I decided to put this in the comments for all you sick freaks who actually care about methodological details. The data here are from the BLS’s ‘Consumer Expenditure Survey,’ with data from 1996 to 2020.
I take the nominal decile figures for pre-tax income and divide that by the square root of each decile’s household size to get the ‘equivalized’ household income for each decile. I do this because it’s a good way to control for household size when thinking about ‘true’ relative income levels. The reason I don’t just divide by total household size (choosing its square root instead) is that households share resources.
Imagine a single person in household A vs. a family in household B. If household B dedicates $700 in income to buy a stove, the same $700 stove enriches all three household members. If the person in household A buys a $700 stove, he only enriches himself. Taking the square root of household size adjusts household B for its shared resources so as to not overstate how much they’re splitting their income between non-shareable resources (like bottles for only the child or a gym membership only for Dad).
Astute readers will have noticed that decile data is only available as of 2014, so in order to get decile-level data pre-2014, I take the nominal quintile data from 1996-2013. Then I calculate the growth rate going backwards in quintiles, so if the bottom 20th percentile was $10,000 in 2014 and $9,800 in 2013, this registers as around a 2% decrease (from 2014 to 2013). Then, I apply this growth rate to 2014’s bottom 10th and 10th-20th percentile data to get 2013’s numbers. I repeat this step for all growth rates and years to get each decile’s nominal income from 1996-2013.
In terms of my own household income, I combined tax return information (as far back as I had available) with personal adjustments I knew existed at the time, like child support payments in or out of the house, personal transfers from family, etc. In years where I don’t have tax data, I use recollection and some rough inflation adjustments to get both my household income and size for each year.
Admittedly, the further back I go, the fuzzier the data becomes, but I tried my best to avoid any gross misrepresentations.
Also, I get your point, how more people in a household with the same income means the money is divided, so the income per person is lower (although there are some shared resources).
But another way of looking at it: Children are a "luxury good" that people like to spend money on.
Going back to your scenarios with the woman...
Imagine a single woman making $100k per year with no kids (Scenario A) decides to get a dog (or two). Let's call this scenario D (for dogs). She is REALLY into dogs, so she spends $30k per year on her dogs. You wouldn't say her "equivalized income" is now $70k, would you? No, its still $100k. She just spent her money on something that made her happy.
Likewise, in scenario C, she is not necessarily "poorer", she just chose to spend her money on something that makes her happy: a child! She's not really a dog person, she's a kid person. She prefers a child to dogs. But, yet, this "equivalized income" perspective, makes it seem like she is much poorer than the woman in scenario D. But is she? Personally, I'm much more of a kid person than a dog person. Dogs will never learn to talk or use the toilet. Kids do. And they are so much more interesting than dogs! 😛
I'd be curious to see these numbers adjusted for the cost of living in the areas you were in. If you were seriously struggling to find a place that you could afford to rent out at the 32nd percentile, I just have to imagine that where you lived at the time, there had to have been very few people under that amount in the area. Where I'm at right now is relatively expensive on a national level, and yet someone in your position at the 3rd decile would be able to get an apartment here with a roommate for between 1/3 and 1/2 of yearly income, which definitely isn't ideal, but is certainly better than being effectively homeless.
I did the calculation you did, and I think my household technically comes out to ~17th family-size-adjusted percentile household income. This is including social security, but not including other state provided benefits like medicare/medicaid, and also not including the effective increase in my income due to college financial aid. While we're certainly, as a family, spending more than we're taking in, we do have a savings buffer that at least keeps things manageable and we're living in far better conditions than you were at the time.
I think the reason a lot of people are able to keep their quality of life at lower income levels is debt, and that debt is (ultimately) a good thing because of that. I could probably work more so that I could clear my student debt, but the quality of life decrease I would suffer from having to work at that rate with college would make my life much more stressful and similar to your college experience. Having student debt allows you to focus on what your supposed to be focusing on in college, and transfers the costs onto an older you who will (hopefully) be in a much better financial state.
Same goes for other kinds of debt, like mortgages and even credit cards. Obviously it's bad when the debt becomes overwhelming, but when effective household income can vary so much due to changes in household composition, having debt allows for people to transfer the burden of poverty to times when they're doing better financially.
I appreciate the effort that went into this post. I'm a believer in the signaling model of education, so the parts about you busting your ass through school made me extra sad, maybe for different reasons than other readers.
I would challenge some of what you say about responsibility and control:
- Your "final lesson takeaway" lists number of children as one of the uncontrollable factors. I don't understand that. Is the lesson that poor children are not in control of their own poverty, or that adults are not in control of how many children they have? The first seems obvious and the second seems wrong.
- "I wasn’t starving (I went from 6’1” 220 lbs to 199 lbs), but I seemed to be struggling with every conceivable aspect of economic life. Yet, over 100 million people lived in worse circumstances at the same time."
