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The Myth of Income Stagnation

Many economists, journalists, business leaders, and elected leaders (from both parties) believe that for a large share of households, real (inflation-adjusted) income has not increased for decades. But new data from a nonpartisan, independent arbiter show that what everyone seems to know just isn't so.

WASHINGTON, DC – According to the conventional wisdom, income stagnation and inequality are large and growing threats to broad-based prosperity in the United States. Many economists, journalists, business leaders, and elected leaders (from both parties) believe that for a large share of households, real (inflation-adjusted) income has not increased for decades, and that income inequality – the gap between higher- and lower-income households – has grown substantially in recent years.

Casual observation might make the claim that incomes have been stagnant for decades seem implausible. After all, just look at what a typical household consumes in 2022 compared to, say, 1992. Advances in medical care, safer automobiles, the spread of smartphones, video conferencing with friends and family, and higher-quality home appliances are just a few examples of the significant consumption gains over those decades. Could this material progress really have coincided with stagnating incomes?

Relying on anecdotes and intuition to compute economic trends can work sometimes, but it can just as easily lead one astray. Fortunately, we can find clarity in statistics released last month by the nonpartisan Congressional Budget Office – the referee in US economic policy debates – which confirm that the conventional wisdom is off-base.

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