Hourly earnings up, but household income down … say, what?

Great analysis by Prof. Mark Perry (AEI Scholar) … entire analysis is worth reading … here’s the essence of the argument.

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Question: It’s oft-reported that household income has been falling … but, digging into the data, hourly earnings have been increasing.

How can that be?

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According to Prof. Perry’s analysis, the answer lies in “mix” – the composition of households ….

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First, Prof. Perry points out that there is an understandably strong correlation between household income and the number of hours worked by household members.

 

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Of course, the drop in hours worked per household can be the result of a couple of things: (1) fewer hours worked by each working member of the household, or (2) fewer people in the household working.

Much has been made of the “part-timing” of America … companies constraining the number of hours that employees’’ work in order to dodge ObamaCare mandates.

That’s probably part of it.

But, a much bigger deal ties to the number of people in each household who work.

The recent trend: an increase in the number of households with no “earners” … with an offsetting decrease in the number of households with 2 or more earners.

 

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Fewer earners per household?

What’s going on with that?

A couple of likely explanations …

(1) Smaller households … think, single parents

(2) Labor force participation rate (LFPR) … fewer people working or looking for work

(3) Demographic shifts … which partially explain the LFPR trends

Specifically, Prof. Perry points to baby boomer retirees as a an increasing part of the population mix.

Note that retirees hung at about 15% until 2008.

Since then, the percentage has steadily increased to 17% … and is projected to go higher

 

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By simple arithmetic, if mature workers who are earning near the high end of their lifetime pay scales call it quits … and start living on their IRAs and Social Security (classified as “income”, but not “earnings”) … their household earnings drop precipitously (i.e. go to zero).

To the extent that they – the retirees – make up an increasingly statistically significant part of the population … wages can go up for those who are still working … while median household earnings go down,

It’s as simple as that …

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Thanks to GFB for feeding the lead …

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