Consumer Vitality with an Eroding Middle ‐ Class (Abridged Version) 1 Claudia J. Heath, PhD Professor Department of Family Sciences University of Kentucky Keynote Presentation March 10, 2016 Biennial Meeting of Family Economics and Resource Management Association (FERMA) New Orleans, LA 1 Contact author at cjheath@uky.edu for the complete presentation.
Purpose The purpose of this presentation is to use existing statistics and reports to highlight economic conditions prior to and since the Great Recession; while providing documentation of historic trends. The focus will be on the consumer: income, wages, and benefits, along with expenditures and consumption patterns. • All information is from Federal agency statistics, reports, and publications.
Median Income 1985 ‐ 2013 Source: 2015 Economic Report of the President (CEA, 2015, p. 29)
Median Income 1985 ‐ 2013 • Real median family income fell significantly during and after the Great Recession and has been slow to recover. (CEA, 2015) • During 2012, the median family earned $62,241—essentially unchanged from the previous year—and was still 8% below its previous peak. (CEA, 2015) • In 2012, real median family income was less than it was in 1997. (CEA, 2015) • However, during 2013, median family income began to rise. (CEA, 2015) • In 2013, real median family incomes were at mid ‐ 1990s levels. (CEA, 2015) Source: 2015 Economic Report of the President (CEA, 2015, p. 29)
Chart source: DeNavas ‐ Walt, C. & Proctor, B. D. (2015, p. 5)
• In 2014, median household income was $53,657. • Real median household income was 6.5 % lower in 2014 than in 2007. • Also note year of previous median household income peaked: 1999 Source: DeNavas ‐ Walt, C. & Proctor, B. D. (2015, p. 5)
Share of Income Earned by Top 1% Chart source: 2014 Economic Report of the President (CEA, 2014, p. 41 )
• Since the late 1970s, the U.S. has experienced a major increase in income inequality. (CEA, 2014) • Administrative tax records indicate that in 2012, the top 1% of tax units—earning an average of greater than $1M per unit—received 19.3% of total income, excluding capital gains. (CEA, 2014) • The 19.3% of total income was the greatest share of income going to the top 1% since 1928. (CEA, 2014) Source: 2014 Economic Report of the President (CEA, 2014, p. 41 ‐ 42 )
Share of Income by Quintiles and Top 5% Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households: 1967 to 2014 60.0 50.0 40.0 30.0 20.0 10.0 0.0 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Lowest Second Third Fourth Highest Top 5 fifth fifth fifth fifth fifth percent Chart by Heath (2016): Data source U. S. Census (2015)
• Share of household income in 2007 to 2014, respectively; where quintile is 20% of population: – Lowest quintile: 3.4% to 3.1% (declined) – Second quintile: 8.7% to 8.2% (declined) – Third quintile: 14.8% to 14.3% (declined) – Fourth quintile: 23.4% to 23.2% (declined) – Highest quintile: 49.7% to 51.2% (increased) • Top 5%: 21.2% to 21.9% of household income (increased) Heath (2016): Data source U. S. Census (2015)
Benefits—Retirement Plan Chart source: Bureau of Labor Statistics (May 2015, p. 13)
Regarding private industry workers in 2014 with access to employer • provided retirement benefits: – Access was 27% among the lowest paid 10% of workers. – Access was 88% among the highest paid 10% of workers. – Workers in the highest wage groups were more likely to have access to defined ‐ benefit retirement plan than workers in the lower wage groups. • Greater than a third in the top 25% and top 10% had offers • Only 5% in the lowest 25% and 4% in the lowest paid 10% had offers – Workers in the highest wage groups were more likely to have access to defined ‐ contribution plans than workers in the lower wage groups. • In the top 25%, 80% of workers had access and within the top 10%, 85% of workers had access. • In the lowest paid 25%, 36% of workers had access and within the lowest paid 10%, 25% of workers had access. Bureau of Labor Statistics (May 2015, p. 13)
