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The Economy, Aggregate Income, Income Distribution, Inflation, & Minimum Wage

Updated on December 26, 2014
Source

Aggregate Income in The United States

According to Census.gov, in 1967 the lowest earning family’s earned under $18,294 per year and the highest earners made over $115,863 per year*. These values shifted each year. In 1973 the lowest earners made under $20,606 and the highest made over $135,668. The trend continues into 2013 where the lowest fifth earners made under $20,900 and the highest fifth earners made over $196,000 per year.

One way to view the aggregate income of every household in the United States is to split it into fifths. These are family’s that fit into the following categories:

  1. Lowest Earning Households
  2. Low/Middle Earning Households
  3. Middle Earning Households
  4. High/Middle Earning Households
  5. Highest Earning Households

To isolate this slightly further, that is an increase of $2,606 or slightly over 14.2% increase to the highest limit which the bottom fifth earners are capable from 1967 to 2013. The top five percent of the earners changed as well. Keep in mind that the top 5 percent will make more than this limit where the remaining 4/5 of earners make less than their limits. The top 5% of earners lowest possible earnings increased a total of $80,137 or slightly a 69% increase.

*All Values are in 2013 Dollar Value

Percent Share of Aggregate Income

Year
Number of Households
Lowest Fifth
Second Fifth
Third Fifth
Fourth Fifth
Highest Fifth
1967
60,813,000
4.00%
1.80%
17.30%
24.20%
43.60%
1973
69,859,000
4.20%
10.40%
17.00%
24.50%
43.90%
1983
85,290,000
4.00%
9.90%
16.00%
24.60%
45.10%
1993
97,107,000
3.60%
9.00%
15.10%
23.50%
48.90%
2013
122,952,000
3.20%
8.40%
14.00%
23.00%
51.00%
Source
Source

This means that the lowest earners are only able to earn an extra 14% more, however the highest fifth of earners can earn no less than 69% more. Let’s go just a little deeper then we can come up for air.

The total percent of the United States aggregate income can also be graphed and lined out and then compared with the total dollars. Looking back to 1967 once more we can see that the bottom fifth earned 4% of the total aggregate income whereas the top fifth earned 43.6%. This means that of all the total dollars available to earn the top fifth of earners racked in almost half of it.

In 2013 it’s even more obvious where the largest portion of the pie is going. The bottom fifth of earners take only 3.2% of the available dollars. That is like saying out of $122,952,000 the lowest earners had to split $3,934,464. The top fifth earners pulled in over 50% of the total income, which means the top fifth of earners split $62,705,520.

Aggregate Income Distribution By Dollar

Year
Number of Households
Lowest Upper Limit
Second Upper Limit
Third Upper Limit
Fourth Upper Limit
Top 5 Percent Lower Limit
1967
60,813,000
$18,294.00
$35,674.00
$50,632.00
$72,201.00
$115,863.00
1973
69,859,000
$20,606.00
$39,623.00
$58,626.00
$84,410.00
$135,668.00
1983
85,290,000
$19,892.00
$36,989.00
$56,770.00
$85,794.00
$141,152.00
1993
97,107,000
$20,585.00
$39,177.00
$61,583.00
$95,725.00
$166,111.00
2013
122,952,000
$20,900.00
$40,187.00
$65,501.00
$105,910.00
$196,000.00

Let’s recap what we now know.

The lowest fifth of earners

  1. 1967 – Take in 4.0% of the total aggregate income
  2. 2013 – Take in 3.2% of the total aggregate income
  3. Decrease of 0.8% of the total aggregate income
  4. 1967 – Cannot make OVER $18,294 per household
  5. 2013 – Cannot make OVER $20,900 per household
  6. Increase of $2,606 per household or 14.2

The highest fifth of earners

  1. 1967 – Take in 43.6% of the total aggregate income
  2. 2013 – Take in 51.0% of the total aggregate income
  3. Increase of 7.4%
  4. 1967 – Cannot make UNDER $115,863 per household
  5. 2013 – Cannot make UNDER $196,000 per household
  6. Increase of $80,137 per household or 69%

This shows that the households that bring in the least amount of money are getting an even smaller part of the pie, while those at the top are getting a tremendously larger piece. This means that pay rates are dropping for the lower earners and gaining for the top earners. As a matter of fact one can see that the richest Americans are now taking 70% more from the poorest than they did just a few decades ago.

Income Distribution

It’s time to dig slightly deeper into how the total income is distributed throughout the population, staying with the dates used earlier for the demonstration purposes. Income distribution is split up into nine different catagories based on the amount earned and the percentage of the population that fits in those categories. The categories are as follows:

  1. Under $15,000
  2. $15,000 - $24,999
  3. $25,000 - $34,999
  4. $35,000 - $49,999
  5. $50,000 - $74,999
  6. $75,000 - $99,999
  7. $100,000 - $149,999
  8. $150,000 - $199,999
  9. $200,000 & Up

Income Distribution By Dollar

Year
Under $15,000
$15,000 - $24,999
$25,000 - $34,999
$35,000 - $49,999
$50,000 - $74,999
$75,000 - $99,999
$100,000 - $149,999
$150,000 - $199,999
$200,000 and over
1967
16.30%
11.40%
11.60%
19.80%
23.10%
10.10%
5.50%
1.30%
0.90%
1973
13.50%
11.50%
10.20%
15.90%
22.80%
13.30%
9.30%
2.00%
1.50%
1983
14.20%
12.10%
11.40%
15.70%
20.30%
12.40%
9.70%
2.60%
1.60%
1993
13.40%
11.70%
10.80%
14.70%
18.50%
12.60%
11.60%
3.80%
3.00%
2013
12.70%
11.30%
10.40%
13.60%
17.60%
11.90%
12.40%
5.30%
4.80%

Using the income distribution data provided by the census one can see the percentage of those making Under $15,000 in has shrunk considerably since 1967. This 3.6% reduction is definitely a turn in the right direction. One other dramatic shift is that of households making $35,000 - $49,999. This group dropped considerably more; 6.2%. As a matter of fact those in the next group up also dropped 5.5%. This is indicative of the middle class shrinking by 11.7% in this time period. So, where did the earners from the Under $15,000 go? It’s difficult to tell, but one way to explain it would be they moved to a higher level while others in the lower levels moved up as well. Let’s see if that’s what happened.

