Household income in the United States

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Household income is a measure of current private income commonly used by the United States government and private institutions. To measure the income of a household, the pre-tax money receipts of all residents over the age of 15 are combined. Most of these receipts are in the form of wages and salaries (before withholding and other taxes), but many other forms of income, such as unemployment insurance, disability, child support, etc., are included as well. The residents of the household do not have to be related to the householder for their earnings to be considered part of the household's income.^[1] As households tend to share a common economic fate, the use of household income remains among the most widely accepted measures of income. However, the size of a household, which is commonly not considered, may offset gains or decreases in household income.^[2]

In 2006, the median annual household income was $48,201.00 according to the US Census Bureau.^[3] The median income per household member (including all working and non-working members above the age of 14) was $26,036 in 2006.^[4] In 2005, there were approximately 113,146,000 households in the United States. 19.01% of all households had annual incomes exceeding $100,000,^[5] 12.7% fell below the federal poverty threshold^[6] and the bottom 20% earned less than $20,032.^[7] The aggregate income distribution is highly concentrated towards the top, with the top 6.37% earning roughly one third of all income, and those with upper-middle incomes control a large, though declining, share of the total earned income.^[8][2] Income inequality in the United States, which had decreased slowly after World War II until 1970, began to increase slowly in the 1970s, and has since increased more quickly.^[9] Households in the top quintile, 77% of which had two income earners, had incomes exceeding $40,705. Households in the mid quintile, with a mean of one income earner per household had incomes between $22,000 and $57,657.^[10]

The 2006 economic survey also found that households in the top two income quintiles, those with an annual household income exceeding $60,000, had a median of two income earners while those in the lower quintiles (2nd and middle quintile) had median of only one income earner per household. Due to high unemployment among those in the lowest quintile the median number of income earners for this particular group was zero.^[5] Overall, the United States followed the trend of other developed nations with a relatively large population of relatively affluent households outnumbering the poor. Among those in between the extremes of the income strata are a large number of households with moderately high middle class incomes^[8] and an even larger number of households with moderately low incomes.^[5] While the median household income has increased 30% since 1990, it has increased only slightly when considering inflation. In 1990, the median household income was $30,056 or $44,603 in 2003 dollars. While personal income has remained relatively stagnant over the past few decades, household income has risen due to the rising percentage of households with two or more income earners. Between 1999 and 2004 household income stagnated showing a slight increase since 2004.^[11][12]

[edit] Income distribution of population

This graph shows the percentage of the population per income groups in $10,000 increments, except for the furthest two right columns which are $50,000 increments

The above graph shows the percentage(?) earning the amount shown on the graph or more.^[5]

This graph shows the percentage of persons and households in each of the income groups shown.^[5]

SOURCE: US Census Bureau, 2005^[5]

[edit] Quintiles

Households are often divided into quintiles according to their gross income. Each quintile represents 20%, or one fifth, of all households.

Household type is strongly correlated with household income. Married couples are disproportionately represented in the upper two quintiles, compared to the general population of households. Cross-referencing shows that this is likely due to the presence of multiple income earners in these families. Non-family households (individuals) are disproportionately represented in the lower two quintiles. Households headed by single males are disproportionately found in the middle three quintles; single females head households concentrated in the bottom three quintiles.

The highest income households are almost ten times as likely to own their homes rather than rent, but in the lowest quintile, the ratio of owners to renters is nearly one to one.

