation is now lower than it was in December 2019, when adjusted for inflation, according to an analysis by Jason Furman, an economics professor at Harvard University.

The Employment Cost Index — which measures wages and salaries, along with health, retirement and other benefits — fell in the last quarter and is 2% below its pre-pandemic trend, when taking inflation into account. (Wages and salaries are growing at a faster pace than benefits.)

Score one for Keynesian economics > Twitter economics.

Or maybe they didn’t run the labor market hot enough.

Gotta love that last dig!

References

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Population. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 30 July 2021. Accessed: 30 July 2021.

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Compensation of Employees, Received: Wage and Salary Disbursements. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 30 July 2021. Accessed: 30 July 2021.

U.S. Department of Labor Bureau of Labor Statistics. Consumer Price Index, All Urban Consumers - (CPI-U), U.S. City Average, All Items, 1982-84=100. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 13 July 2021. Accessed: 13 July 2021.

2010’s Worst Paying College Degrees Ten Years Later

In 2010, U.S. compensation and data software firm Payscale identified the 10 lowest paying college degrees for those starting their first jobs in their fields after graduation. We wondered how on the mark that list was, so we tapped Payscale's 2020 data for starting wages by college major to see if things got relatively better or worse for today's graduates in those fields.

The results are shown in the following chart. The original 2010 data is shown in blue and the newer 2020 data is shown in green. In between, in orange, we've adjusted the 2010 starting salary data for inflation to be in terms of 2020 U.S. dollars to make those older salaries directly comparable to the actual starting pay for graduates in the listed fields in 2020.

Starting Pay for 2010's Worst Paying College Degrees

After adjusting for inflation, we see only two degrees where the actual starting pay for graduates in 2020 is ahead of 2010's inflation-adjusted level: Athletic Training and Elementary Education. Horticulture comes close to breaking even, so to speak, and the remaining fields would appear to have become even less rewarding.

Of these less rewarding degrees, Culinary Arts presents the biggest gap between 2010's inflation adjusted pay and 2020's actual starting pay, followed by Special Eduation and Paralegal Studies.

In 2010, Payscale also indicated what an individual holding these degrees could expect to make at a mid-career point, some 10 or more years after graduation. Since it's 10 years later, we thought it would be especially interesting to see how 2020's actual mid-career pay compares with 2010's inflation-adjusted mid-career pay. Our results are shown in the next chart:

Mid-Career Pay for 2010's Worst Paying College Degrees

Once again, the fields of Culinary Arts and Athletic Training come out the furthest ahead after accounting for inflation, but Theology graduates also gained more income than would have been expected based on 2010's inflation-adjusted pay.

Most the other fields saw their 2010 graduates making something within a several percent of their 2010 peers' inflation adjusted pay, with one big exception, which looks like it is in error.

According to Payscale's 2020 survey data, individuals holding degrees in Special Education with 10 or more years of experience saw the average mid-career pay in their field collapse. At $54,500, it is just $700 higher than 2010's non-inflation adjusted pay, some $9,800 below what adjusting the mid-career income for 2010 would predict.

The Bureau of Labor Statistics indicates the median pay for Special Education teachers was $61,420 per year in 2019, which is more in line with Payscale's 2010 inflation-adjusted mid-career income figure.

We sampled other income data for other fields, which appears to be in line with Payscale's surveyed reults, so the 2020 mid-career pay figure for Special Education degree holders appears to be an outlier.

Overall, it appears most of 2010's lowest paying degrees for college graduates turned out to be as bad for pay 10 years later as 2010's data suggested they would be.

Average Hourly Pay and Benefits in the United States

The Bureau of Labor Statistics has been tracking the average pay and benefits earned by American workers in all occupations and working in all industries since at least the first quarter of 2004 [1], where we now have nearly 15 years worth of data that indicates how much the average civilian employee in the U.S. has been compensated for their hours worked.

We've visualized the nominal data reported by the BLS in the following chart, where we've presented the average wage or salary and the total benefits earned per hour worked with the combined total compensation earned by civilian workers in the U.S. from 2004-Q1 through 2018-Q3. The data for 2018-Q4 won't be available until 19 March 2019.

Average Compensation per Hour for All Civilian Workers, All Occupations in All Industries, 2004-Q1 through 2018-Q3 title=

From 2004-Q1 to 2018-Q3, the cost to civilian employers in the U.S. of compensating their employees rose from $24.95 per hour to $36.63 per hour, an increase of 47%. Breaking that figure down into its components, hourly wages and salaries rose by 41% from $17.71 to $25.03 over that period, while the value of benefits paid to civilian employees as part of their total compensation rose by 60% from $7.23 to $11.60 per hour.

In our next chart, we're presenting the same quarterly information, but now adjusted for inflation to be in terms of constant 2018-Q3 U.S. dollars.

Inflation-Adjusted Compensation per Hour for All Civilian Workers, All Occupations in All Industries, 2004-Q1 through 2018-Q3 title=

After taking inflation into account, we find that hourly wages and salaries have risen by 5% from 2004-Q1 to 2018-Q3 and that their benefits have increased by 19%. Together, the inflation-adjsuted total compensation of civilian employees in the U.S. has increased by 9% from 2004-Q1 through 2018-Q3.

