What's Median, What's Average, and What's Real

[Disclaimer: This post was first published on Coleen Rowley's campaign weblog.]

In last Friday's debate between Coleen, Jason Lewis, and John Kline, there was a great deal of discussion near the end about the state of the American economy. Lewis and Kline gave a positive view, while Coleen focused on the facts. When one crunches the numbers, it turns out that there is good news and bad news about the American economy: good news for the very wealthy, and bad news for nearly everyone else.

Discussions about economics are easily bogged down in details, so we'll focus on just two statistics: average income and median income. (Actually, we'll consider real average income and real median income, which factor out inflation).

Average income, or per capita income, is computed by taking the total income earned in the U.S. and dividing by the number of workers. When average income goes up, it could mean that most workers saw their incomes increase, or it could mean that a few very wealthy people got more while everyone else saw their income remain constant (or even drop a bit).

Median income is defined to be the midpoint of all incomes: 50% of American workers earn more than the median income, and 50% earn less. Median income can only increase in a given year if there more people rise above the previous median than fall below it. Conversely, if more fall below than rise above, median income goes down.
With this in mind, consider the Census Bureau report which came out on Tuesday. Specifically, on page 12 we find:

. . . the real median earnings of both men and women who worked full-time, year-round declined between 2004 and 2005. The median earnings of men declined 1.8 percent to $41,386. The median earnings of women declined 1.3 percent, to $31,858. This is the second consecutive year that men experienced a decline in earnings and the third consecutive year for women.

Median income for full time workers has decreased for two consecutive years, three consecutive years for women. That means that for the past 2-3 years, more people have seen their income fall below the existing median than rise above it (after adjusting for inflation). Needless to say, John Kline is unlikely to discuss real median wages during this campaign.

You're more likely to hear John Kline talk about average wages or per capita wages, because on the surface, the news there looks good. Again from the Census Bureau report:

Real per capita income rose by 1.5 percent for the overall population and by 2.1 percent for the non-Hispanic white population between 2004 and 2005.

Consider for a moment what these statistics mean. Real median income is down for the last 2-3 years, while average income is up. How is this possible? Since median income is down, then overall, incomes are dropping . So it's likely that average income is going up because the people who ARE gaining income are gaining quite a bit.

Put another way, an extra $100 million for Bill Gates or Paris Hilton can offset $500 losses for thousands of workers. The real story of the American economy is that the rich keep getting richer, while the middle class fall farther and farther behind. The Census Bureau report also estimates that there are 46.6 million people without health insurace, and 37 million people in poverty. This is the legacy of John Kline, George Bush and the GOP-led Congress.