The New York Times has used the quintiles to define class. It has assigned the quintiles from lowest to highest as bottom fifth, lower middle, middle, upper middle, and top fifth.^[13]

SOURCE: US Census Bureau, 2004^[14]

[edit] Race

This chart shows the median household income for the four largest racial groups in the United States.^[15]

Despite advances minorities have made to lift themselves out of poverty and with many African Americans and Latino Americans joining the middle class, there is still an uneven racial distribution among the income quintiles. While White Americans who were not of Hispanic descent made up roughly 75.1% of all persons in 2000,^[16] 87.93% of all households in the top 5% were headed by a person who identified as being White alone. Only 4.75% of all household in the top 5% were headed by someone who identified him or herself as being Hispanic or Latino of any race,^[17] versus 12.5% of persons identifying themselves as Hispanic or Latino in the general population.^[16] Overall, 86.01% of all households in the top two quintiles with upper-middle range incomes of over $55,331 were headed by a head of household who identified him or herself as White alone, while only 7.21% were being headed by someone who identified as being Hispanic and 7.37% by someone who idenitified as being African American or Black.^[17] Overall, households headed by Hispanics and African Americans or Blacks were underrepresented in the top two quintiles and overrepresented in the bottom two quintiles. Households headed by persons who identified as being Asian alone, on the other hand, were overrepresented among the top two quintiles. In the top five percent the percentage of Asians was nearly twice as high as the percentage of Asians among the general population. European-Americans were relatively even distributed throughout the quintiles only being underrepresented in the lowest quintile and slightly overrepresented in the top quintile and the top five percent.^[17]

SOURCE: US Census Bureau, 2004^[17]

[edit] Education and Gender

This graph shows the median household income in accordance with the householder's educational attainment. The data only applies to household with a householder over the age of twenty-five.^[18]

Household income as well as per capita income in the United States rise significantly as the educational attainment increases.^[19] In 2005 graduates with a Master's in Business Administration (MBA) who accepted job offers are expected to earn a base salary of $88,626. They are also expected to receive "…[a]n average signing bonus of $17,428."^[20] According to the US Census Bureau persons with doctorates in the United States had an average income of roughly $81,400. The average for an advanced degree was $72,824 with men averaging $90,761 and women averaging $50,756 annually. Year-round full-time workers with a professional degree had an average income of $109,600 while those with a Master's degree had an average income of $62,300. Overall, "…[a]verage earnings ranged from $18,900 for high school dropouts to $25,900 for high school graduates, $45,400 for college graduates and $99,300 for workers with professional degrees (M.D., D.O., J.D., D.D.S., or D.V.M.). ^[21]

Considering how education significantly enhances the earnings potential of individuals, it should come as no surprise that individuals with graduate degrees have an average per capita income exceeding the median household income of married couple families among the general population ($63,813).^[21][22] Higher educational attainment did not, however, help close the income gap between the genders as the life-time earnings for a male with a professional degree were roughly forty percent (39.59%) higher than those of a female with a professionals degree. The life-time earnings gap between males and females was the smallest for those individuals holding an Associate degrees with male life-time earnings being 27.77% higher than those of females. While educational attainment did not help reduce the income inequality between men and women, it did increase the earnings potential of individuals of both sexes, greatly enabling many households with (a) graduate degree householder(s) to enter the top household income quintile.^[21]

Household income also increased significantly with the educational attainment of the householder. The US Census Bureau publishes educational attainment and income data for all households with a householder who was aged twenty-five or older. The biggest income difference was between those with some college education and those who had a Bachelor's degree, with the latter making $23,874 more. Income also increased substantially with increased post-secondary education. While the median household income for a household with a household holding an Associates degree was $51,970, the median household income for those with a Bachelor's degree or higher was $73,446. Those with doctorates had the second highest median household with a median of $96,830; $18,289 more higher than that for those at the Master's degree level, but $3,170 lower than the median for households with a professionals degree holding householder.^[18]

SOURCE: US Census Bureau, 2003^[18][23]

This graph shows the median household income in 2003 dollars according to educational attainment.^[18]

The change in median personal and household since 1991 also varied greatly with educational attainment. The following table shows the median household income according to the educational attainment of the householder. All data is in 2003 dollars and only applies to householders whose householder is aged twenty-five or older. The highest and lowest points of the median household income are presented in bold face.^[18][23]

SOURCE: US Census Bureau, 2003^[18]

