Problems With Census Bureau Household Income Number

The New York Times is reporting that we had "A Decade With No Income Gains." The Census Bureau’s annual report on income, poverty and health insurance shows that median household fell to $50,303 last year, from $51,295 in 1998, in constant dollars.

There are four serious problems with the statistic. One, it does not track an individual household over time. When one does a longitudinal study, looks at households that existed at the beginning and end of a decade, there is income growth.

Two, because a household is any unit of people living in the same residence, as the population grows, there are more new households, especially in 2007 before the economic downturn. New households tend to be younger and have lower incomes, which lowers the average and median.

Three, we are in the period where baby boomers are retiring. The Census bureau does not count spending savings or wealth as household income. Their work income declines and makes the household income number look lower. Plus as people live longer, there are more senior households with lower reported incomes, especially since government programs, such as Medicare, food stamps, subsidized senior housing, and other transfer payments do not count towards income.

Fourth, the Census numbers come from a household survey. The Census Bureau states in the report, "Moreover, readers should be aware that for many different reasons there is a tendency in household surveys or respondents to underreport their income." To make any statement about a change in household income over a decade, one has to assume that the sample of persons responding a decade ago, misstated their income by the same amount as those responding recently to the survey. It is pure speculation that the amount of under-reporting is a constant over time.

When one tracks a household over time, there is income growth. Additionally, the amount of work hours needed to purchase necessities, such as food and clothing, continues to decline and we have more cash available for other purchases, such as LCD TVs, laptops, etc.

The full government report, "Income, Poverty, and Health Insurance Coverage in the United States: 2008" is available here.