Sometimes a chart is worth 1,000 words

Economy, Politics, US Economy, US Politics

This one comes via Kevin Drum at Mother Jones:

GDP growth vs. median wage stagnation

Yes – between the beginning of 2002 and the end of 2006, the United States GDP grew by over 15% – while the median wage flatlined, not going up by a single percent. In short, the country got ever richer – but the middle class saw nothing of that wealth. It was pocketed in its entirety by the wealthiest, with an assist from the tax cuts that the Bush administration heavily slanted in their favour.

Are there any recent historic precedents of such a disconnect, in which double-digit national economic growth was not accompanied by any improvement whatsoever for the average American? Was it this bad under Reagan, or Thatcher?

Pondering these numbers, Drum approvingly quotes an article by Joe Klein on Time’s blog Swampland: “We have had 30 years of class warfare, in which the wealthy strip-mined the middle class.” He adds:

For three decades we’ve artificially kept middle class wage increases far below the growth rate of the economy, and this trend has been even more pronounced over the past eight years. This has created an enormous pool of extra money that’s been — yes — strip mined and redirected to the rich, and fixing this is Barack Obama’s biggest and longest-term challenge.

If we restore the normal growth of middle class wages, it provides a sustainable consumer base for the entire economy; it reduces the demand for endless credit card debt; it brings down income inequality naturally; and it goes a long way toward keeping the financial sector under control and reining in Wall Street salaries without putting in place a bunch of artificial (and probably fruitless) regulations. [..] Stop the strip mining and economic vigor will follow. It’s at the core of everything.

UPDATE: Lane Kenworthy, a Professor of Sociology and Political Science at the University of Arizona, had a blog post earlier this month that traces the trend further back, to the Reagan era: Slow Income Growth for Middle America (h/t to A2K user Hawkeye). The pattern is pretty devastating – and he’s got a telling graph too:

Reflect on this for a second. The average American’s income (i.e. not the average income but the median income) doubled between 1948 and 1973 – within 25 years, one generation. Then in the 34 years since 1973 or so, it went up by 1.25 times.

Now I’m no economist, and if you’re a layman too, I ask you: how often do you see a graph for median income? When magazines want to illustrate how a country is doing economically, the first reach is for GDP data. And a graph of GDP growth shows America doing steadily better ever since WW2, at a consistently pace throughout. But from 1978 or so onwards, the regular middle-class American all but stopped benefiting. While GDP kept growing, he was excluded from its fruits.

In fact, looking at this graph, you see that the median income did not increase at all between around 1978 and around 1993. Much like it has stagnated between 2000 and now. The increase by 1.25 times mentioned above took place almost entirely in the mid- and late nineties.

Coincidence that it was the Reagan, Bush Sr and Bush Jr administrations during which middle-class income stagnated even as GDP kept growing? Or the consequence of Reaganomics and its offspring? Give tax cuts to the wealthiest and the wealth will ‘trickle down’, was the theory; but it never happened.


The [..] chart tells the story. It shows inflation-adjusted GDP per capita and median family income from 1947 (the earliest year for which the income data are available) to 2007. To facilitate comparison of the over-time trends, each is indexed to its 1973 level. Since the mid-to-late 1970s, growth of income at the median has been slow — very slow — relative to growth of the economy. The current decade, with no improvement at all in median income, is especially striking.

If median income had “risen in sync with per capita GDP,” Kenworthy points out, “the median family’s income would have been $91,000 instead of $61,000” today. And, he warns:

Various excuses and rationalizations have been offered: It’s okay because Americans now get more in employer benefits instead of in their paycheck. Family size has shrunk, so slow income growth isn’t a big deal. A lot of those in the bottom half are immigrants, and even with slow income growth they’re better off than they would have been in their native country. None of these is compelling (see here or here).

The disconnect between economic growth and middle-class income growth is due largely to rising inequality. In the past several decades much of the economy’s growth has gone to those at the top of the income distribution.



  1. Foxhunter  •  Oct 22, 2008 @8:34 am

    Thanks be to the Google. This post puts it all together all nice-n-tidy…and helps refute the benefits argument wrt median wage depression.

  2. ED  •  Jan 21, 2010 @7:41 pm

    Good graph and good start, but you need to show similar graphs with INDIVIDUAL incomes; after all, looking just at household income UNDER-states the problem since the average number of hours worked per couple has gone up (women entering the work force) and has thus partially compensated for the stagnation or decline of individual wages. Can you show a “two graphs” visual for individual income and GDP, then?

  3. Ed H  •  Feb 7, 2011 @11:34 am

    It is not for the entire benefits package. You must include health benefits, pension/410(k) benefits, etc. The tax code makes moving a lot of the benefits of employment from the wages subject to income tax, social security tax, etc. to the benefits side of the ledger, which is not included in this analysis.

    Yes income growth has slowed but what about benefits. Everbody is aware of the skyrocketing cost of health care, which is part of the total compensation that you receive for your employment for most people.

    What has happened to total compensation? You have to include everything to conclude anything. This is missing a huge chunk. In my particular case, it is more than 25% of my compensation that is not included and I would suspect it is much higher for most people.

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