The chattering classes have been abuzz for the past year or so about stagnation in median income. What is the cause of this? Here is a quick review of some of the arguments I think bear considering.
1. Tyler Cowen argues that increases in median income come about through technological innovations that increase productivity, but we have picked the low-hanging fruit of such innovations, and future ones will come more slowly.
2. Too widespread to be associated with anyone in particular, but see Noah Smith, is the claim that it’s a consequence of outsourcing. That’s usually meant to indicate that there’s something wrong with outsourcing, but I would phrase it this way–the economic advantage the U.S. held for the first half-century following WWII inevitably eroded as other countries became more economically competitive.
3. Russ Roberts believes a lot of it has to do with the increase in divorce rates that began in the ’70s. Not only did you split apart a lot of households, it thrust a lot of women into the workforce without suitable skills, so mathematically that would drive down median household income.
4. Don Boudreaux passes on an argument from a correspondent showing that the number of households grew much faster than the increase in population in the 1970s and ’80s. That could be Roberts’ divorce effect, but the correspondent argues it also has to do with more retiree households (whereas they used to move in with their kids).
5. My own hypothesis. At least part of it was caused by the end of the influx of women into the workforce. Most people focus on median household income, so as women entered the workforce in increasing numbers (and increasingly at higher paying jobs) household income increased. When that trend was topped out (somewhere in the ’80s, I’d guess), the increases would, too.
Meanwhile (Alex Tabarrok produces graphs going beyond household income, showing that male median income began to stagnate in the mid-70s, while female median income continued climbing through the mid 2000s. How does that affect the validity of any of these theories?
And Russ Roberts (same link as above) asks what it really means to say that median income is stagnating, emphasizing that it doesn’t necessarily mean economic mobility has diminished or that our standard of living has not improved.
I would also ask if our expectations of continuously rising median income are inappropriately based on the assumption that a specific economic time-period was the norm, rather than an unusual time?