[edit] Age of householder

Household income in the United States varies substantially with the age of the person who heads the household. Overall, the median household income increased with the age of householder until retirement age when household income started to decline.^[24] The highest median household income was found among households headed by working baby-boomers.^[24] Households headed by persons between the ages of 45 and 54 had a median household income of $61,111 and a mean household income of $77,634. The median income per member of household for this particular group was $27,924. The highest median income per member of household was among those between the ages of 54 and 64 with $30,544. The group with the second highest median household income, were households headed by persons between the ages 35 and 44 with a median income of $56,785, followed by those in the age group between 55 and 64 with $50,400. Not surprisingly the lowest income group was compromised of those household headed by individuals younger than 24, followed by those headed by persons over the age of 75. Overall, households headed by persons above the age of seventy-five had a median household income of $20,467 with the median household income per member of household being $18,645. These figures support the general assumption that median household income as well as the median income per member of household peaked among those households headed by middle aged persons, increasing with the age of the householder and the size of the household until the householder reaches the age of 64. With retirement income replacing salaries and the size of the household declining, the median household income decreases as well.^[24]

[edit] Aggregate income distribution

The aggregate income measures the combined income earned by all persons in a particular income group. Overall, all households in the United States earned roughly $4,286,391 million in 2005 (4.3 trillion)^{[citation needed]}. Roughly one third, 32.5%, of all income in the US was earned by those households with an income over $150,000, approximately the top five percent. Approximately one fifth, 20.58%, of all income was earned by the top 2.67%, those households earning more than $200,000 a year. Overall, the aggregate income distributing tilts toward the top, despite the fact that households with middle-range annual incomes ranging from $50,000 to $75,000 earned roughly one fourth, 25.11% of all income. As the percentage of middle-range income households is roughly one-fourth of the population, this particular income group's share of income is roughly equal to their representation in the general population. The bottom 6.37%, however only earned 0.27% of all income.^[5]

^[5]

[edit] Distribution of Income

Family Income

Before-tax U.S. family income distribution 1989-2004 (mean)

Before-tax U.S. family income distribution 1989-2004 (median)

U.S. income distribution 1967-2003

Percent change in family net income

Change in mean before-tax U.S. family income (1989-2004)

Change in median before-tax U.S. family income (1989-2004)

[edit] Household income over time

Please note that all figures are presented in 2003 dollars.

This graph shows the income of the given percentiles from 1967 to 2003, in 2003 dollars.^[27]

Median household income between 1965 and 2005. Graph by the US Census Bureau.^[28]

Since 1967, the median household income in the United States has risen by 31%, fluctuating several times. The rise in household income is largely the result of an increase in personal income among college graduates, a group that has doubled in size since the 1960s, and women entering the labor force. Today, 42% of all households have two income earners. Household income increased dramatically faster for affluent households with income inequality having increased steadily since the 1970s.^[29][30]

While household income has increased, its growth has been slowed by a decrease in married-couple households who tend to have two earners and, therefore, higher incomes. While the proportion of wives working year-round in married couple households with children has increased from 17% in 1967 to 39% in 1996, the proportion of such households among the general population has decreased. This means that that the share the most economically prosperous type of household in the has been dwindling in the United States. In 1969, more than 40% of all households consisted of a married couple with children. By 1996 only a rough quarter of US households consisted of married couples with children. As a result of these changing household demographics, median household income rose relatively slow despite an ever increasing female labor force and a considerable increase in the percentage of college graduates.^[31]

