Household income in the United States

Based on Wikipedia: Household income in the United States

The Number That Defines American Life

Here's a statistic that might keep you up at night: since 1980, America's economy per person has grown by 67 percent. But the typical household? Their income has crept up just 15 percent. Where did all that money go?

This gap—between the expanding pie and the shrinking slices most people receive—sits at the heart of nearly every economic debate in America today. To understand it, we need to understand how household income actually works, what it measures, and why it matters so deeply to your daily life.

What Counts as Household Income?

The United States Census Bureau has a specific formula. They count the income of every person living in a house who is over fifteen years old. This includes wages and salaries before taxes, money from running a business, investment returns, and recurring income from things like rental properties. Government payments count too—unemployment insurance, Social Security, disability payments, and child support.

Here's something that surprises many people: the residents don't need to be related. If you rent out a room to a stranger, their income gets counted as part of your household's total. This makes household income a messy but practical measure—after all, people who share a home generally share economic circumstances, whether they're family or not.

The Census has some notable blind spots, though. They don't count noncash benefits like employer-provided health insurance, which can be worth tens of thousands of dollars annually. And they don't adjust for how many people are sharing that income. A household of one person earning sixty thousand dollars lives very differently from a household of six people earning the same amount.

Median vs. Mean: Why the Distinction Matters

When economists discuss household income, they almost always focus on the median rather than the mean. These two statistical measures tell very different stories.

The median is the middle point. If you lined up every American household from poorest to richest, the median household would be the one standing exactly in the center, with half of all households earning more and half earning less. According to the Census Bureau's Current Population Survey, that middle household earned $70,784 in 2021.

The mean, or average, works differently. You add up all the income earned by all households and divide by the number of households. In 2014, that figure was $72,641—higher than the median.

Why the difference? Because averages get pulled upward by extremes. When a billionaire moves into your neighborhood, the average income of your block might double, but you don't feel any richer. The median, by contrast, barely budges. It tells you what's happening to typical people, not what's happening to the money.

This is why politicians and economists obsess over median household income. It captures the experience of ordinary Americans in a way that averages simply cannot.

The Great Stagnation

Something changed around 1980.

Before that year, when the economy grew, most Americans benefited. Productivity gains translated into wage gains. The rising tide really did lift most boats.

Then the connection broke. The economy kept growing—spectacularly, in fact. But wages for most workers stopped keeping pace. The income share going to the top 1 percent, which had hovered around 10 percent for decades, began climbing. By 2007, it had doubled to over 20 percent.

What happened? Economists point to three major forces.

First, technology. Computers began replacing humans in manufacturing, clerical work, and administrative tasks. These weren't just factory jobs—they were the middle-class office jobs that had sustained millions of families. The workers who remained often found their wages under pressure because so many others were competing for fewer positions.

Second, globalization. Trade barriers fell and shipping costs dropped, making it possible to manufacture goods almost anywhere in the world. American workers suddenly found themselves competing not just with their neighbors, but with workers in China, Mexico, and Bangladesh who would accept far lower wages.

Third, the decline of labor unions. In 1955, about a third of American workers belonged to unions. By 2020, that figure had fallen to just over 10 percent. Unions had historically pushed up wages not just for their own members, but for non-union workers too—employers had to offer competitive pay to prevent their workforce from organizing. As union power waned, that pressure evaporated.

You can see the shift in a startling statistic. Wages and salaries made up 51 percent of America's Gross Domestic Product in 1970. By 2013, they had fallen to 43 percent. That 8 percentage point drop represents hundreds of billions of dollars annually shifting from people who work for a living to people who own things for a living.

The Complications of Measuring Progress

Is the typical American household actually better off than it was forty years ago? The answer depends entirely on how you count.

The Census Bureau's headline number suggests median household income has barely budged after adjusting for inflation. But this measurement has problems.

For one, households have gotten smaller. In 1970, the average household had about three people. Today it's closer to two and a half. A flat household income means more money per person.

For another, the Census ignores taxes and doesn't count government benefits like food assistance or the Earned Income Tax Credit. When the Congressional Budget Office ran the numbers with these factors included—and adjusted for household size—they found that real median household income grew by 46 percent between 1979 and 2011. That's a much rosier picture.

But here's the catch: that same Congressional Budget Office analysis showed that income for the top 10 percent grew by 78 percent over the same period. Even if everyone got richer, the wealthy got richer much faster. Inequality increased regardless of which measure you use.

Race and the Income Ladder

The American income distribution looks very different depending on the color of your skin.

In 2020, Asian-American households had the highest median income at $94,903. White households came second at $74,912. Hispanic or Latino households earned a median of $55,321. Black households had the lowest median at $45,870—roughly half what Asian-American households earned.

