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Reconciling divergent trends
in real income
The real incomes of American families have not grown very much since the early 1970's. Rather, they have varied with the swings in the business cycle, and the steady increases so evident in the 1960's have been absent. But the real incomes of individual Americans have continued to rise. While they too were affected by the economic slowdowns, real incomes of persons have pushed upward as they did in the 1960's. The question is: Why did these trends in real incomes diverge over the last decade and a half?
Family income data are collected every year in the Current Population Survey (CPS), conducted by the Bureau of the Census. Aggregate personal income is measured each month by the Commerce Department's Bureau of Economic Analysis (BEA), and can easily be converted into a per capita income series.1 (Income data for individuals are also collected in the CPS and a per capita series from that survey is published by the Bureau of the Census.) Both the CPS family income data and the BEA personal income data are used extensively by economists for assessing the Nation's economic well-being. The difference in their trends in recent years is disturbing and raises questions as to what has happened to real incomes.
This article first discusses these divergent trends within the context of the economic setting and components from which they emerged. We then examine the concepts underlying each measure of real income and conclude with a reconciliation of the two. (A reconciliation of the BEA per capita series is also presented.) A technical appendix with tables is found at the end of the article.
This excerpt is from an article published in the July 1986 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 BEA publishes a series on per capita "disposable" income (personal income minus tax and nontax payments, divided by the population). The population estimates used in that series were used in deriving the per capita personal income series discussed in this article. Statistics on per capita personal income have been published before. For example, see Social Indicators III (Bureau of the Census, December 1980), pp. 474-75.
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