Median income will drop through 2030, finds new report

CORNELL UNIVERSITY PRESS RELEASE

 FOR RELEASE:  Sept. 3, 2013

 Contact: Syl Kacapyr

Phone:  (607) 255-7701
vpk6@cornell.edu

Median income will drop through 2030, finds new report

ITHACA, N.Y. — The median incomes of the average American, once the envy of the world, will erode by about 0.5 percent per year over the next two decades, according to a new report by two economists.

“Unless all demographics groups earn considerably more than has been the case in previous decades, the average American’s household income is likely to fall,” said report co-author Richard Burkhauser, professor of Policy Analysis at Cornell University.

Jeff Larrimore with the Joint Committee on Taxation of the U.S. Congress also contributed to the report, which will be a chapter in a Russell Sage Foundation book, “Changing Times: America in a New Century,” to be published later this year.

Download the report: http://www.s4.brown.edu/us2010/Data/Report/report07192013.pdf

Burkhauser and Larrimore drew on data from the Current Population Survey, in which the U.S. Census Bureau annually interviews a sample of 60,000 households nationwide. Cornell has access to confidential census data through the Cornell Institute for Social and Economic Research. They employed “shift-share” analysis, which shows how a particular group contributes to a change in the overall numbers.

In the 1990s and 2000s the Baby Boom generation, maturing into their peak earning years, helped to boost the median income. But as they retire over the next two decades their household incomes will fall sharply.

According to the U.S. Census Bureau the Hispanic population will increase from 16 to almost 22 percent of the U.S. population by 2030 and almost 28 percent by 2050. The black population will increase more modestly from around 13 percent to 14 percent by 2050. Since minority mean household incomes are only 60 percent of those of white households, this will reduce median income growth by an additional 0.34 percentage points per year through 2020 and by 0.35 percentage points per year between 2020 and 2030, the report said.

Noting that “demography is not destiny,” the report urges action to improve the education of ethnic minorities to enable them to move into better-paying jobs, and incentives for older workers to delay retirement or measures to increase retirement income, such as higher Social Security benefits.

In previous business cycles, the increasing employment and growing earnings of women helped to raise median household income, but “Women aren’t going to bail us out this time,” Burkhauser said, because their employment levels plateaued in the early 2000s.

Demographic trends produced a small headwind against median income growth in previous business cycles, the report noted. As the makeup of the population changes, it said, “This mild headwind is likely to become a gale.”

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