There are the good old days

American Demographics, Feb, 1998 by Cheryl Russell

When you consider the changes in Americans' lifestyles, the good times of the 1990s look even better.

Savor the moment. The record level of affluence long predicted for the 1990s has arrived. Pessimists still manage to extract a number here or a fact there to prove we're not so well off economically, but they can't change the truth. Wallets are fat, and the time has come to celebrate.

The share of households with incomes of $100,000 or more is at an all-time high, according to the latest numbers from the Census Bureau. In 1996, 8.2 percent of households--or 1 in 12--earned at least $100,000 a year. During the past decade, the number of households with such lofty incomes grew by more than 2 million, or 36 percent, after adjusting for inflation.

The rising economic fortunes of married couples are behind this growth. In 1996, the median income of couples reached a record high of $49,858, thanks to the aging of dual-income baby-boom couples into their peak earning years. Of the 8.3 million households with incomes at $100,000 or more, 65 percent are dual-income couples.

The pessimists argue that this explosion of affluence is meaningless, because median household income is still below its 1989 peak. True, median household income in 1996 ($35,492) was 3 percent below the $36,575 of 1989, after adjusting for inflation. But comparing median household income over time is like comparing apples and oranges because of ongoing changes in household composition.

Married couples are the most affluent householders, and they account for an ever-smaller share of households. Their decline pulled median household income down, even in the few short years between 1989 and 1996. Changes in household composition during the 1990s have been less dramatic than they were during the previous two decades, but change continues nevertheless. Married couples accounted for 53 percent of households in 1996, down from 56 percent in 1989.

This apple and orange problem occurs regularly in the field of demography. For example, the death rate in the U.S. was 2 percent higher in 1995 than in 1990. Does this mean our health is on the decline? Not by a long shot. The death rate is up because our population is older than ever before. With more old people in the population, there are more deaths. Comparing death rates over time does not reveal the trends behind the numbers because of ongoing changes in the age composition of the population. To compare death rates in two different years, demographers adjust the rates in each year using a "standard" age distribution. Only after making this adjustment is it revealed that the death rate in 1995 is the lowest on record.

The same sort of solution allows for a comparison of median household income over time. Rather than adjust for age, however, the adjustment is for household composition--or "lifestyle." Here's how to do it.

Take the median household income of each household type in 1996--married couples, female-headed families, and so on. Adjust those figures so they reflect household composition in 1989, the year when median household income peaked. Sum the figures, and the result is what median household income would be in 1996 if household composition were the same as in 1989. The answer: $37,703, a figure 3 percent above that of 1989 and a record high.

The same technique can be used when examining other household income statistics, such as comparing the median household income of whites and blacks. In 1996, the $37,161 median income of white households was 58 percent greater than the $23,482 median of black households. Behind the sharply lower income of black households, however, lies their different household composition. Only 32 percent of black households are headed by married couples, compared with 56 percent of white households. After adjusting for this lifestyle difference, the gap between blacks and whites shrinks. If both black and white households had the same composition as all households did in 1989, for example, then black median household income would be $31,071 in 1996, only 24 percent below the $38,537 of whites.

As Mark Twain once said, there are lies, damn lies, and statistics. It is the duty of those who interpret and report on statistics to reveal their underlying truths. By adjusting median household income for lifestyle, one important truth is revealed: these are the good old days after all.

RELATED ARTICLE: THE INCOME GAP IS A LIFESTYLE GAP

(median household income and lifestyle-adjusted median household income for whites and blacks, and percent difference between white and black median household income, 1996)

                             white households   black households

Median household income           37,161             23,482

Lifestyle adjusted
median household income(*)        38,537             31,071

                            percent difference

Median household income            58%

Lifestyle adjusted
median household income(*)         24%

(*) Adjusted to reflect the composition of total households in 1989.

If white and black households in 1996 had the same household composition as all households did in 1989, the gap between their incomes would shrink dramatically.