Validity of Income Data Is Debated : Many Doubt That Middle America Has Suffered Setback

In what has become an annual ritual of bad economic news, the Census Bureau late last summer reported that the average income of American families, stagnant for nearly 15 years, remains below the all-time high mark recorded in 1973.

That bit of information became the centerpiece for a five-part NBC News special on declining incomes. Rep. Tony Coelho (D-Merced), leading the Democrats’ condemnation of President Reagan’s economic policies during the congressional election campaign, insisted: “The economy, especially in middle America, has stalled.”

Yet economists are increasingly coming to the view that the information--and the significance read into it by journalists and politicians--is misleading.

“You look around you and, except for some regional pockets, you just don’t see evidence that people are doing badly in an economic sense,” said Isabel Sawhill of the Urban Institute, who two years ago concluded that most middle-class Americans had been losing ground for at least a decade.

Statistical Aberration

Stagnant family incomes, in this view, represent a statistical aberration stemming in large part from the recent decline in family size. Smaller, more numerous families mean that total family income is spread thinner but, at the same time, each family has to support fewer individuals.

In fact, per-capita income--the amount of income for every man, woman and child in the country--has grown steadily even as family incomes have leveled off. Per-capita income is now at its highest level ever.

“There is plenty of anecdotal evidence all around us that ought to warn us to be suspicious of any measure that says living standards have been stagnating,” said economist Gary Burtless of the Brookings Institution.

Not everyone has benefited. In particular, the growing number of families headed by women--now one family in six--have suffered. The number of people below the government-defined poverty line remains higher than any time since 1967, only a year or two into the Lyndon B. Johnson Administration’s War on Poverty.

Family income, beyond dispute, has indeed stagnated. In the Census Bureau’s most recent survey of 60,000 families nationwide, the average cash income last year was $32,944. That was less than the $32,975 (measured in 1985 dollars) that the same family brought home in 1973.

But another measure of national wealth tells a radically different story. Based on the same 60,000 interviews, the Census Bureau estimates that the income of each person in the United States in 1985 was an all-time high of $11,013, well above any year in the 1970s.

And the Census Bureau measures only cash income. The Commerce Department has found the same trend by looking additionally at every other kind of income that flows to individuals, from food stamps and subsidized housing for the poor to free parking, pension plans, stock options and other fringe benefits for the middle class and the rich. By that measure, each American last year enjoyed an income of $13,145.

Economists increasingly believe that the growing discrepancy between the two measures of national well-being--income to families and income to individuals--underline profound changes in the structure, life style and expectations of the American family that have taken place since the early 1970s and are still going on today.

Paul M. Ryscavage, a Census Bureau labor economist, has concluded that the difference is mostly accounted for by the fact that the typical family unit of a generation ago--a working father, a stay-at-home mother and several children--is a distinct minority today.

The number of families has been growing faster than the population at large. Families are smaller, less likely to have children and more likely to have two members working. Families with children are more likely to have only one parent, many not working.

“If the size of the family changes, that has an effect on the income available to each family member,” said Robert C. Ortner, the Commerce Department’s chief economist. “So to insist on ‘failure’ in the economy is to miss the boat entirely.”

More Single Individuals

And there are more people than ever living outside any family unit--as many as 20%, according to the most recent Census Bureau estimates, up from only 12% as recently as 1970. The elderly account for a large share of these single individuals, and their increasing affluence is not reflected in family income.

“The family income measure assumes that the family hasn’t changed--and it has changed, a great deal,” said Commerce Department economist George McKittrick, who has analyzed the issue in depth. “If you want to talk about the nation’s standard of living, the per-capita aggregate is a much more accurate measure.”

Not all analysts, however, agree that per-capita income adequately measures the economic well-being of flesh-and-blood Americans who live, work, consume--and vote. Like all averages, it misses what is going on at the extremes.

Sheldon H. Danziger, director of the University of Wisconsin’s Institute for Research on Poverty, observed that divorce has become an engine that is driving many Americans into poverty even as per-capita income rises.

“Let’s say you have a family where the husband earns $20,000 and the wife stays home with the two kids,” he said. “The per-capita income is $5,000.

“Now let’s say they get divorced and he leaves her with the children. The husband still has the $20,000, and she gets a job at $8,000. Now the per-capita income of the four of them has gone up to $7,000, and the economy is improved because of the additional output of a wife working, where she stayed home before.”

But that statistical boost to the economy, Danziger noted, is of little solace to the wife and the children, now a single-parent family below the poverty line that may be making do on less than $3,000 apiece.

Many economists argue that the number of Americans at both extremes--rich and poor--is growing. The number of middle-income Americans is shrinking, according to this view, as increasing numbers of Americans climb into the ranks of the affluent--or fall into poverty.

Katherine L. Bradbury of the Boston Federal Reserve Bank, defining the middle class as families with income between $20,000 and $50,000 in 1984 dollars, found that the share of middle-income families declined to 48% in 1984 from 53% in 1973. At the same time, the share of lower-income families grew by 4 percentage points to 36%, and the higher-income share rose by 1 percentage point.

Taking a different tack, Richard C. Michel of the Urban Institute argues that the prosperity of recent years is illusory because much of it depends on two-income families, a trend that he says is dictated primarily by economic necessity at the cost of diminished life style.

Increases in per-capita income, Michel conceded, “show a very different picture” from the “stagnating” circumstances depicted by the family income. “But the per-capita measure is deceiving,” he said, “because demographic changes have led people to make choices that have reduced the quality of their lives at the same time that they have increased per-capita income.”

Overall Economic Prosperity

Those whose primary interest lies in tracking the well-being of the poor or other segments of the population insist that overall economic prosperity is an entirely separate matter.

“My feeling about it is that both numbers are relevant,” the Urban Institute’s Sawhill said. “I think most people can identify with the notion of family income as a logical unit to look at in measuring economic well-being. But if families are smaller with two parents working and still have as much income as they might have when they were larger, then they are obviously better off.

“You get into very philosophical questions here,” Sawhill said. “Do wives work because they have to, or because there are more attractive job opportunities for them? Are families smaller because they choose to have fewer children, or because they can’t afford to have more children?”

Ryscavage, the Census Bureau economist, said: “The message seems to be that in trying to assess the economic well-being of the nation, analysts, the media and policy-makers should look at more than one statistic before they draw conclusions. Especially over the past 15 years, there have been tremendous changes in demography, in the structure of the society, in the economy.”

WHICH MEASURE CAN BE TRUSTED?

Starting in about 1972, family income stagnated even as per-capita income maintained nearly its historic growth rate. Economists and politicians are divided over which better describes the state of American prosperity today.

In actual 1982 dollars, per-capita income increased from $6,884 in 1960 to $10,013 in 1972 and $12,344 in 1985. Family income, meanwhile, grew from $21,840 in 1960 to $29,157 in 1972 before leveling off to $29,573 in 1985.