Overall, the median household income rose from $33,338 in 1967 to an all-time high of $44,922 in 1999, and has since decreased slightly to $43,318. Decreases in household income are visible during each recession, while increases are visible during economic upturns. These fluctuations were felt across the income strata as the incomes of both, the 95th and 20th percentile were affected by fluctuations in the economy. Income in the period between 1967 and 1999 grew considerably faster among wealthier households than it did among poorer households. For example the household income for the 80th precentile, the lower threshold for the top quintile, rose from $55,265 in 1967 to $86,867 in 2003, a 57.2% increase. The median household income rose by 30% while the income for the 20th percentile (the lower threshold for the second lowest quitile) rose by only 28% from $14,002 to $17,984. As the majority of households in the top quintile had two income earners, versus zero for the lowest quintile and that the widening gap between the top and lowest quintile may largely be the reflection of changing household demographics including the addition of women to the workforce.^[27][31] Household demographics are not, however, the cause of the growing gap between the top 5% and the rest of the upper quintile. The top 5% had fewer dual earner households and full-time workers than the top quintile overall. In 2003 a household in the 95^th percentile earned 77.2% more than a household in the 80^th percentile, compared to 60.5% in 1967, a 27.6% increase in the earnings increase discrepancy between the two groups. Overall the income of the 95^th percentile grew 15.2% faster than that of the 80^th, 146.8% faster than that of the median and 159.9% faster than that of the 20^th percentile.^[32]

Households in the top 1% experienced the by far greatest increases in household income. According to economist Janet Yellen "the growth [in real income] was heavily concentrated at the very tip of the top, that is, the top 1 percent."^[33] A 2006 analysis of IRS income data by economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics showed that the share of income held by the top 1% was as large in 2005 as in 1928. The data revealed that reported income increased by 9% in 2005, with the mean for the top 1% increasing by 14% and that for the bottom 90% dropping slightly by 0.6%.^[34]

While per-capita, disposable income has increased 469% since 1972, it has only increased moderately when inflation is considered. In 1972, disposable personal income was determined to be $4,129; $19,385 in 2005 dollars. In 2005, disposable personal income was, however, $27,640, a 43% increase.^[35][36] Since the late 1990s, household income has fallen slightly. ^[37]

SOURCE: US Census Bureau, 2004^[27] (Page 44/45)

[edit] International comparison

Median household income and GDP per capita levels in selected developed nations.

Median household income for other countries is shown in the table below. The data for each country has been converted to US dollars using Purchasing Power Parity (obtained from the OECD).^[38] Median household income in the United States remains slightly higher than in the UK and Ireland, yet lower than that of Switzerland. It is important to note that the differences in median household income between US states can be as large as those between the developed nations. The median household income of the UK, for example, is comparable to that of Florida or South Carolina, while Switzerland is comparable to New Jersey or New Hampshire.

[edit] Social class

Main article: Social class in the United States

Household income is one of the most commonly used measures of income and, therefore, also one of the most prominent indicators of social class. Household income does not, however, always reflect class status or standard of living correctly. It does not consider household size and, due to differing numbers of income earners per household, does not always accurately reflect a person's position within the occupational hierarchy. Sociologist Dennis Gilbert acknowledges that "... the class structure... does not exactly match the distribution of household income" with "the mismatch [being] greatest in the middle..." (Gilbert, 1998: 92) He states that it is possible for a dual earner household from the working class to earn as much as a single upper middle class individual. Yet, he contends that household income is the best suited income measure as all members of a household share a more or less common socio-economic vantage point. As social classes lack distinct boundaries and commonly overlap, it is not possible to define any household income thresholds. Rather, only common income ranges and typical household incomes are available. According to Leonard Beeghley a household income of roughly $95,000 would be typical of a dual-earner middle class household while $60,000 would be typical of a dual-earner working class household and $18,000 typical for an impoverished household. William Thompson and Joseph Hickey see common incomes for the upper class as those exceeding $500,000 with upper middle class incomes ranging from the high 5-figures to most commonly in excess of $100,000. Typical household incomes for the lower middle class range from $35,000 to $75,000; $16,000 to $30,000 for the working class and less than $16,000 for the lower class.

