STRONG INCOME GROWTH, FALLING POVERTY RATES IN '98, YET INEQUALITY UNCHANGED
Jared Bernstein and Lawrence Mishel Economic Policy Institute
September 30, 1999
Income and poverty data for 1998, released today by the U.S.
Census Bureau, show that American families are clearly
benefiting from the tight labor market and the strong
economy. Median family income grew by $1,475 in 1998, a 3.3%
increase over 1997 (all values are adjusted for inflation) and the
largest one-year gain since 1986. Taken in tandem with last year’s
growth of 3.0%, median workers have not had two such strong
consecutive years in well over two decades.
Poverty fell by one-half a percentage point and, for the first
time in the recovery, is back to its 1989 level, the year of the
most recent business-cycle peak.
Despite this good news, income inequality was unchanged,
and remains at its highest level since the Census began
tracking these data in 1947. In fact, family income inequality has
not declined at all over the 1993-98 period. With the economy
currently performing very well by most indicators, this is a worrisome
outcome, suggesting that inequality is highly intractable and that
more will have to be done to address it.
While family income growth over the past two years has been
strong, income growth in the 1990s has been unimpressive in
historical terms. Using annualized growth rates to compare
business cycles of different lengths shows that real median family
growth in the 1990s of 0.4% per year now equals the growth rate of
the 1980s (also 0.4%). Median family income grew at more than
twice this rate in the 1970s (1.0%), and even faster in the 1950s
and 1960s (2.6% and 3.4%, respectively). It would take three more
years of the current growth rate, uninterrupted by recession, for the
median family to return to the 1% annual gain that prevailed over the
1970s.
Income growth for middle income families is mostly driven by
their earnings. Here, too, the Census data show considerable
growth, particularly for male workers. The inflation-adjusted median
earnings of men working full time and year-round grew by 3.4% in
1998, the largest gain for this group since 1972. Earnings for
women workers grew by 2.0%, a deceleration from their 3.0% gain
last year. Thus, the gender-earnings gap grew slightly (though the
Census points out that this increase was statistically insignificant).
Family income growth was fairly even among income classes, and
thus the share of national income going to each quintile of the
income scale was unchanged from last year. Average income
growth for the least well-off families—the bottom 20%—was 2.3% in
1998, compared with 3.1% for the middle fifth and 3.3% for the top
fifth. Since 1989, however, real family income has grown only 0.7%
for the bottom fifth, 3.8% for the middle, and 15.6% for the top fifth.
For the affluent families in the top 5% of the income scale, average
income grew by 26.3% in the 1989-98 period.
Since 1996, the strong economy has clearly lifted the
economic prospects of working families throughout the
income scale, many of whom benefited little from the
recovery before that point. The fact that the economy has been
operating at or close to full employment since 1997 is the most
important explanation for these positive results. Nevertheless, these
salutary economic conditions have failed to lower historically
unprecedented rates of income inequality. If the strongest economy
in 30 years is unable to ameliorate this serious economic and
social problem, there is a strong rationale for pursuing public
policies that can.
—Jared Bernstein and Lawrence Mishel
The Economic Policy Institute INCOME PICTURE is published
annually month upon release of the Bureau of Labor Statistics'
employment report.