The Homa Files

Great analysis by Prof. Mark Perry (AEI Scholar) … entire analysis is worth reading … here’s the essence of the argument.

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Question: It’s oft-reported that household income has been falling … but, digging into the data, hourly earnings have been increasing.

How can that be?

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According to Prof. Perry’s analysis, the answer lies in “mix” – the composition of households ….

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First, Prof. Perry points out that there is an understandably strong correlation between household income and the number of hours worked by household members.

 

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Of course, the drop in hours worked per household can be the result of a couple of things: (1) fewer hours worked by each working member of the household, or (2) fewer people in the household working.

Much has been made of the “part-timing” of America … companies constraining the number of hours that employees’’ work in order to dodge ObamaCare mandates.

That’s probably part of it.

But, a much bigger deal ties to the number of people in each household who work.

The recent trend: an increase in the number of households with no “earners” … with an offsetting decrease in the number of households with 2 or more earners.

 

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Fewer earners per household?

What’s going on with that?

A couple of likely explanations …

(1) Smaller households … think, single parents

(2) Labor force participation rate (LFPR) … fewer people working or looking for work

(3) Demographic shifts … which partially explain the LFPR trends

Specifically, Prof. Perry points to baby boomer retirees as a an increasing part of the population mix.

Note that retirees hung at about 15% until 2008.

Since then, the percentage has steadily increased to 17% … and is projected to go higher

 

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By simple arithmetic, if mature workers who are earning near the high end of their lifetime pay scales call it quits … and start living on their IRAs and Social Security (classified as “income”, but not “earnings”) … their household earnings drop precipitously (i.e. go to zero).

To the extent that they – the retirees – make up an increasingly statistically significant part of the population … wages can go up for those who are still working … while median household earnings go down,

It’s as simple as that …

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Thanks to GFB for feeding the lead …

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This entry was posted on March 29, 2016 at 6:57 am and is filed under Earnings, income, Economics, Household income, Labor force participation rate (LFPR), Perry, Prof. Mark. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.