Skip to main content

The Globe and Mail

The U.S. income trap: A problem that won’t go away

Sindia Lozada, left, holds Josue Ramirez, her neighbour’s son, as Frank Gilbert looks on in Oakland, Calif., in a file photo. The latest U.S. census reveals that real median household income remains 8.3 per cent below its level in 2007, the year before the recession began.

MARCIO JOSE SANCHEZ/AP

Three years into the U.S. economic recovery, the expansion has yet to increase the earnings of the typical American family or to dent growing income inequality.

Household incomes in the United States failed to register any gains in 2012 and the poverty rate remained unchanged, according to data released Tuesday by the U.S. Census Bureau.

The annual report paints a picture of a recovery that is strong enough to prevent the majority of Americans from slipping backward in economic terms – but not robust enough to propel them forward.

Story continues below advertisement

And it raises fresh concerns about the unequal nature of the expansion, as the benefits of economic growth flow largely to the wealthiest Americans.

"The poverty and income numbers are a metaphor for the entire economy," said Ron Haskins, a senior fellow at the Washington-based Brookings Institution, in a statement. "Everything's on hold, but at a bad level … don't expect things to change until the American economy begins to generate more jobs."

Last year, the median household income was $51,017 (U.S.), adjusted for inflation, nearly the same as in 2011. From one standpoint, this was a positive development: It was the first time since 2007 that household incomes did not register a marked decline.

But it also underscores the ineffectiveness of the economic recovery in improving the earnings of average Americans. In 2012, real median household income remained 8.3 per cent below where it was in 2007, the year before the recession began. It was 9 per cent lower than its peak, touched in 1999, which means that middle-class incomes have lost ground for more than a decade.

The census data showed that the poverty rate in 2012 was 15 per cent – unchanged from a year earlier – which represents 46.5 million people living at or below the poverty line. The poverty rate is 2.5 percentage points higher than it was in 2007.

Nearly 12 per cent of American families – and 22 per cent of American children – live in poverty, according to the figures released Tuesday. The official poverty threshold for a family of four in 2012 was annual income of $23,492.

The poverty rate has "levelled off in a sense, but levelling off at a pretty high rate is pretty terrible," said Elise Gould of the Economic Policy Institute, a think tank in Washington.

Story continues below advertisement

Tuesday's data also showed that the economic recovery has not blunted income inequality. The Gini index – a measure of household income inequality – did not change in 2012 from a year earlier. However, the 2011 figure was a record, the highest since 1967, when the government began tracking it.

On Monday, in a speech marking the five-year anniversary of the financial crisis, U.S. President Barack Obama highlighted the skewed nature of the recovery. "Even though our businesses are creating new jobs and have broken record profits, the top 1 per cent of Americans took home 20 per cent of the nation's income last year, while the average worker isn't seeing a raise at all," he said.

The trend in recent decades, exacerbated by the recession, is toward "a winner-take-all economy, where a few do better and better and better, while everybody else just treads water or loses ground," Mr. Obama said.

The census data confirm that wealthier Americans are taking an increasing chunk of overall income. In 2012, the top 5 per cent of American households – those earning more than $191,000 – captured 22.3 per cent of aggregate income, more than they did in 2007. By contrast, the bottom 40 per cent of American households – those earning less than $40,000 – captured 11.5 per cent of aggregate income, less than they did prior to the recession.

That's also consistent with the findings of researchers who have noted that the recent economic recovery is unusual for the degree to which its gains are going to the richest Americans.

Earlier this month, Emmanuel Saez of the University of California published a paper that examined the growth in incomes, adjusted for inflation, since the end of the recession. His data indicated that the top 1 per cent of American earners captured 95 per cent of the growth in income since 2009. That figure is much higher than in previous economic expansions.

Story continues below advertisement

One silver lining in Tuesday's data: more Americans have health insurance than they did in 2011. The percentage of people with insurance rose to 84.6, from 84.3 a year earlier.

Report an error Licensing Options
About the Author
U.S. Correspondent

Joanna Slater is an award-winning foreign correspondent for The Globe based in the United States, where her focus is business and economic news and New York City.Her career includes reporting assignments in the U.S., Europe and Asia. In 2015, she was posted in Berlin, Germany, where she covered Europe’s refugee crisis. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Globe Newsletters

Get a summary of news of the day

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.