Stagnating Median Income: Not That Bad?

Many, including myself, have been really bothered by this:


This trend is often the primary concern among progressives. We've had a lot of economic growth over the last few decades, but since the 70's the median income has hardly budged. When people complain about income inequality in the U.S., the idea that worries them the most is usually that all the economic growth is unfairly going to the top, while the average worker gains nothing. In fact, I got the above graph from the wikipedia page on income inequality in the U.S., and the subtitle of that image is "The benefits of increased productivity over the last 35 years have not gone to the middle class".

However, I recently saw something that really confused me about this:


Even though the median income only increased 3% from 1980-2005, the median income for all demographics actually increased much more than that. How is that possible? It turns out this is just a case where we don't intuitively understand mathematics very well. Steve Landsburg explains a hypothetical situation that makes this more clear:

Imagine a farmer with a few 100-pound goats and a bunch of 1000-pound cows. His median animal weighs 1000 pounds. A few years later, he’s acquired a whole lot more goats, all of which have grown to 200 pounds, while his cows have all grown to 2000. Now his median animal weighs 200 pounds.

A very silly person could point out to this farmer that his median animal seems to be a lot scrawnier these days.The farmer might well reply that both his goats and his cows seem to be doing just fine, at least relative to where they were.

That’s exactly what’s happened with median incomes. Each demographic group has progressed, but at the same time, there’s been a great influx of lower income groups — women and nonwhites — into the workforce. This creates the illusion that nobody’s progressing when in fact everybody’s progressing.

This makes sense. Median incomes started stagnating - and income inequality started rising - around 1970. That was around the time it started becoming culturally accepted for women to have careers. And it was soon after the Immigration and Nationality Act of 1965 which allowed much more immigration into our country.

Surely there are other factors as well; reality is complicated. But unless this data is just wrong, there's far less reason to be concerned with the issue of our median wages and income inequality than most progressives realize. When I first started spending time trying to really understand politics around 4 years ago, this issue quickly shot to the top of my priorities. But now, when you combine the data above with this and this, it has really fallen toward the bottom of my list.