Updated November 14, 20162019
Introduction to U.S. Economy: Personal Income
What Is Income?
Table 1. Sources of Personal Income: 2015
is Income?
Income is a measure of resources accruing to an individual
over a period of time. In general, individuals receive
income from their labor, assets, and government transfers.
In its broadest terms, income is a measure of the maximum
amount of goods and services an individual can consume in
a given period without diminishing their net worth (the
difference between their assets and liabilities) at the end of
the period. Income is considered a flow variable as it is
because it
is measured over a period of time, in comparison to; in contrast, net worth,
a a
stock variable, which is measured at a given point in time.
Measures of Income
There are two prominent sources of data on personal
income in the United States, the Bureau of Economic
Analysis (BEA) and the Census Bureau. Although both
agencies attempt to measure personal income, their
definitions of income and how they collect data differ
significantly. The BEA has a broader measure of income
whichthat includes both money income (e.g., wages and salary)
and non-moneynonmoney income (in-kind benefits such as employersponsored health care, housing, or meals). BEA data isare
generally reported at the aggregate level (e.g., economywide, states, regions), but also offersoffer limited information at
the individual level. Additionally, BEA collects income
figures from both administrative data from federal agencies
and federal agency administrative data and
surveys. BEA also provides income data both before
and after remittance of taxes and
after tax remittances. Income data from BEA is
available are available
at http://www.bea.gov/iTable/index_nipa.cfm.
In contrast to BEA, the Census Bureau’s measure of income
includes only money income, while non-money; nonmoney income is
not not
included. The Census collects income data through
surveys surveys
at the household level, but also reports the data at
the the
individual and family level. The reason incomeIncome is often
reported at the
household or family level isbecause of the recognition
that that
individuals within a household or family generally
share share
resources and make economic decisions together.
Households A
household generally includesinclude all individuals that live at
the the
same address, while a family includes all individuals
living living
at the same address who are related to each other by
birth,
marriage, or adoption. The Census also offers data on
the the
distribution of income and poverty levels. Additionally,
income measures from the Census generally reflect pre-taxpretax
income. Income data from the Census Bureau isare available at
at http://www.census.gov/topics/income-poverty/
income.html.
Sources of Income
Income is derived from a wide array of sources, including
salaries and wages, business income, rental income,
investment income (interest, dividends, etc.), and
government transfers from a number of programs. Different
definitions include different sources of incomesincome; Table 1
breaks income down into categories according to the BEA
definition.
Table 1. Sources of Personal Income: 2018
Percent of Total Income
Employee Compensation
5861%
Wages and Salary
4750%
Supplements to Wages and Salaries
11%
Business Income
89%
Rental Income
4%
Investment Income
1416%
Government Transfers
1617%
Social Security
5%
Medicare
4%
Medicaid
3%
Unemployment Insurance
<1%
Veterans’ Benefits
1%
Other
3%
Source: CRS calculations using data from U.S. Department of
Commerce, BEA, GDP and Personal Income, at httphttps://www.bea.gov/
iTable/index_nipa.cfmdata/
income-saving/personal-income.
Note: Percentages may not add to 100% due to rounding.
In general, the largest share of personal income is employee
compensation, —about 58% of all income in 2015. Wages and
salaries account for about 81% of employee compensation
and 19% is in the form of in-kind 61% of all income in 2018—of
which about 81% is wages and salaries and 19% is in-kind
transfers to employees.
Business income accounts for about 8
9% of income, rental
income accounts for about 4%, and
investment income
accounts for about 14% of income16%, as shown in
Table 1.
Transfers from the government, in the form of
both money
income and in-kind benefits, accounted for
about 1617% of
total income in 2015. Approximately one-third2018. About 31% of
government transfers are from Social Security, 24% is from
23% are
from Medicare, 21% is19% are from Medicaid, less than 1% is from
are
from unemployment insurance, 3% isare in the form of
veterans’
benefits, and 18% is16% are from other programs.
Earnings, a subset of income, are often reported alongside
income measures. Earnings generally only include income
derived from labor. The BEA’s measure of earnings
includes wages and salarysalaries, supplements to wages and
salaries, and business income, about 6670% of all personal
income as shown in Table 1. However, the Census only
includes wages and salaries, and self-employment/business
income as earnings.
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Introduction to U.S. Economy: Personal Income
Measuring Income over Time
Individual incomes have grown significantly over time in
the United States. According to the BEA, real aggregate
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Introduction to U.S. Economy: Personal Income
income has increased in inflation-adjusted dollars from
about $1.2 trillion990 billion in 1929 to about $15.517.8 trillion in 20152018,
an increase of about 3.03% per year on average. However,
average individual income, which accounts for population
growth, grew by about 1.82.2% per year on average over the
same period, as shown in Figure 1.
