Measuring Earnings from Work

Despite the ongoing pandemic, the US Bureau of Labor Statistics report that a typical full-time worker earns the equivalent of more than $52,000 a year. This post discusses earnings from wages and salaries and presents two broader measures that are designed to include people with little or no earnings.

As a starting point for thinking about a person’s earnings: survey data show that wages tend to increase with age. The typical older worker has more work experience and is paid more than the typical younger worker. Among full-time wage and salary workers, earnings increase steadily from $25,000 per year at age 16 to more than $60,000 per year around age 45, then plateau and remain near their peak until the social security retirement age (see chart 1). 

Measuring the earnings of full-time workers, however, does not tell us about people who are either working part-time, unemployed, or work-limited in another way. Typical earnings are much lower if we include the earnings of all people in the survey rather than just those who are currently working full-time. The median wage falls from $52,500 for current full-time workers to $15,290 for anyone in the survey aged 16 or older. Broken down by age, the broader measure shows earnings are zero for a typical 16 year-old, around $30,000 for the typical 25 year-old, and peak at around $42,000 for a typical person in their mid 40s (see chart 2). Median earnings past retirement age are zero.

By including people working part-time as well as people with zero earnings, the second chart reverses a major result from the first chart. Specifically, during the pandemic many people lost jobs or became part-time and therefore are removed from the 2020 measurement of full-time workers’ wages. Since jobs lost during the pandemic were more-often below the 2019 median wage, removing these jobs from a wage measurement makes the new median wage of the remaining jobs higher. In other words, the chart 1 result showing that the wage of the typical full-time worker is higher in 2020 than it was in 2019 is because the group of people being measured has changed and the typical worker is a different person. Measuring the same group of people in both 2019 and 2020 shows that earnings have instead fallen substantially during the pandemic. The reduction in earnings is confirmed by data on total wage and salary income.

Importantly, despite far worse economic conditions in 2020 than in 2019, chart 2 shows that several features of the relationship between earnings and age persist across both years. As one persistent feature, in both 2019 and 2020 the typical person who has reached retirement age has stopped working and has zero earnings. The US does a reasonably good job of providing welfare payments to people who reach retirement age, through Social Security, which facilitates retirement.

A second persistent feature is that children have no earnings in either year. With some exceptions, including newspaper delivery and family businesses, wage labor from children under the age 16 is uncommon and it is not measured in the survey. Also, many teenagers above the age of 15 are not working because of school.

Lastly, some portion of working-age adults are work-limited at any given point in time. The work-limited include people with an injury, disability, or illness, as well as students, and people with additional responsibilities at home such as caregivers and new parents. US rules around welfare of children and persons with disabilities are more strict and payments are meager, if available at all, relative to the help retirees receive from Social Security. One consequence of a work-focused welfare system is that many who become work-limited are expected to rely on the earnings of their family members to get by.

Family Earnings

Living with family is the way many people, including children, receive resources. Living together allows people to pool their income, share costs, and use resources like a car or a kitchen more efficiently. Economists sometimes calculate a concept called “equivalized” family earnings by adjusting the total earnings of a family for the size of the family (see footnote of chart 3 for details). The result is a per person measure of family wage and salary earnings that accounts for the efficiency of the size of a person’s family. Typical equivalized family earnings are $21,620 per person per year in 2020. 

By age, median equivalized family earnings are around $32,000 for newborns, $40,000 for 20-year olds, more than $50,000 for 50-year olds, and zero for those age 70 or older (see chart 3). The drop in family earnings starting at age 60 is from the combination of retirement and from people in these age groups being less likely to live with someone else who works.

Interestingly, the decrease in median earnings from 2019 to 2020 is less severe in the family earnings measure from chart 3 than in the personal earnings measure from chart 2. The resilience of equivalized family earnings to the recession is due in part to more people moving in with family. In 2020, a larger share of people utilize the resource efficiency of living with others, which is captured by an equivalized measure such as family earnings but not by the personal earnings measure.

Families with No Earnings

While the above sections focus on the typical person, measured as the median or middle member of the group, the effects of the COVID-19 recession have fallen more heavily on people nearer to the bottom of the wage distribution, an effect already evidenced in chart 1. One way to see how job losses hurt families is to look at the share of people whose family have no earnings. During a recession, the share without earnings is larger because there are fewer jobs. In 2020, 37.8 percent of people have no family earnings in the survey week, compared to 35.4 percent in 2019. By age, around 15 percent of newborns have no family earnings, compared to less than 10 percent of 45 year-olds and more than half of 70-year olds (see chart 4). 

Chart 4 can help to illustrate the relationship between poverty, age, and welfare. By definition, families without earnings will be in poverty unless they receive sufficient income from welfare or from private assets. Because the elderly are far less likely to have family earnings from work, the age group relies heavily on other sources of income to avoid poverty. For elderly people without much private wealth, Social Security payments facilitate independent living and result in much less poverty for elderly people and their families. That is, social insurance makes up for a lack of family earnings and reduces elderly poverty to the same rate or lower as the overall population. Other countries go further than the US and apply this same technique to other groups of people who do not have earnings, such as children. Including people who do not have earnings when measuring earnings can be useful for thinking about how the US should treat someone when they are work-limited.

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