Friday, May 13, 2011

Coming soon: a misleading bump in household income?

One thing I learned from Stephen J. Rose is that census figures make U.S. household income appear somewhat more stagnant than it has been over the last thirty years, because household size has shrunk, and households with fewer people have less income on average than larger households. The census divides households into income quintiles, and half of Americans live in the upper two household quintiles. 

Now, Global Insight analyst Patrick Newport reports that in the wake of the great recession, household size is increasing, while growth in new households hit a postwar low last year (hence the continued depression in new housing construction, Newport's focus). His explanation:
One can also infer from the newly released data that "doubling up" played a greater role in 2009 than it did in 2008. For example, the number of households headed by those 15–24 years old fell by 124,000 (students moving back in with parents), while the number of households with six or more people in the home rose by 355,000, an 8% increase. The breakdown by age groups also suggests that "doubling up" increased in 2009. By 10-year age groups, the number of households headed by those in the 15–24, 25–34, and 35–44 age brackets all fell in 2009, while the number in all of the older 10-year age brackets increased. Job losses and foreclosures are concentrated in the younger age brackets.
I wonder: will the increase in household size produce a misleading bump in household income?  Some of those younger adults living with their folks must be earning some income.  Moreover, the growth in household size should be skewed toward lower income households. Hence we may get a faux reduction in income inequality too.

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