Progress Stalls for Young Adults

The promise of America is progress, but that progress stalled for the youngest generation: U.S. workers under age 45 earned dramatically less than workers who were that same age a decade ago, the Federal Reserve Board’s latest survey shows.

For Americans 35 through 44, the median household income – the income that falls in the middle of all earners – was $53,900 in 2010.  That’s 14 percent less income than in 2001 when households in the 35-44 age bracket were earning $63,000, according to the Fed’s Survey of Consumer Finances released Monday.  For young adults in the under-35 age bracket, median income fell to $35,100 in 2010, from $40,900 for that group in 2001.

The median income also declined, by nearly 9 percent, for Americans in their peak earning years, 45 through 54, to $61,000 in 2010 from $66,800 in 2001. [Incomes for all years are in current dollars.]

The sharp decline in real incomes, especially for young adults, occurred in a decade bracketed by the high-tech bubble of early 2000 and the jobless recovery of 2010 from the financial crisis.  Without further analysis, it’s difficult to pinpoint precise explanations for the patterns.  But the reasons vary depending on the age bracket being analyzed.

For the youngest workers, incomes may be lower if many are extending their college educations – high school and college graduates face the lowest level of employment ever recorded.

The Fed’s definition of income includes jobless benefits for the unemployed.  Unemployment rates exceeding 9 percent pulled down median incomes across all ages of the working population, compared with historically low rates at the beginning of the decade.  But the percentage declines in income are dramatic and may point to a larger trend.

The Fed conducts its survey every three years and asks Americans to report incomes during the past year.  Income also includes wages, salaries, Social Security, business incomes, and even realized gains and losses from stock and bond sales and capital gains from home sales, among other sources.

Older workers in their prime working years experienced income declines due to either unemployment or, for those with jobs, stagnating or reduced wages during the decade.  Incomes for people approaching or entering retirement – ages 55 through 64 – changed little.  In contrast, retirees appear to be slightly better off, possibly partly due to the recent rebound in the stock market and the accumulation of income-generating financial assets by their working wives.

Francesca Golub-Sass, a research associate at the Center for Retirement Research at Boston College, which sponsors this blog, agreed that high unemployment may have pulled down median incomes.  “Nonetheless, this is not a good trend and a decreasing median income for those in their prime working years is frightening.”

The Fed’s income data, looked at a different way in the chart below, paint a less rosy picture for the oldest Americans.

This second chart indicates that median incomes overall are declining.  But unlike the previous chart, this one shows how Americans have done as they have aged and reinforces that people who should be in their prime earning years were hit hard over the past decade.

For example, workers who are currently 55 through 64 reported a median income of $55,100 in 2010 – that’s 18 percent lower than nearly a decade ago.  In the 2001 Fed survey, roughly this same group – they were 45 through 54 at the time – reported median income of $66,800.

The largest decline – nearly 23 percent – for people from 65 through 74 is probably not surprising, however.  All but the wealthiest retirees typically experience a big drop in earnings when they leave the workforce; living standards don’t necessarily decline, because retirees pay lower taxes and reduce other expenses.

Americans age 35 through 44 countered the trend: their incomes rose by 32 percent over the past decade.  They were old enough to get a foothold in the labor force prior to the 2008 recession.

But for most Americans, it’s not a pretty picture no matter how you look at the data.