Charting a Path to Shared Prosperity

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

The annual report on poverty and income data for 2012 from the Census Bureau, released on Tuesday, provides further evidence that the economic recovery has yet to reach either the middle class or the poor. The share of the nation in poverty held fast at 15 percent â€" that’s 46 million poor people â€" and the median household income, at $51,000, was unchanged in real terms from 2011.

To understand what’s going on here, we need some context.

The figure below plots the real incomes of low-, middle-, and high-income households, corresponding to the 20th, 50th (median) and 95th percentiles of household income (the 20th percentile was about $21,000 last year; the 95th was about $191,000).

Sources: Census Bureau, author’s analysis

I’ve indexed them all to 100 in 1967, when the series begins, so you can easily compare their trends. (One other important data note: The Census income data leaves out capital gains, which other inequality analysts find to be very important in tracking the full extent of income inequality â€" thus, this data understates recent gains at the top of the scale.)

The Role of Inequality

The picture clearly reveals a tale of two economies, one lifting the incomes of high-income households, the other failing to reach the middle- and low-income households. But a closer look reveals important nuances.

Note how incomes peaked in the latter 1990s. The median household has lost an unprecedented $5,000 since then (2012 dollars), and low-income households are down $3,000. In 2000, 11.3 percent of the nation was poor; 12 years later, that share stands at 15 percent.

High-income households have been stable, but remember, the Census leaves out a main source of their income growth in recent years: capital gains (actually, top-income households had large capital losses in the downturn, but have made them up since).

Gross domestic product is up 23 percent since 2000 â€" $3 trillion. Now, there’s a lot more to G.D.P. than just family incomes; there’s the value of health coverage, for example. But the broader point firmly stands: it takes more than a growing economy to lift the bottom half.

The Remarkable 2000s and Beyond

As the chart reveals, once the recoveries of the 1980s, and even more so in the 1990s, took hold, real household incomes grew at both the middle and the bottom. They grew faster at the top, as the forces of inequality increased in these years. And since all of the last three recoveries began as “jobless” and “wageless” (i.e., though gross domestic product was growing, jobs and real wages lagged), it took a while for the expansions to lift those in the middle and below. But eventually, they did.

In the 2000s, however, the recovery hardly reached the middle or poor households at all. Including this year’s stable 15 percent rate, poverty has gotten worse or stayed the same for 11 of the last 12 years.

This is a remarkable and persistent disconnection between growth and living standards. For well over a decade, households that would have gotten ahead in previous periods of our economic history have failed to do so. Even when the top was outpacing the rest, as in the 1980s and 1990s, middle and low-income households made up some ground. Poverty rates declined at least somewhat in the 1980s expansion, and fell considerably more in the full-employment economy of the latter 1990s.

If there’s one picture I could show to policy makers to wake them up to the profound costs to broad swaths of Americans of gridlock, austerity, immobility and just the general ignoring of the central economic problem â€" the disconnect between overall growth and shared prosperity â€" it would be this.

And yes, I know it would not raise most of them out of whatever stupor they’re stuck in. So perhaps a better move is to show it to everyone else in the hope that at some point, a disconnect of this magnitude will translate into a call for the regime shift in economic policy that is necessary to reverse it.