The Washington PostDemocracy Dies in Darkness

By year four, economic recovery finally catches up to poverty rate — but not to median household income

Child poverty fell last year, but four years into an economic expansion, too many households are still far behind. (Charles Rex Arbogast/AP)

Poverty fell in 2013 for the first time in years, driven by the first decline in child poverty since 2000. Overall, poverty fell by half a percentage point, from 15 percent in 2012 to 14.5 percent last year, its lowest level since 2009. Child poverty fell by almost two percentage points, from 21.8 percent to 19.9 percent, the largest one-year decline since 1966.

However, other findings from today’s report were less positive. Four years into the economic recovery, poverty was unchanged and remains elevated for persons over 18. Moreover, economic growth failed to reach middle-income households, as the real median household income — about $52,000 in 2013 — was unchanged from 2012, and remains 8 percent, or $4,500 below its pre-recession peak.

In fact, real income for middle-class households has been generally stagnant or falling since the late 1990s, when median household income peaked at just under $57,000 in 1999 in today’s dollars. That’s almost a decade and a half of stagnant median income.

With the exception of the welcome and historically large decline in child poverty, today’s report offers another data point in support of a discomforting “new normal,” where economic recoveries take years to reach most households.

Why did the poverty rate fall only for children and not for adults? Since children’s poverty rates depend on their family’s income, low-income families with children must have done better than other families, perhaps due to labor market improvements in 2013. By race, poverty fell significantly only for Hispanics, suggesting significant gains among low-income Hispanic families with children.

Poverty rates for families with children by race and ethnicity support this interpretation. While poverty for families with kids fell less than a percentage point for white (non-Hispanic) and African American families, it fell 3.2 percentage points for Hispanic families with kids. (For the record, Hispanic and black family poverty rates, 27 and 32 percent respectively, are much higher than the rate of 10 percent for white families.)

Gains from work are important in this context as anti-poverty policy increasingly depends on work (note that a key policy in this regard — the Earned Income Tax Credit — is not counted in the official poverty measure). While the overall job market improved only moderately in 2013, today’s report reveals that the number of full-time, year-round workers was up by more than 6 million from 2010 to 2013.

However, even workers who are well-connected to the job market have seen flat real earnings in recent years. Median earnings for both men and women full-timers were statistically unchanged last year, and have been down for men (-2 percent) and flat for women over the recovery. In fact, men’s median earnings were at just about the same level last year as in 2000, about $50,000 in today’s dollars.

When the labor force is weak, there’s little pressure that would force employers to bid wages up to get or keep the workers they need. For that reason, real wages across much of the economy have been trending flat in recent years, as nominal wage growth of about 2 percent has about matched inflation’s similar pace. That implies that to the extent that working families got ahead, it was from more work at flat or lower real hourly wages.

Another sign that working families are doing a bit better comes from the slightly favorable trend over the past few years among working-age households. Their median income is up 1.4 percent over the past two years, compared to no change for all households. Moreover, one reason child poverty fell was because among families with kids, the number with full-time, full-year workers was up last year, and the number without any workers was down.

That said, these are relatively minor improvements, and the fact unquestionably remains that the economic recovery has not done much to lift the living standards of most poor and middle-income households.

Surely, the growing inequality of economic outcomes is in play. Census data leave out some important income components that influence inequality, such as capital gains and the value of noncash transfer programs, like nutritional support. Still, the data reveal inequality trends that are consistent with more comprehensive sources.

For example, the share of total household income held by the bottom fifth of households remained stuck at 3.2 percent last year, tied for the lowest level on record with data back to 1967. Similarly, the share of income accruing to the middle three-fifths of households (45.8 percent, up insignificantly from last year’s 45.7 percent) is close to its historic low.

By definition, this implies near-record-high shares of income held by the best-off households. The top fifth held over half of all income last year (51 percent) with almost half of that share (22.2 percent) held by the richest 5 percent of households.

Of course, citing inequality as a factor in the persistent disconnect between overall growth and the well-being of the poor and middle class begs the question: Why, for so many households, economic growth has become a spectator sport?

Since working-age households typically depend on their paychecks as opposed to investment portfolios, the still-too-slack job market is a prime suspect. As noted, today’s report suggests some employment gains for working families, but as Fed chair Janet Yellen correctly emphasizes, considerable slack remains and wage growth remains flat or worse for too many workers.

In this regard, a key takeaway from today’s report is that the economic challenge facing the middle class and poor is at least twofold. First, the structure of the economy has made it harder for them to benefit from overall growth. Global competition, technological changes, barriers to education, deunionization, financial and housing bubbles, intractable recessions followed first by jobless and then wageless recoveries, the persistent absence of tight labor markets — all of these factors contribute to the growing disconnect between growth and the economic well-being of most households.

Their second problem is that policymakers have not only failed to protect or adequately prepare the less advantaged for these developments, they’ve exacerbated their impact. In the near term, austere fiscal policy that shaved 1.5 percentage points off of growth last year — equal to more than 1 million jobs — is implicated in today’s results.

The expiration of the payroll tax holiday, for example, was a major factor in 2013’s fiscal drag, and it directly reduced the earnings of millions of workers, yet few policymakers fought to preserve it. Same with extended UI benefits, though many congressional Democrats and the administration tried to preserve this important benefit in the face of such elevated long-term unemployment.

Those are examples of near-term ways in which policymakers are hurting the prospects of working families, but over the longer term, we’ve seen attacks on the safety net, social insurance and investments in public goods from roads and bridges to health care and education.

It’s as if at the same time the rising river of global competition and inequality were threatening those stuck in the floodplains, the town’s engineers decided to ignore the eroding levies.

Today’s results provide further evidence that economic recoveries are taking much longer than in the past to reach the poor and middle class, and that reality poses a fundamental challenge that too many of today’s policymakers are ignoring. If this is the new normal — expansions that for years leave most households behind — then broad swaths of Americans have every right to demand that policymakers stop their seemingly endless partisan squabbling and address the factors blocking shared prosperity.