Average household income is one of the most frequently quoted economic benchmarks in popular media, most likely due to its broad familiarity in the lives of working-class Americans. Of course, this frequently implies that regular Americans feel they fully comprehend the context and implications of average household income in regard to the American economy. But actually, this economic indicator is more complex than it first looks.
In the United States, for example, average household income is estimated using a sophisticated technique rather than a simple calculation. Furthermore, average household income does not always account for mitigating circumstances that might cause the “actual” median amount to change. Nonetheless, average household income in a particular year is not an island, andshould be viewed as a component of multiple bigger trends
To grasp typical household income, you don’t need a degree in economics. Instead, you can learn more about this key economic indicator by reading this quick primer on average household income in the United States. With this knowledge, you’ll be able to better understand one area of the American economy in general, particularly as it applies to individual families and their income in the future.
Factors Affecting Average Household Income
A variety of factors impact average household income in the United States. Economic factors, demography, and government policy are examples of these.The cost of living, for example, is a significant element that might influence how much money a household makes. Furthermore, characteristics such as education level (high school, bachelor, etc.) and job experience influence income.
Asian Americans, for example, may have lower average household incomes than other racial and ethnic groups in the United States, owing to differences in lifestyle and economic prospects. And, for example, New York City has a greater cost of living than other regions of the country, which might have an influence on inhabitants’ salaries.
Hispanic Americans’ income levels can vary based on their country of origin and other reasons. A Mexican American resident in the United States, for example, may have a lower average household income than a Mexican resident in Mexico, or vice versa. Everything is determined by an individual’s financial level, educational achievement, and job experience.
Work status is another major element that might affect average household income. A home with one full-time employee and one part-time employee, for example, will have a greater average income than a household with two part-time employees. This is because full-time employees often earn more than part-time employees.
A household’s demographic makeup also has an effect on average household income. A home with more children, for example, will have a higher average income than a household with fewer children. This is because children often contribute more to a family’s income than adults do.
Healthcare expenditures also influence typical household income. Healthcare expenditures also influence typical household income. Earners with health insurance often make more than those without, while families with greater healthcare expenditures typically earn less.
Household income distributions also change substantially from year to year. This is because income is influenced by a variety of factors, including economic success, inflation, and taxation. In addition, ethnicity and household size can have a substantial influence on income.
Poverty rates fluctuate from year to year, affecting the average family income of those living in poverty. For example, the Great Recession resulted in a significant increase in the number of individuals living in poverty, which has since gradually decreased. However, the yearly household income remains lower than the average household income of all other households.
Household income levels vary substantially from state to state. This is because various states have varied tax arrangements, which can affect people’ salaries. California, for example, has a higher income tax rate than other states, which might result in a higher average family income in that state.
The state of Massachusetts has a progressive income tax system, which means that the tax rate rises as a household’s income rises. As a result, Massachusetts has a higher average household income than other states. In contrast, several states have a flat income tax rate, which implies that all families pay the same percent of tax.
Household Income in the United States in 2022
The most trustworthy average household income estimates are currently available from the US Census.The most recent credible average household income numbers from the US Census Bureau are from 2017, as collected in the short-form census. According to the US Census Bureau, the “actual” average household income in 2017 was $61,372. This amount was up 1.8% from the previous year, when it was $60,309. This was the second year in a row that the national figure climbed.
While this shows a net rise according to the median statistical model, 2017’s average household income constituted another step in numerous continuing trends, including a smaller middle class as a result of rising income inequality (see “Current Trends” for more information).
How to Calculate Average Household Income
Average household income may be calculated in a number of ways, depending on the organisation or institution that begins the computation. However, the approach used by the US Census Bureau is among the most commonly acknowledged, particularly given its usage inside the US government to change existing financial policies.
