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Updated November 14, 2019
Introduction to U.S. Economy: Personal Income
What is Income?
breaks income down into categories according to the BEA
Income is a measure of resources accruing to an individual
definition.
over a period of time. In general, individuals receive
income from their labor, assets, and government transfers.
Table 1. Sources of Personal Income: 2018
In its broadest terms, income is a measure of the maximum
amount of goods and services an individual can consume in
Percent of Total Income
a given period without diminishing their net worth (the
Employee Compensation
61%
difference between their assets and liabilities) at the end of
the period. Income is considered a flow variable because it
Wages and Salary
50%
is measured over a period of time; in contrast, net worth, a
Supplements to Wages and Salaries
11%
stock variable, is measured at a given point in time.
Business Income
9%
Measures of Income
Rental Income
4%
There are two prominent sources of data on personal
income in the United States, the Bureau of Economic
Investment Income
16%
Analysis (BEA) and the Census Bureau. Although both
agencies attempt to measure personal income, their
Government Transfers
17%
definitions of income and how they collect data differ
Social Security
5%
significantly. The BEA has a broader measure of income
that includes both money income (e.g., wages and salary)
Medicare
4%
and nonmoney income (in-kind benefits such as employer-
Medicaid
3%
sponsored health care, housing, or meals). BEA data are
generally reported at the aggregate level (e.g., economy-
Unemployment Insurance
<1%
wide, states, regions), but also offer limited information at
Veterans’ Benefits
1%
the individual level. Additionally, BEA collects income
figures from both federal agency administrative data and
Other
3%
surveys. BEA also provides income data both before and
Source: CRS calculations using data from U.S. Department of
after tax remittances. Income data from BEA are available
Commerce, BEA, GDP and Personal Income, https://www.bea.gov/data/
at http://www.bea.gov/iTable/index_nipa.cfm.
income-saving/personal-income.
Note: Percentages may not add to 100% due to rounding.
In contrast to BEA, the Census Bureau’s measure of income
includes only money income; nonmoney income is not
In general, the largest share of personal income is employee
included. The Census collects income data through surveys
compensation—about 61% of all income in 2018—of
at the household level, but also reports the data at the
which about 81% is wages and salaries and 19% is in-kind
individual and family level. Income is often reported at the
transfers to employees. Business income accounts for about
household or family level because of the recognition that
9% of income, rental income accounts for about 4%, and
individuals within a household or family generally share
investment income accounts for about 16%, as shown in
resources and make economic decisions together. A
Table 1. Transfers from the government, in the form of
household generally include all individuals that live at the
both money income and in-kind benefits, accounted for
same address, while a family includes all individuals living
about 17% of total income in 2018. About 31% of
at the same address who are related to each other by birth,
government transfers are from Social Security, 23% are
marriage, or adoption. The Census also offers data on the
from Medicare, 19% are from Medicaid, less than 1% are
distribution of income and poverty levels. Additionally,
from unemployment insurance, 3% are in the form of
income measures from the Census generally reflect pretax
veterans’ benefits, and 16% are from other programs.
income. Income data from the Census Bureau are available
at http://www.census.gov/topics/income-poverty/
Earnings, a subset of income, are often reported alongside
income.html.
income measures. Earnings generally only include income
Sources of Income
derived from labor. The BEA’s measure of earnings
includes wages and salaries, supplements to wages and
Income is derived from a wide array of sources, including
salaries, and business income, about 70% 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 income; Table 1
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Introduction to U.S. Economy: Personal Income
Measuring Income over Time
services within the economy over the course of an
Individual incomes have grown significantly over time in
expansion, overall output and incomes tend to rise. As
the United States. According to the BEA, real aggregate
shown in Figure 1, median family incomes tend to rise and
income has increased in inflation-adjusted dollars from
fall with the business cycle.
about $990 billion in 1929 to about $17.8 trillion in 2018,
an increase of about 3.3% per year on average. However,
However, in the long term, economic growth largely
average individual income, which accounts for population
depends on growth in the economy’s productive capacity.
growth, grew by about 2.2% per year on average over the
In general, increases in the economy’s productive capacity
same period, as shown in Figure 1.
lead to an increase in aggregate incomes over time. For a
more detailed discussion of the connection between
According to Census data, real median family income has
economic growth and incomes, see CRS In Focus IF10408,
grown in inflation-adjusted terms from about $35,015 in
Introduction to U.S. Economy: GDP and Economic
1953 (the earliest data available) to about $78,646 in 2018,
Growth.
an increase of about 1.3% per year on average. Differences
in income growth between Census and BEA figures are due
Income Distribution
to differences in the level of analysis, the alternative income
Economic growth is synonymous with growth in aggregate
definitions used, and differences between average and
income, but this growth in income is not necessarily shared
median calculations. As shown in Figure 1, median family
equally. The Census collects data on the distribution of
income grew quite rapidly between 1953 and 1969, an
income by quintile and for the top 5%. As shown in Table
average growth rate of about 3.1% per year. However,
2, 52.0% of income in 2018 went to households in the
between 1970 and 2018 median family income growth has
highest quintile (top 20%), and 3.1% of income went to
only been about 0.7% per year on average. Median family
households in the lowest quintile (bottom 20%). The top
income growth has accelerated since 2012, growing by
5% of households received about 23.1% of aggregate
about 2.4% each year on average.
income.
Both average (mean) and median are measures of central
Table 2. Income Distribution: 2018
tendency, which means they provide a sense of the central
or typical value within a distribution. For income measures,
Percentage
Mean Family
median is often preferred because it is less sensitive to
Share of
Income of
outliers (extreme values at either end of a distribution),
Aggregate
Percentiles
which are especially common at the upper end of the
Income
income distribution.
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
Of which: top 5 percent
23.1%
$416,520
Source: U.S. Department of Commerce, Census Bureau, Historical
Income Tables: Households, https://www.census.gov/data/tables/time-
series/demo/income-poverty/historical-income-households.html.
The share of income going to the highest quintile of
households has been steadily rising since the Census began
collecting this data in 1967. The share of income going to
Source: U.S. Department of Commerce, BEA, GDP and Personal
the highest quintile rose by about 8.4 percentage points,
Income, http://www.bea.gov/iTable/index_nipa.cfm, and U.S.
increasing from about 43.6% in 1967 to 52.0% in 2018. The
Department of Commerce, Census Bureau, Historical Income Tables:
share of income going to the rest of the income distribution
Families, https://www.census.gov/data/tables/time-series/demo/
decreased over the same period. The share of income going
income-poverty/historical-income-families.html.
to the lowest quintile decreased by about 0.9 percentage
Note: Measured in constant 2018 dol ars. Grey bars represent
points, the second quintile decreased by about 2.5
recessions as defined by the National Bureau of Economic Research.
percentage points, the third quintile decreased by about 3.2
percentage points, and the fourth quintile decreased by
Determinants of Income Growth
about 1.6 percentage points.
Economic growth (as measured by gross domestic product
[GDP]) generally results in the growth of aggregate income.
Jeffrey M. Stupak, Analyst in Macroeconomic Policy
In the short term, economic growth, and therefore income
IF10501
growth, largely depends on the level of aggregate demand
in the economy. As individuals demand more goods and
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Introduction to U.S. Economy: Personal Income
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