A. Sinan Ünür
August 29, 2008
I sometimes wish facts and figures could speak for themselves. The kinds of games one can play with statistics are well known to many (I would recommend How to Lie with Statistics for guidance on that).
This morning, a friend of mine forwarded me Professor Krugman’s column in the New York Times. In this article, Professor Krugman states:
working-age Americans had significantly lower median income in 2007 than they did in 2000. (The elderly, whose income is supported by Social Security — the program the Bush administration tried to kill — saw modest gains.)
Earlier in that same paragraph, he refers to the newly released Income, Poverty and Health Insurance in the United States: 2007 by the Census Bureau. The report itself is 84 pages. I have not read all of it yet. I am providing the link so you can read it for yourself without having to rely on Professor Krugman’s interpretation.
Professor Krugman never references the exact table on which he bases his statement that working age Americans had significantly lower median income in 2007 than they did in 2000. I made an educated guess and decided he was referring to American households where the householder is 15 or older. You can find the relevant historical data table on the census.gov.
First, a graph showing the trends in household income by age of householder:
First, note that, the median incomes of households where the householder is 15 to 24 years old have hovered around $30,000 a year (all dollar figures are inflation adjusted) for almost four decades. Over the same time period, the median purchasing power of households where the householder is 65 years or older went from $16,645 to $28,305 over the same period. These two groups consistently have the lowest median income: At any given time, most 15 to 24 year olds are just starting out and people older than 65 are either retired or getting near retirement.
These are the overall patterns in data. Now, let us get back to Krugman’s statement. First, here is a table showing median household income for households where the householder is 15 or older:
15 or older
Now, comparing 2000 and 2007, Professor Krugman claims that the fall of $324 in annual income is a significant one. There is another way of looking at this. The attacks of September 11, 2001, were significants shocks to the U.S. economy. Those shocks probably have something to do with the decrease of $1,102 in median household income from 2000 to 2001. Comparing 2007 with the aftermath of the terrorist attacks, we see that median household income increased $778 dollars in that period. I say, if a fall of $324 in annual income is significant, then the $778 increase is 2.4 times significant!
For now, I am going to choose to ignore the snide remark about killing Social Security and just look at those “modest” gains by the elderly:
65 or older
For households where the householder is 65 or older, annual household income grew by $512 from 2000 to 2007 and by $1,230 from 2001 to 2007. Once again, if as Professor Krugman asserts, $324 is a significant fall, then the increase of $1,230 in the household income of the elderly since 2001 is 3.8 times significant!
I sure do wish facts and figures could speak for themselves, but they can’t so let’s continue our interrogation.
The table below shows median household incomes by age of householder between 1999 and 2007. Negative changes are highlighted:
These figures lend more credibility to Professor Krugman’s claim that working-age Americans incomes fell significantly. However, comparing 2007 not to the height of the previous period but the aftermath of September 11, the picture is mixed.
True, the median income of households headed by 15-24 year olds is $1,232 lower than that of comparable households in 2001. On the other hand, the median income of households where the householder is older than 65 is $1,230 higher. If the drop in the median incomes in the younger category is significant, so is the increase in the median income of the elderly households.
Similarly, the median income of households headed by 45-54 year olds is $2,504 lower than that of comparable households in 2001. However, the median income of households headed by 55-64 year olds is $3,672 higher than those of comparable households in 2001. If the drop in the median incomes in the younger category is significant, so is the increase in the median incomes in the older category.
It looks like Professor Krugman chose the year before September 11 to be able claim that median income fell. Compared with the aftermath of September 11, median income overall increased. He also claimed that the drops in income experienced by younger households were more substantial than the gains made by the older households. That simply is not true.
Finally, these figures do not necessarily mean that anyone’s incomes actually fell. This is a fine point but it is a point worth keeping in mind. The people in each age group change every year. Consider a household headed by a 30 year old in 2007. Suppose this household is right smack in the middle of the income distribution in the 25-34 age group. In 2000, her household would have been in the 15-24 category. If nothing changed every year following 2000, that 23 year old would have expected to see her household income increase from $33,529 to $53,476. The actual median income for her category turned out to be $51,016 in 2007.
The bursting of the IT bubble and September 11 have had real impacts. The heady days of 1998-1999 are gone. In this uncertain world, there is certainly more turmoil to come. Clearly a fall of $3,927 in the median incomes of 45-54 year old households compared to 2000 is not chump change. You could buy an Apple MacBook Air and a 46 inch LCD TV with that money. That amount of money could easily cover the gasoline purchases of a family with one SUV and one small sedan for a year. This amount also corresponds to the annual cost of a couple of fancy coffee drinks and bagels a day for two adults who work five days a week and 50 weeks a year. While the pain is real, the death of the U.S. economy is greatly exaggerated.
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