2015 Earnings Finally Surpass Pre-Great Recession Levels

Median earnings among Americans have finally exceeded pre-Great Recession levels, according to 2015 data from the U.S. Census Bureau’s 2016 Current Population Survey (CPS), thanks to strong growth from 2014 to 2015. Growth in earnings was a major contributor to the substantial growth in total income, described in part one and part two of this series. Earnings for minority racial and ethnic groups showed particularly strong growth in 2015, although the income gap between whites and most minority groups has expanded since the beginning of the Great Recession.

As defined by the Census Bureau, “earnings” refer to wage and salaries from a job and make up the single largest source of income.* Earnings comprise the vast majority of income for most lower- and middle-income households (i.e., under $100,000), according to research from the Urban Institute. As incomes increase, other sources of income—most notably, capital gains—comprise an expanding share of total income; for extremely high income households, most income is in the form of capital gains. Because earnings comprise a large share of the income of lower- and middle-income families, wage stagnation is a major contributor to rising income inequality; conversely, strong earnings growth can help to reduce or at least slow the rate of growth in income inequality.

The following analysis is based on U.S. median earnings for people 15 years of age and older who worked full-time for the entire year. Medians are shown in total and for whites, blacks, and Hispanics in 2007 (on the eve of the Great Recession), 2014, and 2015. As used here, “whites” refers to non-Hispanic whites; “blacks” refers to “black alone” (i.e., reporting no other race); “Hispanics” refers to Hispanics of any race. To adjust for inflation, amounts are converted to constant 2015 dollars using the Consumer Price Index (CPI-U-RS).

Total U.S. median earnings increased by a healthy 2.9 percent from 2014 to 2015, even after adjusting for inflation. (As noted in part 1 of this series, the rate of inflation for 2014 to 2015 as measured by the CPI was a scant 0.1 percent and thus did not do much to erode earning growth.) Median income growth among whites (1.7 percent) was less than that of blacks (3.8 percent) and Hispanics (3.7 percent). Because of the more rapid growth rate among these two minorities, the median income gap between whites and blacks narrowed slightly from $13,525 in 2014 to $12,977 in 2015, while the gap between whites and Hispanics narrowed from $18,210 in 2014 to $17,869 in 2015.

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Over the longer term, earnings among whites have outperformed that of blacks and Hispanics. From 2007—the year prior to the onset of the Great Recession—to 2015, the median earnings of whites have increased by 4.3 percent, compared to just 2.8 percent for blacks and 1.9 percent for Hispanics. Of course, it should be noted that we are not examining a static population of workers over this period; an influx of lower-wage immigrants could hold down median earnings growth for some groups. The good news is that median earnings in 2015 have surpassed pre-Great Recession levels for each of these groups and for the U.S. population as a whole.

However, it should be noted that data from the American Community Survey (ACS) show somewhat different results. While both the CPS and the ACS show strong median earnings growth from 2014 to 2015, ACS data indicate a different rate of growth for whites relative to various minority groups. Furthermore, ACS data indicate that median earnings in total and for most racial and ethnic groups in 2015 are still below the 2007 level, despite strong increases in 2015. Part of these differences may be due to the fact that the ACS data is based on all people with earnings, while the CPS data discussed above is based only on people who worked full-time for the entire year. In addition, information from both the CPS and ACS are based on samples and thus contain a margin of error.

Census data for 2015 on the earnings of Minnesotans by race and ethnicity is not yet available. However, it is reasonable to expect that Minnesota’s earning trends from 2014 to 2015 will resemble the national pattern, insofar as Minnesota income trends (described in part three of this series) have broadly followed that of the nation as a whole.

The strong growth in earnings from 2014 to 2015 indicated in CPS and ACS data is certainly good news, especially in light of the fact that earnings comprise the bulk of income for working families in the U.S. However, a substantial and persistent earnings gap between whites and most minority groups remains, even after controlling for differences in education levels. More on this in the next installment of this series.

 

*Other sources of income apart from earnings include annuities, dividends from stocks, pensions, Social Security benefits, interest income from loans, and rents from property.