# Reality Check: Income

Our culture in the U.S. tends to over-estimate just how rich most people are.  Hollywood TV shows and movie routinely show “middle class” families in houses that are anything but middle class.  Our political rhetoric tends to do the same – witness last fall’s arguments by Republicans that incomes of over \$250,000 are actually just middle-class and anything but rich. So it helps to do a reality check.  Here (thanks to Brad Delong for finding this) U.S. Census data for the year 2007 (just before the big Recession).  It shows median income by age bracket and by gender in the U.S.

Reminder for those for whom stats class was long ago and far away:  The median income is that level of income where there are just as many people with incomes greater as there are people with incomes that are less.  In a statistic like income, which is limited at one end of the distribution (can’t have an income less than zero, bu t you could have an income in the billions at the other end), and particularly when a large number of people are clustered toward the lower (bounded) end, the median will always be less than the mean.  Example: suppose we have 5 people. Two people have an income of \$10, one has a \$25,000 income, and two have a \$100,000 income.  The median income is \$25,000 – two less than that and two more than that.  The mean (or arithmetic average) is \$45,004.  In economics, we like to use the median. It is more indicative  or representative of the typical income.

Observations:

• I’m not surprised by how low the numbers are, although I suspect many people will be.  Yes, \$45,000 per year is only a typical income for men and then only if they are in the prime earning years of age 35-54. That’s \$21.63 per hour for a 40 hour x 52 week year. Many young folks think they’ll do a lot better as they grow up.  The data say that only 50% will beat that number.
• I’m also not surprised, but expect many will be, by how low the income number is in retirement for the over-65 crowd.  So much for the media and industry hyped visions of everybody retiring to Florida and living on the golf course and traveling the world.  Not on \$24,000 a year.
• What I am surprised at is that for both men and women, by age 35 the big-increase-in-income days are largely over.  From 35-55 it’s largely about as good as it’s going to get.
• Of course, the female numbers are lower than the male, but there are reasons for that. Some reasons are not really good, such as gender discrimination in wages.  But a large part of the lower female numbers reflects the fact the female workforce participation is much lower than male, particularly in the prime working years (in other words, there are more non-working women of that age than there are non-working men). Finally another reason for the discrepancy is the differences in hours worked and in occupations chosen.  But that calls for another post sometime.

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