According to Census data, real median family income has
grown in inflation-adjusted terms from about $32,97035,015 in
1953 (the earliest data available) to about $70,697 in 201578,646 in 2018,
an increase of about 1.23% per year on average. Differences
in income growth between Census and BEA figures are due
to differences in the level of analysis, the alternative income
definitions used, and differences between average and
median calculations. As shown in Figure 1, median family
income grew quite rapidly between 1953 and 1969, an
average growth rate of about 2.93.1% per year. However,
between 1970 and 20152018 median family income growth has
only been about 0.67% per year on average. And between
2000 and 2015 medianMedian family
income growth has been
nearly flat, increasing by about 0.1% per year on average.
Both average (mean) and median are measures of central
tendency, which means they provide a sense of the central
or typical value within a distribution. For income measures,
median is often preferred as it is less sensitive to outliers
(extreme values at either end of a distribution) which are
especially common at the upper end of the income
distribution.
accelerated since 2012, growing by
about 2.4% each year on average.
services within the economy over the course of an
expansion,
overall output and incomes tend to rise. As
shown in
Figure 1, median family incomes tend to rise and
fall with
the business cycle.
However, in the long- term, economic growth is largely
dependentdepends on growth in the productive capacity of the
economy. Increaseseconomy’s productive capacity.
In general, increases in the economy’s productive capacity
generally lead to an increase in aggregate incomes over
time. For a
more detailed discussion of the connection
between between
economic growth and incomes, see CRS In Focus
IF10408,
Introduction to U.S. Economy: GDP and
Economic Economic
Growth.
Income Distribution
Economic growth is synonymous with growth in aggregate
income, but this growth in income is not necessarily shared
equally. The Census collects data on the distribution of
income by quintile and for the top 5%. As shown in Table
2, about 51.152.0% of income in 20152018 went to households in the
highest quintile (top 20%), and 3.1% of income went to
households in the lowest quintile (bottom 20%). The top
5% of households received about 22.1% of aggregate
income.
Table 2. Income Distribution: 2015
Share of
Aggregate
Income by
Percentile
Mean
Household
Income of
Percentiles
Lowest quintile
3.1
$12,457
Second quintile
8.2
$32,631
Middle quintile
14.3
$56,832
Fourth quintile
23.2
$92,031
Highest quintile
51.1
$202,366
22.1
$350,870
Figure 1. Income Levels: 1929-2015
Of which: top 5
percent
Source: U.S. Department of Commerce, BEA, GDP and Personal
Income, at 23.1% of aggregate
income.
Both average (mean) and median are measures of central
tendency, which means they provide a sense of the central
or typical value within a distribution. For income measures,
median is often preferred because it is less sensitive to
outliers (extreme values at either end of a distribution),
which are especially common at the upper end of the
income distribution.
Table 2. Income Distribution: 2018
Lowest quintile
3.1%
$13,775
Figure 1. Income Levels: 1929-2018
Second quintile
8.3%
$37,293
Middle quintile
14.1%
$63,572
Fourth quintile
22.6%
$101,570
Highest quintile
52.0%
$233,895
23.1%
$416,520
Percentage
Share of
Aggregate
Income
Of which: top 5 percent
Mean Family
Income of
Percentiles
Source: U.S. Department of Commerce, Census Bureau, Historical
Income Tables: Households, https://www.census.gov/data/tables/timeseries/demo/income-poverty/historical-income-households.html.
Source: U.S. Department of Commerce, BEA, GDP and Personal
Income, http://www.bea.gov/iTable/index_nipa.cfm, and U.S.
Department of Commerce, Census Bureau, Historical Income Tables:
Families, at httphttps://www.census.gov/data/tables/time-series/demo/
income-poverty/historical-income-families.html.
Note: Adjusted for inflationMeasured in constant 2018 dollars. Grey bars represent
recessions as
defined by the National Bureau of Economic Research.
Determinants of Income Growth
Economic growth (as measured by gross domestic product
(GDP)[GDP]) generally results in the growth of aggregate income.
For example, between 1929 and 2015 real GDP grew at
about 3.2% per year on average, while aggregate personal
income grew at about 3.0% per year on average. In the
short-In the short term, economic growth, and therefore income
growth,
is largely dependentdepends on the level of aggregate demand
in the
economy. As individuals demand more goods and services
Source: U.S. Department of Commerce, Census Bureau, Income and
Poverty in the United States: 2015, at http://www.census.gov/data/
tables/2016/demo/income-poverty/p60-256.html.
Over time, the
The share of income going to the highest quintile
of of
households has been steadily rising since the Census
began began
collecting this data in 1967. The share of income
going to
the highest quintile rose by about 7.58.4 percentage
points,
increasing from about 43.6% in 1967 to 51.1% in
2015. The 52.0% in 2018. The
share of income going to the rest of the income
distribution distribution
decreased over the same period. The share of
income going
to the lowest quintile decreased by about 0.9
percentage percentage
points, the second quintile decreased by about
2.6 2.5
percentage points, the third quintile decreased by about
3.0 3.2
percentage points, and the fourth quintile decreased by
about 1.06 percentage points.
Jeffrey M. Stupak, Analyst in Macroeconomic Policy
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Introduction to U.S. Economy: Personal Income
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