But doesn't economic struggling predict obesity in the US, not starvation? (Even if starvation predicts poverty.)
I gotta wonder how you ranked in conscientiousness and frugality. I could be wrong, but I'm guessing that at 24 years old, you had a healthier & cheaper diet than the average person in your statistical bucket. Presumably also fewer unplanned pregnancies and a smaller budget for entertainment and intoxication.
I hope to finish listening to the Bruenig-Caplan debate soon.
I think uncontrollable factors are the largest single mover in household poverty. Of course people can, and often do, end up in poverty because of poor decisions.
When I talk about children, I’m saying someone born doesn’t have a choice wrt their household composition, and of course someone having a child is not always a result of poor decision making, since they might’ve been forced to become pregnant/conceive, and/or having a child at the time might’ve made more sense, like someone getting pregnant and then their spouse suddenly dies and they lose another full time worker in the house (just one example).
Regarding the relationship between obesity and poverty, I’m not sure the point. I agree that many poor people are obese, and I’m not arguing that the average poor person is on a diet due to not being able to afford food. This was just my circumstance due to the combination of working so many hours and having so little money at the time. Many poor people do struggle with acute hunger, but as a proportion, the last I checked the data, it wasn’t very large.
So in high school you had to work 30 hours a week (ie nearly a full time job on top of school)? Increasing in college to 55? How did you manage to get decent grades? And even those insane hours were only enough to live in your office and later in an unsafe slum?
If this is happening at the 30th percentile, it means there's a whole universe of suffering that simply is ignored in mainstream culture. We get the impression in Europe or Canada that white Americans mostly live comfortable lives in McMansions, their only real problem being thick traffic. We constantly hear how much the American economy is outperforming ours.
This cast doubts on that. Granted, lifestyles do exist like this in those countries, but they are probably lower than 30th percentile.
The answer is very little sleep! While white people do disproportionately well in economic life, there are plenty of poor white people in America.
In my opinion, the reason why people might not feel as poor relative to Americans in a similar percentile is that the distribution of income/wealth is usually more equal in Europe vs. the U.S. I mention one of the reasons I 'felt' poor for a time was comparing myself to my peers and seeing how much more work I was doing.
People are very relative in their sense of satisfaction and well-being. This is not always true, but it plays a major role.
How did I get these numbers?
I decided to put this in the comments for all you sick freaks who actually care about methodological details. The data here are from the BLS’s ‘Consumer Expenditure Survey,’ with data from 1996 to 2020.
I take the nominal decile figures for pre-tax income and divide that by the square root of each decile’s household size to get the ‘equivalized’ household income for each decile. I do this because it’s a good way to control for household size when thinking about ‘true’ relative income levels. The reason I don’t just divide by total household size (choosing its square root instead) is that households share resources.
Imagine a single person in household A vs. a family in household B. If household B dedicates $700 in income to buy a stove, the same $700 stove enriches all three household members. If the person in household A buys a $700 stove, he only enriches himself. Taking the square root of household size adjusts household B for its shared resources so as to not overstate how much they’re splitting their income between non-shareable resources (like bottles for only the child or a gym membership only for Dad).
Astute readers will have noticed that decile data is only available as of 2014, so in order to get decile-level data pre-2014, I take the nominal quintile data from 1996-2013. Then I calculate the growth rate going backwards in quintiles, so if the bottom 20th percentile was $10,000 in 2014 and $9,800 in 2013, this registers as around a 2% decrease (from 2014 to 2013). Then, I apply this growth rate to 2014’s bottom 10th and 10th-20th percentile data to get 2013’s numbers. I repeat this step for all growth rates and years to get each decile’s nominal income from 1996-2013.
In terms of my own household income, I combined tax return information (as far back as I had available) with personal adjustments I knew existed at the time, like child support payments in or out of the house, personal transfers from family, etc. In years where I don’t have tax data, I use recollection and some rough inflation adjustments to get both my household income and size for each year.
Admittedly, the further back I go, the fuzzier the data becomes, but I tried my best to avoid any gross misrepresentations.
Really enjoyed this!
Also, I get your point, how more people in a household with the same income means the money is divided, so the income per person is lower (although there are some shared resources).
But another way of looking at it: Children are a "luxury good" that people like to spend money on.
Going back to your scenarios with the woman...
Imagine a single woman making $100k per year with no kids (Scenario A) decides to get a dog (or two). Let's call this scenario D (for dogs). She is REALLY into dogs, so she spends $30k per year on her dogs. You wouldn't say her "equivalized income" is now $70k, would you? No, its still $100k. She just spent her money on something that made her happy.
Likewise, in scenario C, she is not necessarily "poorer", she just chose to spend her money on something that makes her happy: a child! She's not really a dog person, she's a kid person. She prefers a child to dogs. But, yet, this "equivalized income" perspective, makes it seem like she is much poorer than the woman in scenario D. But is she? Personally, I'm much more of a kid person than a dog person. Dogs will never learn to talk or use the toilet. Kids do. And they are so much more interesting than dogs! 😛
$250 USD per month for sleeping on your friend's couch in a shithole area? Geeze hwhere were you living? Like hWhat metro area?