Benefits—Retirement Plan Chart source: Bureau of Labor Statistics (May 2015, p. 14)
• For workers with employer offered retirement benefits in 2014: – Among top 10% of wage earners, 89% chose to participate – Among lowest paid 10% of wage earners, 39% chose to participate – For defined ‐ benefit plans: • Among highest paid 10%, “take ‐ up rate” was 86% • Among lowest paid 10%, “take ‐ up rate” was 56% – For defined ‐ contribution plans: • Among highest paid 10%, “take ‐ up rate” was 85% • Among lowest paid 10%, “take ‐ up rate” was 36% Bureau of Labor Statistics (May 2015, p. 14)
Benefits ‐‐ Healthcare • Healthcare benefits more likely to be offered to higher earners Chart source: Bureau of Labor Statistics (May 2015, p. 15)
Benefits ‐‐ Leave • Leave benefits more likely to be offered to higher earners Chart source: Bureau of Labor Statistics (May 2015, p. 16)
Expenditures Chart source: Bureau of Labor Statistics (May 2015, p. 18)
Expenditures • Households with top 20% of income outspent the combined lowest 60%. • Spending of households with top 20% of income compared to lowest 20%, respectively: – Housing: $30,901 compared to $8,963 – Transportation: $16,860 compared to $3,327 – Personal insurance and pensions: $15,443 compared to $463 Bureau of Labor Statistics (May 2015, p. 18)
Chart source: Bureau of Labor Statistics (May 2015, p. 19)
Quality of Life/Economic Well ‐ Being American households experienced trillions of dollars of wealth • disappear as a result of the sharp downturn in the financial markets, i.e., as a result of the Great Recession. By the end of 2013 household wealth had regained 80% of the large • decline due to gains in housing and stock prices and debt reduction by household. Households’ debt service ratio—debt payments on mortgage and • consumer debt relative to disposable income—was 9.9% by the latter part of 2013; down from 13% in 2007. Gains have been uneven. Middle ‐ income households have a larger • share of wealth/net worth in the value of their homes. Home values have not recovered “as sharply” as equities generally held by higher income households. CEA (2014) 2014 Economic Report of the President (p. 30)
References Council of Economic Advisors (2014) Economic report of the president 2014, U.S. Government Printing Office, Washington, DC. Retrieved from https://www.whitehouse.gov/sites/default/files/docs/full_2014_economic_report_of_the_pre sident.pdf Council of Economic Advisors (2015) Economic report of the president 2015, U.S. Government Printing Office, Washington, DC. Retrieved from https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp_complete.pdf DeNavas ‐ Walt, C. & Proctor, B. D. (2015) U.S. Census Bureau, Current Population Reports, P60 ‐ 252, Income and poverty in the United States: 2014, U.S. Government Printing Office, Washington, DC. Retrieved from https://www.census.gov/content/dam/Census/library/publications/2015/demo/p60 ‐ 252.pdf Furman, J, Black, S., & Shambaugh, J (February, 2016) Economic Report of the President 2016 Retrieved from https://www.whitehouse.gov/blog/2016/02/22/2016 ‐ economic ‐ report ‐ president U.S. Bureau of Labor Statistics (May 2015). A look at pay at the top, the bottom, and in between. Retrieved from http://www.bls.gov/spotlight/2015/a ‐ look ‐ at ‐ pay ‐ at ‐ the ‐ top ‐ the ‐ bottom ‐ and ‐ in ‐ between/pdf/a ‐ look ‐ at ‐ pay ‐ at ‐ the ‐ top ‐ the ‐ bottom ‐ and ‐ in ‐ between.pdf. U.S. Census Bureau (2016) Current Population Survey, Annual Social and Economic Supplements. Retrieved from https://www2.census.gov/programs ‐ surveys/cps/tables/time ‐ series/historical ‐ income ‐ households/h02ar.xls
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