Opinion, Berkeley Blogs

The fallout from the Great Recession continues

By Sylvia Allegretto

Last week the U.S. Census Bureau released its annual report on income, poverty, and health insurance coverage for 2010. Data from the report represents that of the first full year into our economic recovery (which official started in June 2009). It is no surprise, given the focus of this report and the weak recovery, that it is filled with bad news: poverty is up, health insurance coverage and incomes are down.

For this post I’ll focus on median household income from the report for the United States and California. From 2009 to 2010 median income in the U.S. fell by $1,154 (or 2.3%) and in California the decline was a steeper $2,602 (or 4.6%). The change in income since 2007—the peak of the last economic expansion—totals -$3,378 (-6.4%) for the U.S. and -$5,362 (-9.0%) for California. So, typical incomes in the Golden State in 2010 were the same, adjusting for inflation, as they were in 1998.


We are about three-fourths of the way through 2011 and there is little expectation that next year’s Census report will show any improvement and may well report more declines as unemployment remains very high and workers have little power to bargain wage increases in this economic climate.

It isn’t just that the income for typical households has declined in these tough times—it is what happened during the good times that is more disturbing. Household income has always been susceptible to economic fluctuations and this is evident in the figure. Incomes peak near the end of economic expansions—in other words, just prior to recessions (gray bars)—and they fall during recessions. When economic expansion is strong enough incomes start to rise once again.

In recent expansions that have been accompanied by jobless recoveries—an expanding economy with continued job losses—post-recession income gains have taken longer to materialize. The salient point here is that the long term trend has always been up. In other words, average income at the peak of each successive expansion has always been higher than the previous one—that is until the last economic cycle.

As the figure shows, typical incomes over the last two economic peaks that occurred in 2000 and 2007 show no gain in the U.S. and little in California. It will be very difficult anytime soon to regain the losses sustained in this recession let alone significantly surpass previous peaks in income. Why? Because job losses are still in the catastrophic range (see post on 9/2/11), increased free-trade deals, an ongoing abnormally weak recovery and ever increasing income inequality. It may well be that a new trend is forming—one in which incomes of typical households do not trend upwards over time but fluctuate around economic cycles without real gains.