Obama says the typical family income ‘barely budged’ between 1979 and 2007. It grew at least 15 percent.

During his big economic speech Wednesday, President Obama declared, "The link between higher productivity and people’s wages and salaries was severed – the income of the top 1 percent nearly quadrupled from 1979 to 2007, while the typical family’s barely budged."

The problem, as James Pethokoukis pointed out, is the latter statement is not true. Admittedly, "barely budged" is a pretty vague term, but according to the Current Population Survey's Annual Social Economic Supplements (ASEC) — a Census Bureau publication tracking income, health coverage, and poverty — the real median American family income increased by 17.7 percent between 1979 and 2007, and the real median household income (which includes people living alone and unrelated roommates) grew by 14.7 percent:

The Congressional Budget Office's numbers, which draw both on IRS data and the CPS, find even more growth over the period in question. The CBO finds that, before taking taxes and transfers (like Social Security or the Earned Income Tax Credit) into account, real median household incomes grew 19.9 percent between 1979 and 2007; after taking transfers but not taxes into account, they grew 30 percent; and after taxes, they grew 38.2 percent:

The growth is even larger if you adjust for household size. Households have been shrinking in recent decades, with the average household size going from 2.76 people in 1979 to 2.56 people in 2007, according to Census data. Once you take that into account (by dividing incomes by the square root of household size), you have even sharper increases. Pre-tax/transfer income increases by 26.8 percent over the period in question, post-transfer income increases by 38.2 percent, and after-tax income increases by 46 percent:

Part of why the CBO numbers differ from the Census ones is that they take into account the value of non-cash benefits, like health insurance, that have been taking up a greater and greater share of company's compensation for workers. Cornell's Richard Burkhauser, the Joint Committee on Taxation's Jeff Larrimore, and Indiana University's Kosali Simon have found that once you take changes in household sizes and health insurance into account, median household incomes grew by 36.7 percent between 1979 and 2007:

The University of Chicago's Bruce Meyer and Notre Dame's James X. Sullivan have done their own analysis of CPS data and found that after-tax money income plus non-cash benefits for the median family grew by 54.6 percent between 1979 and 2007, growing from $31,880 to $49,298 (thanks to Sullivan to passing along this data).

This is not to say that there's nothing going wrong with the income distribution in the U.S. Obama is totally right that incomes at the top of the distribution grew much, much faster in recent decades than median incomes:

And for some categories of workers — in particular those with less education, and men — wages are actually falling. Men with only some college education saw their wages fall by a third from 1969 to 2009; men with only a high school degree saw wages halved:

But real median household incomes in America are growing, and it's inaccurate of Obama to suggest otherwise.

Update: This post originally implied CBO numbers didn't include health insurance; they do.



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Brian Fung · July 25, 2013