After declining over the past three years, real median household income made a pronounced jump in 2023 up to its prepandemic level, likely a result of more full-time employment in the economy as workers filled open positions.
The latest numbers from the Census Bureau, which include a drop in the overall poverty rate, offer signs of renormalization in economic conditions following years of surprises in the data that threw policymakers for a loop.
Inflation-adjusted median U.S. household income increased in 2023 for the first time in four years to $80,610, a 4 percent jump that tracks roughly with wages over that period.
Census Bureau officials attributed the jump to people doing more full-time work in the economy and to more people working in general. Between November 2022 and November 2023, there were about 2.5 million more full-time workers in the economy, while the civilian labor force grew by about 3.7 million people over the same period.
“From 2020 to 2022, we saw a shift in the composition of the workforce, more part-time shifting over to full-time, year-round employment,” Liana Fox, an assistant division chief with the Census Bureau, told reporters Tuesday. “Earnings are really driving the story of what’s happening with household income. We’re seeing people are working more.”
The boost in full-time work in 2023, which likely has been bolstered by a stream of immigration in recent years, follows a spate of interest rate hikes by the Federal Reserve designed to tighten employment conditions.
In April, Federal Reserve Chair Jerome Powell credited a portion of the economy’s surprisingly strong performance to immigration and “significantly more people working in the country.” Earlier this year, the Congressional Budget Office measured 1.6 million more people working in the economy than the regular Census estimate.
2023 started off with two open jobs for every job seeker. As of July, the economy has 1.07 available jobs for every person out of work.
Constraining that figure to private-sector employment, there are now more job seekers than available jobs in the economy, marking an end to the postpandemic’s worker-friendly labor environment that allowed people to change jobs with relative ease.
Tuesday’s Census release also showed a downtick in the narrower official poverty measurement (OPM) along with an uptick in the broader supplemental poverty measurement (SPM) that accounts for the effects of pandemic-era stimulus payments. While the Census stressed this divergence was mostly due to updated reporting thresholds, economists noted the loss of pandemic rescue measures is also likely at play in the increase in the more broadly measured poverty rate.
“A lot of what we’re seeing is mechanical, based on how pandemic-era aid and inflation are counted in the [SPM] but not the [OPM]. For people, the loss of those benefits can be really meaningful, especially when we know the cost of food is rising. This has real implications for families’ ability to put food on the table,” said Kristin Seefeldt, acting faculty director of Poverty Solutions at the University of Michigan, in a commentary.
Among the pandemic rescue measures that alleviated poverty across America in the aftermath of the pandemic, the boosted child tax credit has spent a good deal of time in the limelight for contributing to a significant reduction in child poverty.
It has even played a role in the presidential election — Democrats brought it up for a vote in the Senate over the summer as part of a broader potential tax deal to place the issue of child poverty front and center. The measure failed because of Republican opposition.
But poverty experts caution the credit has received too much attention, and the decline and subsequent rise in child poverty following the pandemic really was due to the introduction and expiration of an array of economic measures that spanned economic impact payments, the earned income tax credit and, more recently, food stamps, among others.
“The prevailing discussion is really misleading on why there were these wild swings. I think erroneously people attributed it to the child tax credit, but in fact the stimulus payment and unemployment insurance were a bigger factor in the wild swings in the supplemental poverty measure in the pandemic,” University of Chicago public policy professor Bruce Meyer told The Hill.
Meyer called the increase in thresholds for the broader poverty measure “very complex, contrived” and as much a matter of “philosophy” as econometrics.
“The poverty data are … somewhat complicated, but point to steady or falling poverty in 2023 using measures that adjust for inflation,” said Sharon Parrott, president of the Center on Budget and Policy Priorities, in a statement.
One of the economic trends stemming from the postpandemic period that appears to be continuing rather than renormalizing is the phenomenon of wage compression, which refers to people at the lower end of the income spectrum seeing greater gains on their income relative to people who make more.
People in the lower 10th percentile saw their money income increase by 6.7 percent from 2022 to 2023, while people at the 50th percentile saw an increase of 4 percent and people at the 90th percentile saw an increase of 4.6 percent.
After taxes, those effects were less muted, evincing more favorable taxation at the higher end of the income spectrum, with the 90th percentile seeing gains of 5.4 percent and the 10th percentile seeing 5.3 percent gains. Middle-income Americans fared the least well in pretax and posttax gains.
“Other welcome news include that income for lower-income households rose faster than for those at the median or at the top,” economists Elise Gould and Josh Bivens of the Economic Policy Institute wrote in a commentary. “This significant increase for lower-income households led to a drop in the official poverty rate of 0.4 percentage points to 11.1% in 2023.”
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