Incomes Drop in 2011, Rich and Poor Divide Deepens

Washington – Household incomes declined for the second straight year in 2011, while the earnings gap between rich and poor logged the largest annual increase since income inequality was first measured two decades ago, new data from the U.S. Census Bureau shows.

Those stark findings from its annual report on America’s social and economic well-being show a nation that was still struggling to right its troubled economy and labor market after the Great Recession.

If there was good news, it was that the nation’s poverty rate held steady at 15 percent last year after three straight years of increases, while the number of Americans living in poverty dipped slightly to 46.2 million people. That’s down from a record 46.3 million in 2010, the largest amount in the 53 years that records have been kept.

The number of Americans without health insurance fell from 50 million in 2010 to 48.6 million last year, possibly as a result of the new health care law.

The report, “Income, Poverty, and Health Insurance Coverage in the United States: 2011,” provides powerful fodder for the election campaigns of Democratic President Barack Obama and Republican nominee Mitt Romney, which have made growing income inequality and the struggling economy major themes of their respective bids.

After the recession officially ended in June 2009, the U.S. labor market continued to deteriorate through early 2010, and the fallout is reflected in the data for 2011, which shows high levels of suffering amid a tepid economic recovery.

“We got just enough job growth to keep up with population growth, but not enough to start digging us out of the hole left by the Great Recession,” said Heidi Shierholz, an economist at the Economic Policy Institute, a liberal research center.

Poverty rates and the number of people in poverty fell for Southerners, suburban residents and noncitizens; 750,000 Southerners were lifted out of poverty as 1.2 million found full-time work in 2011, according to David Johnson, the chief of the Census Bureau’s social, economic and housing statistics division.

The poverty estimates have come under scrutiny for their failure to gauge the level of hardship accurately. For instance, if the value of food stamps were used in the poverty measure, 3.9 million fewer people would be classified as poor.

Moreover, “If estimates of the federal earned income tax credit were added to income (used to determine poverty), 3 million fewer children – 13 million instead of 16 million – would be classified as in poverty,” Johnson said.

As for health insurance, the number of uninsured Americans fell by 1.4 million, from 16.3 percent of the population in 2010 to 15.7 percent last year. Under the new health care law, adults younger than 26 can remain covered by their parents’ plans. That may have helped the uninsured rate drop by 2.2 percentage points among people ages 19 to 25 last year, Johnson said.

But once again, it was the weak labor market that dominated the data and continued to wreak havoc on American families last year.

While the unemployment rate dipped from 9.6 percent to 8.9 percent from 2010 to 2011, the decline was almost entirely due to people dropping out of the labor market, Shierholz said.

The lack of jobs helped drag down median household income – the amount at which half of U.S. households earn more or less – to $50,054 in 2011. That’s a 1.5 percent drop, or $777, from the previous year.

While 1.7 million more men and half a million more women found full-time, year-round work last year, both saw their median incomes decline by 2.5 percent. Men took a $1,261 hit, which dropped their income to $48,202. For women, it meant a loss of $934, to $37,118.

In addition to stagnant wages and high unemployment, the addition of 1.1 million elderly households – a 4.3 percent increase, courtesy of aging baby boomers – contributed to the decline in median household income last year.

Since older people typically have less income, “it can have a dampening effect on overall median income,” said Ed Welniak, the chief of the Census Bureau income statistics branch.

Income declines were most pronounced for low-income households, continuing a troubling trend of income inequality, which the government calculates through a measurement known as the “Gini index.”

In 2011, the Gini index increased by 1.6 percent, the first statistically significant annual increase since the index was first used in 1993, Welniak said.

For the 10 percent, or 12.1 million, of U.S. households with the lowest annual income – below $12,000 – their income fell 2 percent from 2010 to 2011, from $12,235 to $12,000. But the top 10 percent of households, with incomes above $143,600, saw their median incomes increase slightly.

The 1 percent, or 1.2 million, of households at the very top of the income ladder saw their median household income jump 5.5 percent, from $331,729 in 2010 to $350,016, Welniak said. The numbers don’t reflect investment income or earnings on interest, he said.

“A lot of the increase in inequality from 2010 to 2011 is driven by changes in the very top of the (income) distribution,” Johnson said.

Since its peak in 1999 before the two most recent recessions, the nation’s median household income has fallen 8.9 percent, he said. Over that same period, median household income has dropped 14 percent for the 10 percent of households with the lowest incomes, but just 1.3 percent for the 10 percent with the highest incomes, he added.

Among other findings:

– Unemployment insurance pulled 1.6 million adults out of poverty in 2011, while Social Security did the same for 14.5 million seniors.

– For the first time in 10 years, the percentage of people covered by private health insurance didn’t decline in 2011. But the share of people with government insurance – through the military, Medicaid, Medicare and the Children’s Health Insurance Program – increased for the fifth straight year, to 32.2 percent of the nation.

– Median income declined for non-Hispanic white households and for black households last year, while Asian and Hispanic households showed no statistically significant changes.

– The poverty rate in 2011 for children under age 18 was 21.9 percent, about the same as in 2010.