[edit] Income by state

An average California home in Salinas, CA. In 2004, California was the most expensive state in the nation^[50] and had a median household income of $49,894 (rank 13).^[51]

The median household income by state ranged from $34,343 or 28% below national median, in Mississippi to $66,752 or 39% above national median, in New Jersey. Connecticut, which is often referred to as the nation's wealthiest state,^[52] came in at number four with a median household income of $60,551. California which had the highest median home price in the nation,^[50] where home prices have far outpaced incomes^[53] only ranked eleventh with a median household income of $54,385.^[51] While California's median income was not near enough to afford the average California home or even a starter home, West Virginia, which had one of the nation's lowest median household incomes also had the nation's lowest median home price.^[50][51] The northeastern states, more specifically those located in New England, as well as the West Coast had the highest median household income. Of the top fifteen states, all were located in the Northeast and West, with the exception of Minnesota which ranked eighth and Wisconsin (15th).

The southern states had, by far, the lowest median household income, with nine out of the country's fifteen poorest states being located in the South. It should be noted, however, that most of the poverty in the South is located in the Black Belt region. Metropolitan areas such as Atlanta, Nashville, Raleigh-Durham, Birmingham, Dallas, Houston, Miami, to name just a few, are areas within the southern states that have above average income levels. Overall, median household income tended to be the highest in nation's most urbanized northeastern, upper midwestern and west coast states, while rural areas mostly in the southern, and mountain states had the lowest median household income.^[51]

SOURCE: US Census Bureau, 2005/06^[54]

[edit] Median income

The median income divides households in the US evenly in the middle with half of all household earning more than the median income and half of all households earning less than the median household income. In 2004 the median household income in the United States was $43,389.^[22] According to the US Census Bureau, the median is "considerably lower than the average, and provides a more accurate representation."^[55] Considering other racial and geographical differences in regards to household income, it should come as no surprise that the median household income varies with race, size of household and geography. The state with the highest median household income in the United States as of the US Census Bureau 2005/06 is New Jersey with $66,752, followed by Maryland, Hawaii and Connecticut, making the Northeastern United States the wealthiest area by income in the entire country.^[56] In terms of region the median household income was as follows: "Northeast ($47,994), West ($47,680) and South ($40,773)." Median household income in the Mid-West declined by 2.8% to $44,657.^[57] While median household income has a tendency to increase up to four persons per household, it declines thereon after. This indicated that while four person households have larger incomes than those with one, two or three members, households seem to earn progressively less as their size increases beyond four persons. According to the US Census Bureau 2004 Community Survey, two-person households had a median income of $39,755, with $48,957 for three-person households, $54,338 for four-person households, $50,905 for five-person households, $45,435 for six-person households, with seven-or-more-person households having the second lowest median income of only $42,471.^[58]. In terms of race, Asian-Americans households had the highest median household income of $57,518, European-American households ranked second with $48,977, Hispanic or Latino households ranked third with $34,241. African American or Black households had the lowest median household income of all races with $30,134.^[57]

[edit] Mean income

Another common measurement of personal income is the mean household income. Unlike the median household income, which divides all households in two halves, the mean income is the average income earned by American households. In the case of mean income, the income of all households is divided by the number of all households.^[59] The mean income is usually more affected by the relatively unequal distribution of income which tilts towards the top.^[55] As a result, the mean tends to be higher than the median income, with the top earning households boosting it. Overall, the mean household income in the United States, according to the US Census Bureau 2004 Economic Survey, was $60,528, or $17,210 (39.73%) higher than the median household income.^[60]

The mean household income for households headed by persons identifying as White alone was $65,317, $40,685 for those headed by persons identifying as African American or Black, $45,871 for those headed by persons identifying as Hispanic or Latino, and $76,747 for those households headed by persons identifying as Asian alone. Approximately one third, or 36.5%, of all households earned more than the mean income, while 63.5% earned less than the mean.^[60]

[edit] See also

• Affluence in the United States
• Economy of the United States
• Educational attainment in the United States
• List of the poorest places in the United States
• Marriage gap
• Personal income in the United States
• Poverty in the United States
• Social class in the United States
• Median household income in Australia and New Zealand
• Datasets by US State of low income, very low income, extremely low income limits

[edit] References

[edit] External links

• Income, Poverty, and Health Insurance Coverage in the United States: 2003
• US Census Bureau's web-site for income statistics
• NPR.org statistics and background on income inequality in the United States

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