Mfi Blog Sep23

Finally rising household incomes

2015 turns out to be the year that a growing economy finally delivered rising incomes for low and middle income Americans and Michiganders. Median household income nationally rose 5.2 percent. In Michigan 2.4 percent.

Michigan’s median household income in 2015 was $51,084 compared to $56,517 for the nation.

The poverty rate fell nationally from 14.8 to 13.5 percent. In Michigan the decline was from 16.2 to 15.8 percent.

And those without health insurance fell to 9.1 percent nationally and to 6.1 percent in Michigan.

(For a good overview of the Michigan data see this MLive article.)

Beyond the statistics published by the Census Bureau we looked at what happened to average wages in Michigan. What has been holding Michigan back has predominantly been stagnant wages. 2015 delivered good news here as well. With average annual wages corrected for inflation growing 3.1 percent. We also looked at fast food restaurant workers as representative of low wage workers. Here the increase was even more impressive: real annual average wages up in Michigan 7.5 percent. Almost certainly driven, in large part, by a higher minimum wage.

These increases come after real wages did not grow from 2001-2014. From 2001 to 2014 average annual Michigan wages fell from $50,041 to $48,545. In 2015 they rose back to 2001 levels at $50,063. For fast food workers the decline was from $13,615 to $12,598. In 2015 they rose back to 2002 levels at $13,544

Very good news indeed!

But as Eduardo Porter explores in a New York Times column entitled America’s Inequality Problem: Real Income Gains Are Brief and Hard to Find one year does not make a trend. And the long-term trend still is very worrisome. The basic trend Porter writes about is that it is taking longer and longer with subsequent recessions for household income to reach the previous peak.

The nation has not gotten back to the 2007 peak yet. Still 1.7 percent below. Porter writes:

How does that look compared to the nation’s recent history? After the economy slipped into recession in 1969, it took only three years for incomes in the middle to rebound and surpass their previous peak. After the downturn of 1973, it took five; after back-to-back recessions in 1981 and 1982, it took seven.

And, except for the long expansion that ran from 1991 through 2000, it has been getting worse. The economic growth from late 2001 to about the end of 2007 never even managed to deliver incomes above the previous peak for the typical household, reached near the end of Bill Clinton’s presidency. The expansion underway today may not get there, either.

Today, median household incomes are still 2.4 percent below the absolute peak they hit in 1999 — when Facebook had yet to come into existence, the big news in the music business was Napster, and the good times in Silicon Valley were about to come crashing down with the collapse of the dot-com bubble.

At the bottom of the ladder, households at the 10th percentile — those poorer than 90 percent of the population — are still a bit poorer than they were in 1989. Americans have managed to develop an internet economy, invent social media and build driverless cars since then, but not to improve the lot of those at the bottom.

As Porter details, the predominant reason a growing economy is not raising living standards for all is that income gains are concentrating at the top. As he concludes: “The current census data does suggest that growth can ultimately bring prosperity to average Americans. Still, it also points to the persistence of wide inequality as being at the center of the story.”

This is the great challenge going forward for U.S. and Michigan policymakers. Whether you call it shared prosperity or inclusive growth or something else we need to figure out how to recouple economic growth with a rising standard of living for all.

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Lou Glazer

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.

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