After declining over the previous three years, real median household income rose notably to pre-pandemic levels in 2023, likely as a result of workers filling vacant positions and increasing full-time employment in the economy.
The latest Census Bureau data, including a decline in the overall poverty rate, show signs that economic conditions are normalizing after years of data surprises that baffled policymakers.
Adjusted for inflation, U.S. median household income will rise for the first time in four years to $80,610 in 2023, a 4% increase roughly in line with wage growth over the same period.
Census Bureau officials say the increase is due to more people working full-time in the economy and more people in the workforce in general. Between November 2022 and November 2023, the population grew by about 2.5 million people. Full-time workers In the economy, Civilian Workforce During the same period, the population increased by approximately 3.7 million.
“From 2020 to 2022, we've seen a shift in the composition of the workforce, with a shift from part-time workers to full-time, year-round employment,” Census Bureau Deputy Director Leanna Fox told reporters on Tuesday. “Income is a key part of telling the story of what's happening with household income. We're seeing people working more.”
The increase in full-time employment in 2023 was likely fueled by recent immigration, but it follows a series of interest rate hikes by the Federal Reserve aimed at tightening employment conditions.
In April, Federal Reserve Chairman Jerome Powell said the economy's surprisingly strong performance was due in part to immigration and “a large increase in the number of people working in the country.” Earlier this year, the Congressional Budget Office said Over 1.6 million people are more economically active than regular census estimates.
We started 2023 with two open jobs for every job seeker. As of July, there are 1.07 open jobs in the economy for every unemployed person.
If we restrict this figure to private sector employment, the number of job seekers in the economy exceeds the number of job openings, bringing to an end the post-pandemic worker-friendly work environment in which people could change jobs relatively easily.
Tuesday's Census release also showed that the narrower Official Poverty Measure (OPM) fell while the broader Supplemental Poverty Measure (SPM), which factors in the impact of pandemic-era stimulus payments, rose. The Census stressed that the discrepancy was primarily due to updates to reporting standards, but economists noted that the loss of pandemic relief also likely contributed to the rise in the more broadly measured poverty rate.
“Much of what we're seeing is mechanical, based on how pandemic-era aid and inflation are counted in the statistics. [SPM] but, [OPM]”For people, the loss of these benefits really means a lot, especially when they know food prices are rising. This has real implications for families' ability to put food on the table,” Christine Seifert, acting dean of the University of Michigan School of Poverty Solutions, said in an opinion piece.
Among the pandemic relief packages that have reduced poverty across America since the pandemic, the increase in the Child Tax Credit has long been highlighted as contributing to the largest reductions in child poverty.
The bill also had an impact on the presidential election: Democrats brought it up for a vote in the Senate over the summer as part of a broader tax deal that made child poverty a top priority, but it died over Republican opposition.
But poverty experts warn that too much focus has been placed on the credit, saying the decline in child poverty after the pandemic and its subsequent rise were due to the introduction and expiration of a series of economic stimulus measures, including Economic Impact Payments, the Earned Income Tax Credit and, most recently, food stamps.
“The common argument for why there was such a big swing is really misleading. I think a lot of people mistakenly think it was the child tax credit, but in fact the stimulus checks and unemployment insurance were the bigger drivers of the big swings in the supplemental poverty measure during the pandemic,” Bruce Meyer, a public policy professor at the University of Chicago, told The Hill.
Meyer described raising the thresholds for the broader poverty measures as “highly complicated and unnatural” and a matter of “philosophy” as much as econometrics.
“The poverty data is somewhat complicated, but using inflation-adjusted measures, they suggest poverty will stabilize or decline by 2023,” Sharon Parrott, president of the Center on Budget and Policy Priorities, said in a statement.
One economic trend that began in the post-pandemic period and appears to be continuing rather than normalizing is the phenomenon of wage compression, which means that those at lower income levels experience larger income increases than those at higher income levels.
Those in the bottom 10th percentile saw their cash income increase by 6.7% from 2022 to 2023, while those in the 50th percentile saw an increase of 4% and those in the 90th percentile saw an increase of 4.6%.
After taxes, these effects were less muted, with higher income brackets seeing more favorable tax treatment, with the 90th percentile seeing a 5.4% increase and the 10th percentile seeing a 5.3% increase. Middle-income Americans were the worst off in both pre-tax and after-tax gains.
“The other good news is that incomes for low-income households grew faster than those for middle-class and upper-income households,” economists Elise Gould and Josh Bivens of the Economic Policy Institute wrote in an editorial. “The strong gains for low-income households will help push the official poverty rate down by 0.4 percentage points to 11.1 percent in 2023.”
