Economic Indicators | Wages, Incomes, and Wealth

Income Picture: August 26, 2004

August 26, 2004

Weak 2003 labor market leads to lower incomes and higher poverty

The inflation-adjusted income of the nation’s median household fell slightly in 2003, from $43,381 to $43,318 (though the decline was statistically insignificant), according to today’s report from the U.S. Bureau of the Census.   Since 2000, the median household income has declined consistently in real terms, down $971, $502, and $63 in 2001, 2002, and 2003, respectively, for a cumulative loss of $1,535—a 3.4% drop—over these years.

Because the largest income declines occurred among the lowest income families, the share of the nation living in poverty increased, from 12.1% in 2002 to 12.5% last year, adding 1.3 million persons to the poverty rolls.    Since 2000, poverty is up 1.2 percentage points, an addition of 4.3 million poor persons.  

The share of the population with health insurance also declined last year, with 45 million persons—15.6% of the population—going without coverage in 2003, compared to 15.2% in 2002.    This increase in the uninsured was largely due to less employer-provided coverage, another indication of deteriorating job quality in 2003.

Today’s release of the 2003 household income and poverty data provides the first look at the recent impact of the unbalanced recovery on the living standards of various family types and income groups.    In general, the report confirms that the weak labor market that prevailed throughout last year continued to take its toll on family incomes, as it did in both the recessionary year of 2001 and the jobless recovery year in 2002.   For example, while the decline in median household income was not statistically significant for all households, income fell significantly—by 0.9%, or $473—for those households headed by someone younger than 65, suggesting that working families were more likely to lose ground than retirees.

Income inequality has also increased, both in the past year and to a greater degree over the recession and jobless recovery.    The figure below shows the change in real household income for various percentiles over two time periods: 2000-03 and the last year, 2002-03.   Low-income households—those with incomes that place them at the 20th percentile of earners—have experienced income declines of 6.0% since 2003 and 1.9% since last year.   The median household (the 50th percentile) is down 3.4% since 2000 and essentially unchanged (down just 0.1%) between 2002 and 2003.   Upper income households, with incomes at the 95th percentile (i.e., only 5% of families have higher incomes) have been relatively flat over this full period.

Change in real household income by percentiles, 2000-03 and 2002-03

Losses since 2000 have been particularly sharp for minority families.  The real median household income of African American families is down 6.3% in the 2000-03 period, while that of Hispanic families is down 6.9%.

Reflecting the unbalanced growth in incomes shown above, the income gap between high (the 95th percentile) and low (20th percentile) household incomes grew in 2003, as it has in every year since the end of the 1990s recovery in 2000.   The ratio of high to low incomes, for instance, rose from 8.37 in 2002 to 8.57 in 2003. In contrast, in 2000, high- income households at the 95th percentile received 8.1 times the incomes of low-income households.

EPI’s own analysis of the data released today reveals another critical dimension of the labor market difficulties facing working families: the decline in annual hours worked per year in middle-income families (i.e., after summing annual work hours across all working family members).    Over the last expansion, between 1994 and 2000, middle-income families increased their work hours by 5.5%, or 163 hours, from 2,975 hours per year to 3,138 hours, representing an extra month of full-time work.   Between 2000 and 2003, however, family work hours declined by 5.5%, or 173 hours, reversing the gains over the boom.   This decline in hours fully explains the 2.2% real drop in the average income of the middle-income family that occurred between 2000 and 2003.

The weak recovery in the labor market is also reflected in the Census data on year-round, full-time workers.  The share of these workers in 2003 was the same as in 2002 (remaining at 73.0% for men and 58.7% for women in 2003, a rate that was marginally higher than the 58.6% of women in the full-time labor force in 2002). Given that 2003 was the second year of an economic expansion, and that jobs started growing in September 2003, one would have hoped for a robust expansion of year-round, full-time work. Earnings for full-time, year-round workers did rise for men, up 0.8%, but fell for women, down 0.6%.   Productivity grew by 4.5% in 2003, a further indication that the recovery’s benefits have not filtered down to workers.

Finally, the Census provided estimates of state medians, comparing averages over two pooled years of data ,1999-2000 and 2002-03.    Over these periods, only one state had a statistically significant increase in the two-year average median household income (New Hampshire). Fourteen states showed declines (Alaska, Colorado, Florida, Illinois, Indiana, Iowa, Maine, Michigan, Mississippi, Missouri, North Carolina, Oregon, Texas, and Wisconsin). Large states that experienced particularly substantial drops included Illinois ($5,752), Michigan ($5,387), North Carolina ($3,711), and Missouri ($3,167).

It should be noted that these income, poverty, and health insurance results over the past year occurred in the second year of an economic expansion, with the nation’s gross domestic product up 3% and productivity growth—a supposed determinant of the living standards of working families—up especially strongly, at 4.5%.   As today’s report shows, clearly the benefits of this growth have failed to reach middle- and lower-income families.

Lawrence Mishel and Jared Bernstein
Research assistance provided by Yulia Fungard

The Economic Policy Institute INCOME PICTURE is published upon the annual release of family income data from the Census Bureau.

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