To calculate total household income, the US Census Bureau has (since 2009) added the entire value of the following values for all household members aged 15 and up:
- Wages, salaries, commissions, bonuses, and gratuities from all employment before tax deductions
- Net revenue from self-employment after business expenditures
- Checking and savings accounts, money market funds, individual retirement accounts (IRAs), retirement plans, and government bonds all pay interest.
- Dividends from stocks received, credited, or reinvested
- Profits or losses resulting from the renting of land, buildings, or real estate
- Social Security monetary benefits
- Profits from public assistance or welfare payments, such as SSI Retirement, survivor, or disability pensions from corporations, unions, and government employers
- Income from (but not limited to) Veterans Administration (VA) benefits, unemployment compensation, child support, alimony, and private charity help
All household members examined using this technique do not have to be linked to the on-record head of household for their income and other financial indicators to be deemed part of the “household” at large. Similarly, the resultant average household income number is not distributed depending on household size, making it more difficult to compare any two average household income estimates in the absence of further information.
Overall, this calculating method is intended to take into account only revenue that is directly tied to monetary gain or loss. This estimate excludes any family debt or non-monetary assets. As a result, average family income data derived from this technique should be used primarily for assessing basic economic position (especially as it relates to employment).
Recognizing “Real” Household Income
As previously stated, the traditional method used to establish average household income ignores a number of contextual elements that may cause a household’s income to change in relative terms. Inflation is one such element, and it has a significant influence on the real “value” of a household’s income in terms of so-called “buying power.”
To compensate for these flaws, some authorities compute “real” average household income numbers using inflation-adjusted inputs. This allows you to compare average family income numbers from different time periods. This is especially true when comparing peak and base household earnings during economic downturns, such as the current 2008 recession.
It is worth noting that “real” average household income is frequently used to compare poverty rates in the United States. Because “severe poverty” is defined as any household living on less than $2 per day, all estimates relating to typical household income must be resistant to the impacts of inflation (which can lead dollar amounts to climb while diminishing the actual worth of each dollar).
What Is the Difference Between Median and Mean Household Income?
Overall, there is a diverse range of statistical models that may be employed to depict family earnings across the United States. The term “average household income” refers to a statistical methodology that pinpoints the one American household income value at the dead centre of all other American household income values.This divides all American household earnings in half, with an equal number of families above and below the line.
However, due to terminology ambiguities, some people without context assume “average family income” is calculated using a mean statistical model. This model would tally up all household earnings across the country and divide the overall number of American households by the entire number of American households. The resulting figure would be a numerical average that might or might not indicate a meaningful midpoint in the family income range.
The contrast between a median and mean statistical model is critical in determining the average household income number that most correctly reflects the financial situation of American families at a given point in time. Mean statistical models, in particular, are vulnerable to high-end household income statistics, resulting in a mean household income total that is far larger than the genuine household income of a middle-class home.
Current Patterns
The per-dollar average is rising.
In general, the per-dollar average of household income in the United States in 2017 followed an increasing trend that began during the late 2000s economic downturn. At the time, in 2010, the average family income was $49,276. This was a considerable decrease from the previous high water level of $50,233 in 2007.
However, since that low point in 2010, the average household income in the United States has steadily increased (save for a brief over-performance and correction sequence in 2013-2014). According to US Census Bureau data dating back to the 1980s, the average household income in 2017 was $61,372, an all-time high.
In general words, this pattern implies that during the most recent economic collapse, more money has been produced and spread among the US population. Many forecasters see this ongoing increase as an indication of overall stability in the US economy, particularly when it comes to meeting the financial demands of working-class people.
Income Inequality is Growing
Even if current average family income figures show an upward trend in per-dollar averages, evaluating the precise distribution of wealth throughout this roughly 10-year period of increase reveals deeper dynamics. In particular, all evidence point to a significant growth in income disparity throughout the American socioeconomic spectrum.To put it bluntly, the affluent are becoming richer, the poor are getting poorer, and the middle class is decreasing quickly.