I'd be curious to see these numbers adjusted for the cost of living in the areas you were in. If you were seriously struggling to find a place that you could afford to rent out at the 32nd percentile, I just have to imagine that where you lived at the time, there had to have been very few people under that amount in the area. Where I'm at right now is relatively expensive on a national level, and yet someone in your position at the 3rd decile would be able to get an apartment here with a roommate for between 1/3 and 1/2 of yearly income, which definitely isn't ideal, but is certainly better than being effectively homeless.
I did the calculation you did, and I think my household technically comes out to ~17th family-size-adjusted percentile household income. This is including social security, but not including other state provided benefits like medicare/medicaid, and also not including the effective increase in my income due to college financial aid. While we're certainly, as a family, spending more than we're taking in, we do have a savings buffer that at least keeps things manageable and we're living in far better conditions than you were at the time.
I think the reason a lot of people are able to keep their quality of life at lower income levels is debt, and that debt is (ultimately) a good thing because of that. I could probably work more so that I could clear my student debt, but the quality of life decrease I would suffer from having to work at that rate with college would make my life much more stressful and similar to your college experience. Having student debt allows you to focus on what your supposed to be focusing on in college, and transfers the costs onto an older you who will (hopefully) be in a much better financial state.
Same goes for other kinds of debt, like mortgages and even credit cards. Obviously it's bad when the debt becomes overwhelming, but when effective household income can vary so much due to changes in household composition, having debt allows for people to transfer the burden of poverty to times when they're doing better financially.
Good article. I'm sure you will do well in life, and will always remember where you came from.
I appreciate the effort that went into this post. I'm a believer in the signaling model of education, so the parts about you busting your ass through school made me extra sad, maybe for different reasons than other readers.
I would challenge some of what you say about responsibility and control:
- Your "final lesson takeaway" lists number of children as one of the uncontrollable factors. I don't understand that. Is the lesson that poor children are not in control of their own poverty, or that adults are not in control of how many children they have? The first seems obvious and the second seems wrong.
- "I wasn’t starving (I went from 6’1” 220 lbs to 199 lbs), but I seemed to be struggling with every conceivable aspect of economic life. Yet, over 100 million people lived in worse circumstances at the same time."
But doesn't economic struggling predict obesity in the US, not starvation? (Even if starvation predicts poverty.)
I gotta wonder how you ranked in conscientiousness and frugality. I could be wrong, but I'm guessing that at 24 years old, you had a healthier & cheaper diet than the average person in your statistical bucket. Presumably also fewer unplanned pregnancies and a smaller budget for entertainment and intoxication.
I hope to finish listening to the Bruenig-Caplan debate soon.
Hi Jelly,
I think uncontrollable factors are the largest single mover in household poverty. Of course people can, and often do, end up in poverty because of poor decisions.
When I talk about children, I’m saying someone born doesn’t have a choice wrt their household composition, and of course someone having a child is not always a result of poor decision making, since they might’ve been forced to become pregnant/conceive, and/or having a child at the time might’ve made more sense, like someone getting pregnant and then their spouse suddenly dies and they lose another full time worker in the house (just one example).
Regarding the relationship between obesity and poverty, I’m not sure the point. I agree that many poor people are obese, and I’m not arguing that the average poor person is on a diet due to not being able to afford food. This was just my circumstance due to the combination of working so many hours and having so little money at the time. Many poor people do struggle with acute hunger, but as a proportion, the last I checked the data, it wasn’t very large.
This actually really shocking.
So in high school you had to work 30 hours a week (ie nearly a full time job on top of school)? Increasing in college to 55? How did you manage to get decent grades? And even those insane hours were only enough to live in your office and later in an unsafe slum?
If this is happening at the 30th percentile, it means there's a whole universe of suffering that simply is ignored in mainstream culture. We get the impression in Europe or Canada that white Americans mostly live comfortable lives in McMansions, their only real problem being thick traffic. We constantly hear how much the American economy is outperforming ours.
This cast doubts on that. Granted, lifestyles do exist like this in those countries, but they are probably lower than 30th percentile.
The answer is very little sleep! While white people do disproportionately well in economic life, there are plenty of poor white people in America.
In my opinion, the reason why people might not feel as poor relative to Americans in a similar percentile is that the distribution of income/wealth is usually more equal in Europe vs. the U.S. I mention one of the reasons I 'felt' poor for a time was comparing myself to my peers and seeing how much more work I was doing.
People are very relative in their sense of satisfaction and well-being. This is not always true, but it plays a major role.
> he times my household’s income percentile went up
Missing a T?
Also, this is a really great article!