October 20, 2014

The Lost Decade of Income

The terrible recovery continues. Slow economic growth and high unemployment have kept household income on a downward trajectory.

A recently released Census Bureau report (PDF) reveals that real household money income fell again in 2011, marking the fourth straight annual decline. Median household real money income is now 9 percent off its 2000 peak.

Moreover, the typical American household now has 11 percent less money income than if the trend in income growth present from 1967 to 2000 had persisted through 2011.

Real Household Income Over Time

Source: Created from U.S. Census data

In the figure above, I have plotted household money income measured in inflation-adjusted terms. As you can see, from 1967 to 2000, American households experienced a positive linear trend in real income.

Over the period, American households’ real money incomes increased by nearly one third, rising by an average of 0.9 percent per year.

From 1993 to 2000, the real rate of household income growth was particularly high – 1.9 percent per year on average – as the growth moved from below the historical trend line to above it. But in the early 2000s, real household income dropped, falling back to the long term trend by 2003.

From 2003 to 2007 real household money income growth moved almost perfectly along the long term trend line. However, after the Financial Crisis and Great Recession hit, household income began to drop, with income falling 4 percent in real terms between 2007 and 2009.

The end of the economic downturn in 2009 did little to change this decline, with income dropping an additional 4 percent in inflation-adjusted terms between 2009 and 2011. The end result is the current low level, well below the long term trend.

If household income had kept to 1967-to-2000 trend through 2011, household money income would have been nearly $58,000 in inflation-adjusted terms, rather than slightly over $52,000. That’s nearly $5,700 less than what it would have been had the long term trend continued.

To me the $5,700 in missing income at the typical household exemplifies America’s lost decade.

4 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

4 Reactions

  1. Well, being that you’ve only included data from 1967 on and this has been our worst economic slump since the 1930s, that makes sense.

    No one would argue that we’re in a recession.

    Also, please note how there are times on your graph when actual income drops below your trend-line for nearly a decade…

    In other words, this process is not unusual for capitalism. It is actually quite natural.

  2. Wow, what a significant loss. Hopefully things will turn around soon.

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