Both employers and employees have incentives to favor benefits over wages and salaries in considering how employees will be compensated for their labor, where in particular, the portion of employee compensation that goes toward paying the employer-provided benefit of health insurance is exempt from federal, state and local income taxes.

Notes

[1] On a quarterly basis, following the North American Industry Classification System (NAICS) for tracking costs across various industries. The BLS also has annual employee compensation data going back to 1986 that followed the older Standard Industry Classification (SIC) code system.

References

U.S. Bureau of Labor Statistics. Employment Cost Trends: Employer Cost for Employee Compensation. [Online Database]. Accessed 4 January 2018.

Organization for Economic Co-operation and Development. Main Economic Indicators: Consumer Price Index: Total All Items for the United States (Quarterly, Seasonally Adjusted). [Online Database]. Accessed 4 January 2018.

Average Hourly Pay and Benefits in the United States

The Bureau of Labor Statistics has been tracking the average pay and benefits earned by American workers in all occupations and working in all industries since at least the first quarter of 2004 [1], where we now have nearly 15 years worth of data that indicates how much the average civilian employee in the U.S. has been compensated for their hours worked.

We've visualized the nominal data reported by the BLS in the following chart, where we've presented the average wage or salary and the total benefits earned per hour worked with the combined total compensation earned by civilian workers in the U.S. from 2004-Q1 through 2018-Q3. The data for 2018-Q4 won't be available until 19 March 2019.

Average Compensation per Hour for All Civilian Workers, All Occupations in All Industries, 2004-Q1 through 2018-Q3 title=

From 2004-Q1 to 2018-Q3, the cost to civilian employers in the U.S. of compensating their employees rose from $24.95 per hour to $36.63 per hour, an increase of 47%. Breaking that figure down into its components, hourly wages and salaries rose by 41% from $17.71 to $25.03 over that period, while the value of benefits paid to civilian employees as part of their total compensation rose by 60% from $7.23 to $11.60 per hour.

In our next chart, we're presenting the same quarterly information, but now adjusted for inflation to be in terms of constant 2018-Q3 U.S. dollars.

Inflation-Adjusted Compensation per Hour for All Civilian Workers, All Occupations in All Industries, 2004-Q1 through 2018-Q3 title=

After taking inflation into account, we find that hourly wages and salaries have risen by 5% from 2004-Q1 to 2018-Q3 and that their benefits have increased by 19%. Together, the inflation-adjsuted total compensation of civilian employees in the U.S. has increased by 9% from 2004-Q1 through 2018-Q3.

Both employers and employees have incentives to favor benefits over wages and salaries in considering how employees will be compensated for their labor, where in particular, the portion of employee compensation that goes toward paying the employer-provided benefit of health insurance is exempt from federal, state and local income taxes.

Notes

[1] On a quarterly basis, following the North American Industry Classification System (NAICS) for tracking costs across various industries. The BLS also has annual employee compensation data going back to 1986 that followed the older Standard Industry Classification (SIC) code system.

References

U.S. Bureau of Labor Statistics. Employment Cost Trends: Employer Cost for Employee Compensation. [Online Database]. Accessed 4 January 2018.

Organization for Economic Co-operation and Development. Main Economic Indicators: Consumer Price Index: Total All Items for the United States (Quarterly, Seasonally Adjusted). [Online Database]. Accessed 4 January 2018.

Visualizing the U.S. Cumulative Distribution of Income in 2018

The U.S. Census Bureau has published its annual report on Income and Poverty in the United States, which we've used to visualize the cumulative distribution of income for U.S. individuals, families and households in the following animated chart. The cumulative income data applies for the 2017 calendar year - if you're looking for income data for the 2018 calendar year, it will not be collected until March 2019 and will not published until September 2019.

Animation: Cumulative Distribution of Total Money Income for U.S. Individuals, Families, and Households in 2017

We set up the animation to present each of the frames for 7.5 seconds each, but if you'd prefer more time to inspect them, here are links to the static cumulative income distribution charts for U.S. individuals, families, and households.

If you would like to estimate where you fall on the the income distribution spectrum in the U.S. using these charts, all you need to do is find your income on the horizontal axis, trace a vertical line up to where it intercepts the curve on the graph, then trace a horizontal line to the left side of the chart where you can roughly approximate your income percentile ranking on the vertical scale.

But if you would like a more precise estimate, we have updated our "What Is Your Income Percentile Ranking?" tool with the 2017 income distribution data. Our tool can also estimate what your income percentile would have been in any calendar year from 2010 through 2016.

Finally, if you would like more current estimates of median household income, we've been happy to accommodate your information needs since August 2017!

Median Household Income in the 21st Century: Nominal and Real Estimates, January 2000 to July 2018

We produced the chart above, covering through July 2018, just a few weeks before the Census Bureau published its annual report for 2017. If you've been following our series, you were not in any way surprised by what the U.S. Census Bureau reported for that year!