This fact is supported by current statistical analysis of families reporting income at certain class-based levels. Most statistical models currently classify families earning between $25,000 and $100,000 per year as middle-class, with the top and lower classes lying above and below this threshold, respectively.
According to Census statistics, 65.2% of US households were in the middle class in 1967, while 9.1% and 25.8% were in the top and lower classes, respectively. In the year 2000, the upper-middle-lower class division has shifted to 26.5%-53.8%-19.6%.The tremendous growth in upper-class households (and consequent reduction in the middle class) is obvious. The share of lower-income households did decrease throughout this period, which might be attributed to evolving definitions of poverty following welfare reforms in the 1990s.
Even while upper-class percentages fell during the late-2000s crisis, they have since returned and reached new highs of 29.2% in 2017. Meanwhile, the middle class has dropped to an all-time low at roughly 50.5% of US people. While these data divisions do not provide exact cash amounts, many ascribe these movements to continued increase at both ends of the income range.
More social and political institutions are now raising the alarm about the rising trend of economic disparity. If it is allowed to continue without intervention, the United States risks losing its vital middle class, which would exacerbate inequities in all sectors of American society.
Wages Remain Below Peak
As a further extension of present trends in income disparity, new data suggests that average earnings among American employees may be a significant contributing factor. Current statistical models reveal that wage rates in the United States have been insensitive to substantial expansion in the country’s gross domestic product (GDP) during the last several decades. This mostly affects middle-class households, who rely on these incomes to maintain their standard of living.
Data from the US Federal Reserve’s Economic Data system clearly demonstrate this. According to their data, the United States’ salaries and GDP last reached parity in 1995. Wage rates in the United States peaked in 1999 before beginning to fall in 2004. (when another mutli-year uptick occurred). . Meanwhile, the US GDP continued to increase until it began to fall in 2007. (on the front end of the upcoming recession).
The US GDP then fell precipitously until 2009, with US salaries also decreasing during this time. Since 2009, however, the US GDP has expanded at a consistent rate each year. Despite this, wage gains in the United States have only occurred in 2013 and 2015, leaving rates much below their 1999 peak. In sum, employees in the United States who rely on these earnings have not received their fair share of recent economic progress.
Precise answers to this problem are difficult to find, especially when various industries with market-specific pay wage rates are considered. Some states have undertaken steps to raise their minimum wage in order to counterbalance this continued inequality, with more initiatives at the federal level underway. It remains to be seen how this may influence US GDP.
Gender Inequality Persists
Gender-based income inequalities, a subset of previously documented household income disparity, continue to make it more difficult for female-headed families to achieve parity with male-headed households. This is an increasingly significant issue as more women achieve greater levels of educational achievement and seek higher-paying occupations while raising a family.
This data is now available in US Census Bureau statistics up to the present day. Men in the United States with a bachelor’s degree may expect to earn $50,916 on average, while women with the same educational qualifications can expect to earn $31,309 on average. This inequality persists throughout higher education and is visible in practically all professions.
While this discrepancy is alarming in and of itself, it may also suggest an impending economic inequality between households led by men and women. Based on these statistics, households led by women are predicted to earn less than their male counterparts. Some state-level solutions to this problem have been proposed and implemented, such as establishing equal pay rates for all employees (regardless of gender).
The Pandemic Coronavirus and Average Household Income
The current coronavirus epidemic has had a major influence on average US family income. Income has been reported to be down significantly in states ranging from Mississippi to New Hampshire to New Jersey to Colorado to California. In other situations, the income decrease has been so severe that families have faced food insecurity and other basic requirements.
The closure of airports around the United States has also had a substantial economic impact. This has resulted in a decrease in travel, which has resulted in a decrease in business activity and average family income.
Final Thoughts
Overall, there’s a lot to learn about the average family income in the United States, from the methods used to compute it to the numerous consequences it has for the US economy. Average household income numbers, when utilised properly and in context with bigger patterns, can help estimate the economic destiny of people across America.
