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Updated December 29, 2022
Introduction to U.S. Economy: Personal Income
What Is Income?
collectively accounts for about 26% of total income.
Income is a measure of resources accruing to an individual
Transfers from the government, in the form of both money
over a period of time. In general, individuals receive
income and in-kind benefits, accounted for about 22% of
income from their labor, assets, and government transfers.
total income in 2021.
In its broadest terms, income is a measure of the maximum
amount of goods and services an individual can consume in
Table 1. Sources of Personal Income: 2021
a given period without diminishing their net worth (the
difference between their assets and liabilities) at the end of
Percentage of Total Income
the period. Income is measured over a period of time. In
Employee Compensation
59%
contrast, net worth is measured at a given point in time.
Wages and Salary
48%
Measures of Income
Supplements to Wages and Salaries
11%
There are two prominent sources of data on personal
income in the United States: the Bureau of Economic
Business Income
8%
Analysis (BEA) and the Census Bureau. Although both
Rental Income
3%
agencies attempt to measure personal income, their
definitions of income and how they collect data differ
Investment Income
15%
significantly. The BEA has a broader measure of income
that includes both money income (e.g., wages and salary)
Government Transfers
22%
and nonmoney income (e.g., employer-sponsored health
Social Security
5%
care, housing, and meals). BEA data are generally reported
at the aggregate level (e.g., economy-wide, states, regions)
Medicare
4%
but also offer limited information at the individual level.
Medicaid
3%
Additionally, BEA collects income figures from both
federal agency administrative data and surveys. BEA also
Unemployment Insurance
2%
provides income data both before and after tax remittances.
Veterans’ Benefits
1%
In contrast, the Census Bureau’s measure of income
Other
6%
includes only money income. The Census collects income
Source: CRS calculations using data from BEA, GDP and Personal
data through surveys at the household level but also reports
Income.
the data at the individual and family level because of the
Note: Percentages may not add to 100% due to rounding.
recognition that individuals within a household or family
generally share resources and make economic decisions
Earnings, a subset of income, are often reported alongside
together. A household generally includes all individuals that
income measures. Earnings generally include only income
live at the same address, while a family includes all
derived from labor. The BEA’s measure of earnings
individuals living at the same address who are related to
includes wages and salaries, supplements to wages and
each other by birth, marriage, or adoption. The Census also
salaries, and business income, while the Census includes
provides data on the distribution of income and poverty
only wages and salaries, self-employment income, and
levels. Additionally, income measures from the Census
business income as earnings.
generally reflect pretax income.
Sources of Income
Measuring Income over Time
Incomes have grown significantly over time in the United
Income is derived from a wide array of sources, including
States, although the rate of growth varies depending on
salaries and wages, business income, rental income,
measurement used. According to the BEA, real (i.e.,
investment income (interest, dividends, etc.), and
inflation-adjusted) average individual income grew from
government transfers from a number of programs. Different
$8,705 to $64,100 from 1929 to 2021, which equates to
definitions include different sources of income. Table 1
about 2.2% per year growth on average, as shown in Figure
breaks income down into categories according to the BEA
1. According to Census data, real median family income
definition.
has grown from about $33,513 in 1953 (the earliest data
available in this dataset) to about $88,590 in 2021, an
In general, the largest share of personal income is employee
increase of about 1.4% per year on average. (BEA increases
compensation (59% of total income in 2021, as shown in
in individual income in this period would be from $14,814
Table 1), comprised of wages and salary (46%) and
to $64,100, or about 2.2% a year.) Differences in income
supplements to wages and salaries (i.e., employer paid
growth between Census and BEA figures are due to
benefits: 11%). Business, rental, and investment income
differences in the unit of analysis (i.e., households can have
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Introduction to U.S. Economy: Personal Income
multiple income earning individuals), the alternative
Figure 2. Personal Income over Past Two Recessions
income definitions used, and differences between average
January 2007 to October 2022
and median (value at the midpoint of a distribution)
calculations.
The rate of income growth has also varied across different
time periods. As shown in Figure 1, median family income
grew quite rapidly between 1953 and 1969, an average
growth rate of about 3.1% per year. However, between
1970 and 2021, median family income growth has been
about 1% per year on average. Median family income
growth has accelerated since 2012, growing by about 2.3%
per year on average. However, this recent uptick might be
caused by changes implemented to the survey and data
collection challenges during the pandemic.
Source: BEA
Figure 1. Income Levels, 1929-2021
Notes: Gray bars denote recessions.
Income Distribution
Aggregate 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, 52.7% of income in 2021 went to households in the top
quintile (top 20%), and 2.9% of income went to households
in the bottom quintile (bottom 20%). The top 5% of
households received 23.5% of aggregate income.
Table 2. Income Distribution: 2021
Percentage
Share of
Mean Family
Source: CRS calculations based on U.S. Department of Commerce,
Aggregate
Income of
BEA, GDP and Personal Income, and U.S. Department of Commerce,
Income
Cohort
Census Bureau, Historical Income Tables: Families.
Note: Measured in constant 2021 dol ars. Grey bars represent
Lowest quintile
2.9%
$14,859
recessions as defined by the National Bureau of Economic Research.
Second quintile
8.0%
$41,025
Determinants of Income Growth
Middle quintile
13.9%
$70,879
Economic growth—as measured by gross domestic product
(GDP)—generally results in the growth of aggregate
Fourth quintile
22.6%
$115,462
income. In the short term, economic growth (and therefore
Highest quintile
52.7%
$269,356
income growth) depends largely on the level of aggregate
demand in the economy. As individuals demand more
Of which: top 5 percent
23.5%
$480,236
goods and services within the economy over the course of
Source: U.S. Department of Commerce, Census Bureau, Historical
an expansion, overall output and incomes tend to rise.
Income Tables: Households.
In the long term, economic growth depends largely on
The share of income going to the highest quintile of
growth in the economy’s productive capacity. In general,
households has been steadily rising since the Census began
increases in the economy’s productive capacity lead to an
collecting this data in 1967. The share of income going to
increase in aggregate incomes over time. For more detail on
the highest quintile rose by 9.1 percentage points, up from
the connection between economic growth and incomes, see
about 43.6% in 1967 to 52.7% in 2021. The share of
CRS In Focus IF10408, Introduction to U.S. Economy:
income going to the rest of the income distribution
GDP and Economic Growth.
decreased over the same period.
Personal Income and the Business Cycle
(Note: This In Focus was originally authored by Jeffrey
Personal income typically falls during recessions as
Stupak, former CRS Analyst in Macroeconomic Policy.)
unemployment increases. Notably, this did not occur in the
most recent recession in 2020, despite large decreases in
Lida R. Weinstock, Analyst Macroeconomic Policy
aggregate demand and GDP. This was largely the result of
policies enacted in response to the pandemic, such as
IF10501
enhanced unemployment benefits and economic impact
payments.
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Introduction to U.S. Economy: Personal Income
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