Income Growth and Selective Endpoints

James Joyner of Outside The Beltway comments on a Wall Street Journal article which notes that over the period 2000-2007, inflation-adjusted income has gone up only for people with professional degrees (doctors, lawyers, accountants, MBAs, etc). The article treats this as a long-term trend, and speculates on the causes. It’s my opinion that when analysing long-term trends, one must look at long-term data. Over a seven year period, your data is swamped by the business cycle, especially if you take as your starting point the peak of the dot-com bubble.

Presented for your approval is a long-term analysis of real (inflation-adjusted) income by percentile (at quintile boundaries and the 95th percentile) from Census Bureau data:

Ignore the green line — I made these graphs in response to NAFTA-bashing during the Democratic primaries to demonstrate the complete absense of a major effect on employment or wages from when NAFTA went into effect, but it’s irrelevant for the purposes of this post.

Top graph is raw income. Bottom graph is year-over-year change.

I’m using household income rather than individual income because it’s available by quintile, and I’m using quintiles rather than educational attainment because educational attainment understates income growth (as more people are getting more formal education now than in the past, we may be comparing today’s 50th percentile to 1980′s 70th percentile). It should be noted, however, that household income may overstate or understate wage growth as there are long term trends for more single-adult households, but in two-adult households it’s been becoming more common for both adults to work.

Now that the statistical notes are out of the way, here are my conclusions from the data:

• While income is rising faster for the relatively richer segments of society, over the long term income is rising for all brackets.
• The “rich” don’t seem to be getting richer at the expense of the poor. Quite the contrary, it seems that in boom times everyone does well, and in recessions everyone does poorly.
• The long-term trend towards higher incomes is swamped in the short term by the business cycle.
• Bush’s first term was dominated by a recession-related decline in real wages which started before Bush took office. The decline has ended and growth has resumed, but wages have yet to recover to pre-decline levels.

The data seems to confirm my prior belief that the best way to help the poor is to improve the overall economy: making everyone richer rather than making the rich poorer. The effect that the Wall Street Journal article is bemoaning seems to mainly be a function of their endpoints — those with professional degrees have merely recovered from the 2000-2004 decline slightly ahead of those in other educational brackets.