Median Income, Middle Class

The Census Bureau came out with a new report last week, which gives me a chance to write about my favorite topics: the middle class, and middle class income.

It's such a charged term: middle class. Everyone has an idea of what it means, even if we don't agree on a single definition. But a median household is a decent place to start, as no matter what your definition of "middle class", I bet the median household fits within it.

So let's take a look at what that median household earns.

There's a lot of interesting data in the Census Bureau's report, but here is their high level summary broken down by household type and race (edited slightly for formatting). Note that only the percent increases noted with an asterisk are statistically significant, and all figures are noted in 2016 dollars.

Link to Source Data, Census Bureau

• The median household income rose 3.2% in 2016, up to $59,039. Buried within this average is an interesting wrinkle: the income of households with married couples only increased 1.6%, while households headed by women without husbands increased their income by 7.2%
• Black and Hispanic-origin households increased their income (5.7% and 4.3% respectively), more than Non-Hispanic white (which had a 2.0% increase) and Asian households (which did not change significantly).
• For the first time since 2007, the ratio of female-to-male earnings increased by 1.1%, to 0.805.

In each of these instances, we see a narrowing in income inequality. As Asian and White households are earning more than Black and Hispanic households, it's encouraging to me to see the latter two groups with greater increases in income, especially since all groups are raising their median income or holding steady.

A similar story is told with female householders with no husband present. (Dear God, they need a better term than that.) They are seeing the largest percent year-over-year increase of all the groups in this category at 7.2%.

These are really encouraging numbers. The median household in America is earning more overall, which is great. And a lot of groups that have historically earned less are seeing greater than average income gains, reducing the level of inequality.

But income inequality is still a damning issue. Even after these increases, the median African American household only earned $39,490, compared to $65,041 for Non-Hispanic White households, and $81,431 for Asian households.

While it's great to see the income gap between women and men closing, the size of the problem is still mind numbing. "Women with earnings" averaged $41,554, while men with earnings averaged five figures more, at $51,640.

Separate from issues of gender and ethnicity, in 2016 the top quintile of earners took home "over half of all overall income, a record". This is one of the discouraging areas in which we can see that inequality is increasing.

In fact, my somewhat rosy outlook looking at the Census Bureau's report is probably unwarranted. As the Washington Center for Economic Growth notes, comparing a median household of a group to its figures from a prior year can miss the bigger picture: namely, what is going on in groups who are far off from the median. Say, those in the top 5% of earners, or those in the bottom quintile.

The story may actually be more stark than the chart above shows, since the Census Bureau is limited in the sources of income it tracks. "The Distributional National Accounts data suggest a much more unequal United States and a far steeper rise in inequality over the past four decades." 

So how do we reconcile these two narratives? I guess it depends on what we choose as a baseline.

Compared to the prior year, the median U.S. household got a healthy raise. But the middle quintile's share of the pie, how much of the overall income in the country that went to that 20% of households, shrank. And it's been shrinking since 1970.

This is where individual ideas about inequality tend to send us into debate. For many of us who are doing well financially, inequality might not be anything to worry about. If we're fighting over our share of the pie, it's not a big deal, because we're winning that fight. We have advantages, and maybe we work harder or are more gritty, or whatever. Still, we've been winning for a long while, and we'll probably continue to.

As a man, and an Asian, statistically speaking, I should not be surprised that our household earns more than average. According to the figures from the Census Bureau, that is to be expected.

But what if I weren't a man? What if I wasn't a mix of the two races that happen to earn the most on average? Would the issue of inequality matter to me more?

Maybe things are getting relatively better for the families right in the middle. And after all, there's nothing wrong with earning more income.

But no metric tells the whole story. Only one household can be the median, and the rest of us are all some distance away from that. If you're earning way less than the median, I suppose you don't care that much about how that one household is doing.

To the degree that we can see broad-based improvement in incomes, especially with those households who are making less, the closer those groups will be to the median, and the more representative that median will be.

Put another way, the more our society can help those earning less get towards the middle, the more that median income will really represent what the middle class earns.

As always, thanks for reading.


Want to read more? Here are our past posts on the American middle class:

Middle Class? How About Middle Quintile?
Middle Class Wealth
The Middle Class & Income by Location
The Unsustainable American Dream
Stagnant Wages, Inequality, and Early Retirement


*Photo is from emdot at Flickr Creative Commons.