Which Phase in the Headline Does Obama Prefer Least?

“Recession Officially Over, U.S. Incomes Kept Falling”

In a grim sign of the enduring nature of the economic slump, household income declined more in the two years after the recession ended than it did during the recession itself, new research has found.

Beyond that, it is worth investigating what exactly the Times’ data means? To understand any data, the units must be defined. What is a household? A single parent with a part-time job and five children is a household, as is a house with “DINKS:” dual income, no kids. What are we to make of that disparity, or of the fact that people can combine to form households or separate to divide them? Households in general have shrunk over time.

The size of the American household has shrunk by a huge amount over the last several decades (though it’s gotten more stable in the last couple of years) as families have fewer children, adults delay marriage and single-parent households become increasingly common. So income per household could stay the same even if income per individual were rising.

In the year 2000, the top quintile of households had 20 million people working. The bottom quintile had 8 million. Furthermore, there were more people, in absolute numbers, working full time in the top 5% of households than in the bottom 20% of households. You wonder, certainly each quintile should be an even layer, representing the same number of workers and people, shouldn’t it? Perhaps it should, but it doesn’t. The unit is meaningless and, worse, misleading, unless properly defined.

What does it all mean? First, it does not mean that we have not fallen on hard times. We have. In that same Times article, Robert Pear writes,

One reason pay has stagnated is that many people who lost their jobs in the recession — and remained out of work for months — have taken pay cuts in order to be hired again. In a separate study, Henry S. Farber, an economics professor at Princeton, found that people who lost jobs in the recession and later found work again made an average of 17.5 percent less than they had in their old jobs.

This is both discouraging (17.5 % is no small amount) and necessary for our public balance sheets (that worker is again contributing to GDP and paying taxes while not collecting unemployment payments). It will most likely also be temporary. Said worker will continue to earn a lower wage until s/he either finds a better paying job or until the excess supply of labor (the unemployed) decreases and wages increase to pre-recession levels.

The second take-way is never to trust economists using statistics of households or other such sloppy units of measurement.


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Filed under Economics, Economy

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