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November 14, 2016
Introduction to U.S. Economy: Personal Income
What Is Income?
Table 1. Sources of Personal Income: 2015
Income is a measure of resources accruing to an individual
over a period of time. In general, individuals receive
Percent of Total Income
income from their labor, assets, and government transfers.
Employee Compensation
58%
In its broadest terms, income is a measure of the maximum
amount of goods and services an individual can consume in
Wages and Salary
47%
a given period without diminishing their net worth (the
Supplements to Wages and Salaries
11%
difference between their assets and liabilities) at the end of
the period. Income is considered a flow variable as it is
Business Income
8%
measured over a period of time, in comparison to net worth,
a stock variable, which is measured at a given point in time.
Rental Income
4%
Measures of Income
Investment Income
14%
There are two prominent sources of data on personal
Government Transfers
16%
income in the United States, the Bureau of Economic
Social Security
5%
Analysis (BEA) and the Census Bureau. Although both
agencies attempt to measure personal income, their
Medicare
4%
definitions of income and how they collect data differ
Medicaid
3%
significantly. The BEA has a broader measure of income
which includes both money income (e.g., wages and salary)
Unemployment Insurance
<1%
and non-money income (in-kind benefits such as employer-
Veterans’ Benefits
1%
sponsored health care, housing, or meals). BEA data is
generally reported at the aggregate level (e.g., economy-
Other
3%
wide, states, regions), but also offers limited information at
Source: CRS calculations using data from U.S. Department of
the individual level. Additionally, BEA collects income
Commerce, BEA, GDP and Personal Income, at http://www.bea.gov/
figures from both administrative data from federal agencies
iTable/index_nipa.cfm.
and surveys. BEA also provides income data both before
and after remittance of taxes. Income data from BEA is
Note: Percentages may not add to 100% due to rounding.
available at http://www.bea.gov/iTable/index_nipa.cfm.
In general, the largest share of personal income is employee
In contrast to BEA, the Census Bureau’s measure of income
compensation, about 58% of all income in 2015. Wages and
includes only money income, while non-money income is
salaries account for about 81% of employee compensation
not included. The Census collects income data through
and 19% is in the form of in-kind transfers to employees.
surveys at the household level, but also reports the data at
Business income accounts for about 8% of income, rental
the individual and family level. The reason income is often
income accounts for about 4%, and investment income
reported at the household or family level is the recognition
accounts for about 14% of income as shown in Table 1.
that individuals within a household or family generally
Transfers from the government, in the form of both money
share resources and make economic decisions together.
income and in-kind benefits, accounted for about 16% of
Households generally includes all individuals that live at
total income in 2015. Approximately one-third of
the same address, while a family includes all individuals
government transfers are from Social Security, 24% is from
living at the same address who are related to each other by
Medicare, 21% is from Medicaid, less than 1% is from
birth, marriage, or adoption. The Census also offers data on
unemployment insurance, 3% is in the form of veterans’
the distribution of income and poverty levels. Additionally,
benefits, and 18% is from other programs.
income measures from the Census generally reflect pre-tax
income. Income data from the Census Bureau is available at
Earnings, a subset of income, are often reported alongside
http://www.census.gov/topics/income-poverty/income.html.
income measures. Earnings generally only include income
derived from labor. The BEA’s measure of earnings
Sources of Income
includes wages and salary, supplements to wages and
Income is derived from a wide array of sources including
salaries, and business income, about 66% of all personal
salaries and wages, business income, rental income,
income as shown in Table 1. However, the Census only
investment income (interest, dividends, etc.), and
includes wages and salaries, and self-employment/business
government transfers from a number of programs. Different
income as earnings.
definitions include different sources of incomes; Table 1
breaks income down into categories according to the BEA
Measuring Income over Time
definition.
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
within the economy over the course of an expansion,
about $1.2 trillion in 1929 to about $15.5 trillion in 2015,
overall output and incomes tend to rise. As shown in
an increase of about 3.0% per year on average. However,
Figure 1, median family incomes tend to rise and fall with
average individual income, which accounts for population
the business cycle.
growth, grew by about 1.8% per year on average over the
same period, as shown in Figure 1.
However, in the long-term, economic growth is largely
dependent on growth in the productive capacity of the
According to Census data, real median family income has
economy. Increases in the economy’s productive capacity
grown in inflation-adjusted terms from about $32,970 in
generally lead to an increase in aggregate incomes over
1953 (the earliest data available) to about $70,697 in 2015,
time. For a more detailed discussion of the connection
an increase of about 1.2% per year on average. Differences
between economic growth and incomes see CRS In Focus
in income growth between Census and BEA figures are due
IF10408, Introduction to U.S. Economy: GDP and
to differences in the level of analysis, the alternative income
Economic Growth.
definitions used, and differences between average and
median calculations. As shown in Figure 1, median family
Income Distribution
income grew quite rapidly between 1953 and 1969, an
Economic growth is synonymous with growth in aggregate
average growth rate of about 2.9% per year. However,
income, but this growth in income is not necessarily shared
between 1970 and 2015 median family income growth has
equally. The Census collects data on the distribution of
only been about 0.6% per year on average. And between
income by quintile and for the top 5%. As shown in Table
2000 and 2015 median family income growth has been
2, about 51.1% of income in 2015 went to households in the
nearly flat, increasing by about 0.1% per year on average.
highest quintile (top 20%), and 3.1% of income went to
households in the lowest quintile (bottom 20%). The top
Both average (mean) and median are measures of central
5% of households received about 22.1% of aggregate
tendency, which means they provide a sense of the central
income.
or typical value within a distribution. For income measures,
median is often preferred as it is less sensitive to outliers
Table 2. Income Distribution: 2015
(extreme values at either end of a distribution) which are
especially common at the upper end of the income
Share of
Mean
distribution.
Aggregate
Household
Income by
Income of
Figure 1. Income Levels: 1929-2015
Percentile
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
Of which: top 5
22.1
$350,870
percent
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.
Source: U.S. Department of Commerce, BEA, GDP and Personal
Income, at http://www.bea.gov/iTable/index_nipa.cfm, and U.S.
Over time, the share of income going to the highest quintile
Department of Commerce, Census Bureau, Historical Income Tables:
of households has been steadily rising since the Census
Families, at http://www.census.gov/data/tables/time-series/demo/
began collecting this data in 1967. The share of income
income-poverty/historical-income-families.html.
going to the highest quintile rose by about 7.5 percentage
Note: Adjusted for inflation. Grey bars represent recessions as
points, increasing from about 43.6% in 1967 to 51.1% in
defined by the National Bureau of Economic Research.
2015. The share of income going to the rest of the income
distribution decreased over the same period. The share of
Determinants of Income Growth
income going to the lowest quintile decreased by about 0.9
Economic growth (as measured by gross domestic product
percentage points, the second quintile decreased by about
(GDP)) generally results in the growth of aggregate income.
2.6 percentage points, the third quintile decreased by about
For example, between 1929 and 2015 real GDP grew at
3.0 percentage points, and the fourth quintile decreased by
about 3.2% per year on average, while aggregate personal
about 1.0 percentage points.
income grew at about 3.0% per year on average. In the
short-term, economic growth, and therefore income growth,
Jeffrey M. Stupak, Analyst in Macroeconomic Policy
is largely dependent on the level of aggregate demand in the
economy. As individuals demand more goods and services
IF10501
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Introduction to U.S. Economy: Personal Income
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