Income growth and decline under recent U.S. presidents and the new challenge to restore broad economic prosperity

In this new study, economist Robert Shapiro, chairman of Sonecon, LLC, and a faculty member of Georgetown University’s McDonough School of Business, analyzes new Census Bureau data to track the household incomes of Americans by age cohort, following their income paths as they age.

Using this approach, Shapiro shows that income progress was broad and robust through the Reagan and Clinton years and stopped abruptly during the Bush and Obama administrations. Understanding what has really happened to the incomes of Americans as they aged over the last 35 years, he argues, is important to understanding our current economic challenges, the policies of recent presidents, and the politics that have resulted.

Most importantly, Shapiro writes, the data show that the incomes problems that most households face today are not a long-standing feature of the American economy, but rather reflect the particular conditions and policies of the last decade or so.

Other important findings from the report include:

  • Through the 1980s and 1990s, households of virtually every type experienced large, steady income gains, whether they were headed by men or women, by blacks, whites or Hispanics, or by people with high school diplomas or college degrees.
  • This broad income progress stopped around the turn of this century: From 2002 to 2013, the incomes of most households stagnated or declined even as they aged through nine years of expansion and two years of recession. The only types of households with rising incomes over this recent period were those headed by people in their mid-to-late 20s and those headed by college graduates — and their gains were much smaller than those achieved by young and college-educated households in the 1980s and 1990s.
  • This evidence contradicts the narrative told by those who simply track the value of aggregate median income from the 1970s to the present and claim that most Americans have made little progress for decades. The data used here report the median incomes of cohorts of households based on the age of the heads of those households each year, as those household-heads age. Unlike the dataset for a time series of aggregate median household income, the samples for this “age-cohort” series are stable over time.
  • This age-cohort analysis also highlights a distinct life cycle in the income progress of  most Americans as they age. Throughout this period and across all of our tested demographic groups, households headed by people in their mid-20s to mid-30s experience the largest percentage gains in median income, after which those increases generally slow and finally stop when they reach their 50s.
  • The analysis of these extensive data establishes that our current challenges are not a long-term feature of the U.S. economy or an after-effect of the 2008-2009 financial upheaval. Shapiro’s analysis further shows that these problems also are not driven by economic impediments based on gender, race and ethnicity, or even education.

To promote strong, broad-based income progress again, Shapiro urges policymakers to draw on both historical memory and new analysis. Shapiro first identifies the economic strategies and policies that helped support strong income gains through the Clinton and Reagan presidencies. Second, he assesses the economic developments and policies of the last decade that have contributed to the erosion of income gains and suggests how policymakers could better respond to the effects of globalization, technology, inequality, and wage stagnation on Americans’ incomes.