Tuesday, September 13, 2011

Misc: Household Income declines, Poverty increases, Austerity leads to contraction

by Calculated Risk on 9/13/2011 08:55:00 PM

The Census Bureau released the 2010 Income, Poverty, and Health Insurance Coverage in the United States report. Here is the press release, the report (long), and the slide deck with graphs. A couple of articles:

• From the WSJ: Income Slides to 1996 Levels

The income of the typical American family ... has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.

The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.
• From the WaPo: U.S. poverty rate reaches 15.1 percent
The nation’s poverty rate spiked to 15.1 percent in 2010, the highest level since 1993, the Census Bureau reported on Tuesday ... About 46.2 million Americans lived in poverty last year, marking an increase of 2.6 million over 2009 and the fourth consecutive annual increase in poverty.
• And an IMF report that analyzes austerity program, from the WaPo: IMF: Austerity boosts unemployment, lowers paychecks
In a new paper for the International Monetary Fund, Laurence Ball, Daniel Leigh and Prakash Loungani look at 173 episodes of fiscal austerity over the past 30 years—with the average deficit cut amounting to 1 percent of GDP. Their verdict? Austerity “lowers incomes in the short term, with wage-earners taking more of a hit than others; it also raises unemployment, particularly long-term unemployment.”

More specifically, an austerity program that curbs the deficit by 1 percent of GDP reduces real incomes by about 0.6 percent and raises unemployment by almost 0.5 percentage points. What’s more, the IMF notes, the losses are twice as big when the central bank can’t cut rates (a good description of the present.) Typically, income and employment don’t fully recover even five years after the austerity program is put in place ... if multiple countries are all carrying out austerity at the same time, the overall pain is likely to be greater.
Under an austerity program, high income earners usually do better than lower income earners, and profits tend to bounce back faster than wages. Sounds like the current situation.