Introduction to U.S. Economy: Personal Income

https://crsreports.congress.gov

Updated February 27, 2025

Introduction to U.S. Economy: Personal Income

What 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 measured over a period of time. In contrast, net worth 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 that includes both money income (e.g., wages and salary) and nonmoney income (e.g., employer-sponsored health care, housing, and meals). BEA data are generally reported at the aggregate level (e.g., economy-wide, states, regions) but also offer limited information at the individual level. Additionally, BEA collects income figures from both federal agency administrative data and surveys. BEA also provides income data both before and after tax remittances.

In contrast, the Census Bureau’s measure of income includes only money income. The Census collects income data through surveys at the household level but also reports the data at the individual and family level because of the recognition that individuals within a household or family generally share resources and make economic decisions together. A household generally includes all individuals that live at the same address, while a family includes all individuals living at the same address who are related to each other by birth, marriage, or adoption. The Census also provides data on the distribution of income and poverty levels. Additionally, income measures from the Census generally reflect pretax income.

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 income. Table 1 breaks income down into categories according to the BEA definition.

In general, the largest share of personal income is employee compensation (61% of total income in 2024, as shown in Table 1), comprised of wages and salary (50%) and supplements to wages and salaries (i.e., employer paid benefits, 11%). Business, rental, and investment income

collectively accounts for about 28% of total income. Transfers from the government, in the form of both income and in-kind benefits, accounted for about 18% of total income in 2024.

Table 1. Sources of Personal Income: 2024

Percentage of Total Income

Employee Compensation 61%

Wages and Salary 50%

Supplements to Wages and Salaries 11%

Business Income 8%

Rental Income 4%

Investment Income 16%

Government Transfers 18%

Social Security 6%

Medicare 4%

Medicaid 4%

Unemployment Insurance <1%

Veterans’ Benefits 1%

Other 3%

Source: CRS calculations using data from BEA, GDP and Personal Income. Note: Percentages may not add to 100% due to rounding.

Earnings, a subset of income, are often reported alongside income measures. Earnings generally include only income derived from labor. The BEA’s measure of earnings includes wages and salaries, supplements to wages and salaries, and business income, while the Census includes only wages and salaries, self-employment income, and business income as earnings.

Measuring Income over Time

Incomes have grown significantly over time in the United States, although the rate of growth varies depending on measurement used. According to the BEA, real (i.e., inflation-adjusted) average individual income grew from $9,597 to $69,415 from 1929 to 2023, which equates to about 2.1% per year growth on average, as shown in Figure 1. According to Census data, real median family income has grown from about $39,870 in 1953 (the earliest data available in this dataset) to about $100,800 in 2023, an increase of about 1.3% per year on average. Differences in income growth between Census and BEA figures are due to differences in the unit of analysis (i.e., households can have multiple income earning individuals), the alternative income definitions used, and differences between average

Introduction to U.S. Economy: Personal Income

https://crsreports.congress.gov

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 2.1% per year on average. However, this recent uptick might be affected by changes implemented to the survey and data collection challenges during the pandemic.

Figure 1. Income Levels, 1929-2023

Source: CRS calculations based on U.S. Department of Commerce, BEA, GDP and Personal Income, and U.S. Department of Commerce, Census Bureau, Historical Income Tables: Families. Notes: Measured in constant 2021 dollars. Gray bars denote recessions as defined by the National Bureau of Economic Research.

Determinants of Income Growth Economic growth—as measured by gross domestic product (GDP)—generally results in the growth of aggregate income. In the short term, economic growth (and therefore income growth) depends largely on the level of aggregate demand in the economy. As individuals demand more goods and services within the economy over the course of an expansion, overall output and incomes tend to rise.

In the long term, economic growth depends largely on growth in the economy’s productive capacity. In general, increases in the economy’s productive capacity lead to an increase in aggregate incomes over time. For more detail on the connection between economic growth and incomes, see CRS In Focus IF10408, Introduction to U.S. Economy: GDP and Economic Growth.

Personal Income and the Business Cycle Personal income typically falls during recessions as unemployment increases. Notably, this did not occur in the most recent recession in 2020, despite large decreases in aggregate demand and GDP. This was largely the result of policies enacted in response to the pandemic, such as enhanced unemployment benefits and economic impact payments.

Figure 2. Personal Income over Past Two Recessions

Source: BEA. Note: 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: 2023

Percentage

Share of

Aggregate

Income

Mean Nominal Family Income

of Cohort

Lowest quintile 3.1% $17,650

Second quintile 8.3% $47,590

Middle quintile 14.1% $80,730

Fourth quintile 22.6% $129,400

Highest quintile 51.9% $297,300

Of which: top 5% 23.0% $526,200

Source: U.S. Department of Commerce, Census Bureau, Historical Income Tables: Households.

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 the highest quintile rose by 8.3 percentage points, up from about 43.6% in 1967 to 51.9% in 2023. The share of income going to the rest of the income distribution decreased over the same period.

(Note: This In Focus was originally authored by Jeffrey Stupak, former CRS Analyst in Macroeconomic Policy.)

Lida R. Weinstock, Analyst in Macroeconomic Policy

IF10501

Introduction to U.S. Economy: Personal Income

https://crsreports.congress.gov | IF10501 · VERSION 10 · UPDATED

Disclaimer

This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material.