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Social Mobility Memos

Incomes are rising, but it’s too soon to celebrate

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At last: some very good news about the economy. In 2015, household incomes were up, poverty was down, and more people were covered by health insurance, according to the data released last week by the Census Bureau. Even better news: these positive trends were felt by just about everyone, with especially strong income gains at the bottom.

An immediate lesson is that a powerful way to reverse inequality is to maintain a low rate of unemployment; the unemployment rate dropped almost a full percentage point between 2014 and 2015, the period covered by the new Census data. A similar trend occurred in the late 1990s, providing further evidence that tight labor markets can be a successful equalizer.

Authors

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Eleanor Krause

Senior Research Assistant - Center on Children and Families

Hold the champagne for now

All of this is certainly worth celebrating. But before we pop the champagne, we need to remember that these figures reflect just one year of change. It would be a mistake to believe that our nation’s economic problems are solved on the basis of one year’s data. In addition, as my colleague Gary Burtless has noted, the Census data may be less accurate than statistics from the national income accounts, which show smaller income gains in 2015, but slightly larger longer-term improvements.

Looking at the figures with a longer historical perspective, it is clear that while we are getting back on our feet, we aren’t winning any races just yet. Median income is still lower than it was in 2007 before the recession and even lower still than it was in 1999 at the end of the Clinton administration:

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Other troubling signs include:

1. Slow growth in productivity and wages in recent years;

2. A yawning gap between what we are producing and what the typical worker is being paid;

3. Men in the bottom half of the income distribution are earning less than they were in the 1970s after adjusting for inflation;

4. Many men have simply dropped out of the labor force entirely;

5. Family incomes only grew over this longer period thanks to women’s entrance into the labor market, but women’s labor force participation has since leveled off.

Stagnation or recovery: What’s ahead?

What lies ahead? Some respected economists, such as Larry Summers, are predicting not just continued slow growth but a possible recession in the next few years. The Federal Reserve, meanwhile, is short of ammunition. Zero, or even negative interest rates have not revived the global economy. We need to complement monetary policy with a combination of smart fiscal policy, including government spending to rebuild our infrastructure, improve education, and support basic and applied research, as well as tax reform.

Welcome though the new numbers are, they should not inspire complacency. We urgently need reforms that will strengthen our tax code, increase demand, restore our infrastructure and improve workforce readiness and job opportunities. Then some real celebration will be in order.

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