Source
Source

Using the same income categories the percentage shift of each indicates some interesting changes. While the lowest earning households dropped the next two earners remained about the same. one can also see that the three middle earning categories also dropped significantly. However, once the household earnings move to earning over $100,000 those percentages started to raise significantly. So if more people are making more money (4.8% of households making $200,000 and over) why would this hurt the economy?

To help visualize this better, look at the nince categories in 3 distinct categories; Low, Middle, and High.

  1. Low (Under $35,000)
  2. Middle ($35,000 - $99,999)
  3. High ($100,000 & Over)

Looking into these figures one can see that the lower and middle earners or those making under $100,000 have dropped a significant 12.4% while those making over $100,000 has increased by 14.8%. This seems like a good thing, the population as a whole is earning more than ever before. However, the middle class or what some may think of as the spending class is declining. The savers and investors, those that make well over $100,000 is increasing. Much of this money goes into accounts and savings, which does little for the actual economy. If the money does not flow through the economy it does little to help maintain its health.

Source

Now that the history and changes are out of the way, take a look at 2013 as it stands on its own. There were almost 123M households contained in the 2013 census that split the over $4B. Take a look at how those billions split between the households.

If you were one of the lucky folks that made $250K or over, which is doubtful you would even consider reading this since that is a select group of only 3.3M people, you pulled in 8.9% of the total household income. This one group racked in over $400M.

Compare that over $250K group to the 5.34% that made under $50k group. These almost 59M households received only 5.34% of the total dollars earned in 2013. That’s 59M households splitting just over $246.5M. Under 3% of American households take in just under 9% of the total income. This leaves little to split with the others. The middle class is shrinking, this shrinking is destroying the economy be taking away the spending power of the largest portion of the population.

Now let’s compare this with the purchasing power of the dollar and how it has changed…

Dollar Value

$1 for Year
2013 Value of $1
% Reduction in Value of $1
1967
$6.97
85.70%
1973
$5.25
81.00%
1983
$2.34
57.40%
1993
$1.61
38.00%
Results Received from http://www.bls.gov/data/inflation_calculator.htm

Purchasing Power

One single dollar had the ability to purchase different amounts of goods throughout the years. Inflation causes the value of a dollar to change over time. In 1967 $1 could purchase $6.97 worth of goods or services. In 1973 it was valued at $5.25, 1983 it was $2.34, 1993 it was worth $1.61 compared to the $1 in 2013. This means this single dollar’s value has decreased in value $5.97 since 1967. That is nearly an 86% decrease in purchasing power of a dollar.

The value of $1 has reduced gradually over the years since 1967. The reduction of purchasing power that one dollar has for an individual is considerable when one sees the rate of reduction compared to the minimum wage and how the household income has shifted for the population in those time periods.

Source

Minimum Wage

The minimum wage dictated by the Fair Labor Standards Act of 1938 in 1967 was $1.40 per hour, in 1973 it was $1.60, 1983 it was $3.35, in 1993 it was $4.25, and finally in 2013 the minimum wage was $7.25 per hour. At first glance the minimum wage appears to have increased dramatically since 1967. It did increase $5.85 since. It even shows very close to a 59% increase since 1993. But, is that a true increase in the wage or an actual hidden decrease? To find out what the actual rate of change of the minimum wage is take a look at the dollar rate after adjusting them to all match the 2013 dollar value. This is the true picture of how the minimum wage has changed over the years.

As one can see the minimum wage has an appearance of increasing, however when taking into account the lost purchasing power of the dollar the minimum wage has actually decreased. It’s highest in 1967 was $9.67 per hour when adjusted for the 2013 dollar value. It dropped to a low in 1993 of $6.84 per hour, but has only climbed slightly to $7.25 per hour.

This means that the lowest wage earners are actually earning nearly 25% less. They are paying more for goods and services, but earn less to pay for them. The wages are not keeping up with the cost of living within the economy. This creates a syphon that is unrecoverable for most Americans. Even those that now make up to $50,000 per year are feeling this drain. $50k per year in 1993 would equate to earning over $80k in 2013. Someone that made a six figure income in 2013 ($100k) really only made $62k in 1993 dollars. Inflation and the purchasing power of the dollar has a great deal to do with the way the lower and middle class function and spend. Of course it affects everyone, but those at the middle and lower end of the economy feel this much more than any others.

Lessen the Burden

In order to lessen the burden and grow the economy the lower and middle class earners must have disposable incomes if they are to purchase the products the top earners are selling. To do this those top earners must acknowledge the issue and begin to adjust the way of thinking. Salaries must begin to disburse back to a point of equality.

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      Howard Schneider 2 years ago from Parsippany, New Jersey

      Bravo Richard. You have described in excellent detail what I have been preaching for a while now and Thomas Piketty elucidated in his book. These incredible wealth and income gaps are slowing the economy and our recovery. The middle and lower classes must spend their incomes. The wealthy hoard it. Excellent Hub.

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