These gaps show up even more starkly at the top of the income ladder. Americans who identify as White alone head about 78 percent of all households, but they make up 81 percent of households in the top 5 percent of income. Black Americans head about 13 percent of all households but only 5 percent of households in that top tier. Asian Americans, by contrast, are represented in the top 5 percent at nearly twice their share of the general population.

These disparities reflect centuries of policy choices—from slavery and Jim Crow laws to redlining and discrimination in hiring—that created and reinforced differences in wealth accumulation, educational opportunity, and social networks that persist to this day.

Education: The Clearest Path Upward

If any single factor predicts household income in America, it's education.

The gaps are enormous. High school dropouts averaged about $18,900 in annual income, according to Census data. High school graduates averaged $25,900. College graduates jumped to $45,400. And workers with professional degrees—doctors, lawyers, pharmacists, dentists—averaged $99,300.

That last category deserves some explanation. A professional degree differs from a doctoral degree in that it prepares you to practice a specific profession rather than to conduct research. Medical doctors, lawyers, dentists, veterinarians, and pharmacists all hold professional degrees. Their average income of nearly six figures reflects both the difficulty of obtaining these credentials and the licensing restrictions that limit competition in their fields.

Workers with doctoral degrees—the Ph.D. holders who often become professors or researchers—earned an average of about $81,400. Still excellent, but notably less than the professional degree holders, partly because academic and research positions often prioritize factors other than income maximization.

But education doesn't solve every problem. The income gap between men and women actually widens at higher education levels. Male workers with professional degrees earn about 40 percent more over their lifetimes than women with the same credentials. The gap is smallest for associate degrees, where men earn about 28 percent more. Whatever forces suppress women's earnings, more education doesn't seem to counteract them.

The Shape of Inequality

One way to understand inequality is to look at how the income pie gets divided.

In 2008, American households collectively earned about $12.4 trillion. The top 20 percent of households—those earning over $100,000—took home almost exactly half of that total. The top 8 percent alone, earning over $150,000, captured more than a quarter of all income. The very top, the 3.65 percent earning over $200,000, claimed 17.5 percent.

Meanwhile, at the bottom, the lowest-earning 10 percent of households divided up just over 1 percent of the national income among themselves.

These numbers become more troubling when you consider the working poor. By 2011, 1.46 million American households were living on less than two dollars per person per day—the threshold the World Bank uses to define extreme poverty in developing countries. That number had more than doubled since 1996, with most of the increase coming during the Great Recession. Among these households, a 2012 study found that 75 percent of working-age adults had not worked at all in the previous year.

When Recessions Hit

Economic downturns affect household income with almost mechanical reliability.

The Census data shows a consistent pattern. Median household income rises during expansions and falls during contractions. It declined every year from 1979 through 1983, from 1990 through 1993, from 2000 through 2004, and from 2008 through 2012. In between these periods, it rose consistently.

The early 2000s recession began with the bursting of the dot-com bubble—the collapse of wildly overvalued internet companies whose stock prices had soared during the 1990s. The damage spread across the developed world, hitting the United States, Japan, and the European Union.

But the Great Recession of 2008 was something different entirely. It started in the American housing market, where banks had been issuing mortgages to borrowers who couldn't afford them, then bundling those mortgages into complex securities and selling them to investors worldwide. When housing prices stopped rising, the whole structure collapsed. Major financial institutions failed. Credit froze. The stock market cratered.

The human toll was severe. By 2011, median household income in constant dollars was still 1.13 percent below where it had been in 1989—more than two decades earlier. Meanwhile, GDP per capita had grown by nearly 34 percent over the same period. The economy had expanded substantially, but typical households hadn't seen any of the gains.

It wasn't until 2015 that median household income finally showed a meaningful increase, jumping 5.2 percent in a single year to reach $56,000. That marked the first annual increase since the recession began. And it took until 2023 for real median household income to hit a new record high of $80,610—the first increase since before the pandemic.

Why This Number Matters

Household income is more than just a statistic. It's the number that determines whether you qualify for nutrition assistance or need-based financial aid. It shapes what neighborhoods you can afford, what schools your children attend, what kind of retirement you can expect.

At the individual level, a household's income determines their economic possibilities. At the national level, median household income serves as a kind of political thermometer. Voters can tolerate many things, but they tend to turn against governments when they feel their cost of living is rising faster than their income.

This helps explain why household income features so prominently in political debates. When that number stagnates while the economy grows, it suggests the benefits of growth are flowing somewhere other than ordinary households. When the number falls during recessions but takes years to recover, it reveals how fragile middle-class security has become.

And when the gap between the median and the top keeps widening, it raises uncomfortable questions about the fundamental deal Americans thought they had: work hard, play by the rules, and share in the nation's prosperity.

That deal may need renegotiating.