The Real Story Behind Two Important Income & Poverty Headlines

September 17, 2020
3:36 pm

ShineTheLight

Within one day of each other, two important articles were released by the mainstream media on incomes, income inequality, poverty and access to healthcare. Let’s dig into both of them, shall we?

Two days ago, the New York Times ran a story titled U.S. Poverty Hit a Record Low Before the Pandemic Recession. It details how, according to Census data, at the end of 2019 poverty rates had declined to 10.5%, down 1.3% from the previous year, which constituted an all-time low since this data was being tracked and estimated in 1959. According to the data, household incomes were also markedly higher:

Household incomes increased to their highest level on record dating to 1967, at $68,700 in inflation-adjusted terms. That change came as individual workers saw their earnings climb and as the total number of people working increased.

Methodology changes made after 2013 make comparing data across time tricky. But even adjusting for those differences, the 2019 income figures appeared to be the highest on record, based on Census Bureau estimates.

However, there are still some important caveats to this data, according to the article:

The data may also have been somewhat skewed by the pandemic. Interviews for this year’s income and poverty report were disrupted by the virus, the Census Bureau said. Some economists warned that the disruptions could have made the data look too rosy: The people who responded to surveys were more likely to have high education and income levels. Analysts at the Census Bureau estimated that poverty would have been slightly higher, at 11.1 percent, without the resulting data quirks.

“It doesn’t change the overall picture — we had a tight labor market that was pulling people in and reducing poverty,” said Heidi Shierholz, director of policy at the Economic Policy Institute. But it underscores that “there was still a lot of room for improvement.”

Census data also revealed that despite the record long economic expansion that roughly 26mm Americans were still without healthcare coverage at the end of 2019, or roughly 8% of the population, which is a slight decrease from the 27.5mm tallied the previous year.

To keep this data in some perspective, let’s take a look at an article that was also released earlier this week. In a Time Magazine article, Nick Hanauer and David Rolf detail the results of an important Rand Corporation study by Carter Price and Kathryn Edwards on trends in income distribution from 1975 – 2018. What the study found is eyeopening, to say the least. Here’s a key excerpt from the article:

Had the more equitable income distributions of the three decades following World War II (1945 through 1974) merely held steady, the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in the year 2018 alone. That is an amount equal to nearly 12 percent of GDP—enough to more than double median income—enough to pay every single working American in the bottom nine deciles an additional $1,144 a month. Every month. Every single year.

Price and Edwards calculate that the cumulative tab for our four-decade-long experiment in radical inequality had grown to over $47 trillion from 1975 through 2018. At a recent pace of about $2.5 trillion a year, that number we estimate crossed the $50 trillion mark by early 2020.

Let that sink in for a moment. An additional $1,144 a month for every working American, gains that went instead to the top 1%. The implications of this are enormous and wide ranging, and includes overall economic growth, taxes, basic well-being of Americans, political power/priorities/stability, and even national security in the U.S. As costs of everything from child care and healthcare to education and housing have skyrocketed during that time, think about how much better of Americans (and the country as a whole) would be if this had occurred.

There’s more eye popping data from the article and study:

What if American prosperity had continued to be broadly shared—how much more would a typical worker be earning today? Once the data are compiled, answering these questions is fairly straightforward. Price and Edwards look at real taxable income from 1975 to 2018. They then compare actual income distributions in 2018 to a counterfactual that assumes incomes had continued to keep pace with growth in per capita Gross Domestic Product (GDP)—a 118% increase over the 1975 income numbers. Whether measuring inflation using the more conservative Personal Consumption Expenditures Price Index (PCE) or the more commonly cited Consumer Price Index for all Urban Consumers (CPI-U-RS), the results are striking.

Data Source: RAND; Graphics: Mary Traverse for Civic Ventures

At every income level up to the 90th percentile, wage earners are now being paid a fraction of what they would have had inequality held constant. For example, at the median individual income of $36,000, workers are being shortchanged by $21,000 a year—$28,000 when using the CPI—an amount equivalent to an additional $10.10 to $13.50 an hour. But according to Price and Edwards, this actually understates the impact of rising inequality on low- and middle-income workers, because much of the gains at the bottom of the distribution were largely “driven by an increase in hours not an increase in wages.”

If you haven’t, go read that entire eye popping article today. To sum things up, for all the positive mentions of the Census data on recent income gains and alleviation of poverty, just keep this study at the forefront of your mind. American workers all the way up to the 90th percentile have been getting vastly underpaid for 4.5 half decades now. The fact remains that roughly half the country’s workers make below living wage and do not have $400 saved for an emergency.

Why did this happen? What have been the effects on them, the poor, and country as a whole? We have our own theories and will be presenting them in the film, along with the very personal stories of real people who’ve been effected. Stay tuned.