The amount of money generated by the economy in 2018 is being distributed more among low and middle-income Americans. $34.71 billion has moved from the top quintile to the bottom two quintiles, measured using money income.
Since December 2016, $69.4 billion of income has shifted from the top income quintile to the bottom, when adjusted for family size. This means that families in the bottom three quintiles brought home bigger paychecks and saw income gains of over $900 each.
Key Takeaways:
- Total household income was $11.57 trillion in 2018, representing an $90,021 in mean income across 129 million households.
- Overall, household income increased 1 percent in 2018 from $11.46 trillion in 2017.
- Using money income as a measure, three tenths of a percentage point of income moving from the top quintile to the bottom two quintiles represent a move of $34.71 billion.
- Using equivalence adjusted income to account for family size, moving six tenths of a percentage point of income from the top quintile to the bottom three quintiles represents a move of $69.4 billion.
Analysis:
The best way to move a greater share of the economic pie to low and moderate income families is to run an economy “hot,” lowering the unemployment rate below what most consider to be “full” employment. And ideally, do this in a way that boosts capital. When an economy is running above what most consider “full” employment, potential workers on the sidelines are attracted to come back into the workforce. Often they fill the slots of existing workers who are “moved up” in the organization to fill vacancies there. Higher wages are needed to attract workers to come off the sidelines. In addition, workers “moving up” enjoy higher incomes in their new jobs. This trend is helped further by pro-investment tax cuts which provide each worker more capital to work with and thus increase productivity. Productivity boomed in 2018 and 2019 compared to what it had been in part due to the 2017 tax act. In addition the tax cut put more spending power in the economy thus making the labor market even tighter.