NYT Falls for Bad Numbers on Household Income

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Thursday, 22 August 2013 04:23

It's good to see the NYT taking a serious interest in the wages and income of typical families. Unfortunately, they have picked a bad measure to highlight in relying on the reports of Sentier Research.

The Sentier measure is moved to a large extent by erratic patterns in income reported by respondents to the Current Population Survey fielded by the Census Bureau. Because the sample size in this survey is relatively small (the overall survey has 60,000 households, with only one quarter answering the income question each month), there will frequently be large movements which almost certainly reflect sampling error rather than actual changes in the economy. 

For example, the Sentier index showed a sharp drop in before tax income in the early months of this year which has since been reversed. It showed an even sharper drop at the start of 2012, which was reversed over the course of the year. There were no obvious economic developments that could explain the drops in either year or their subsequent reversal. These movements were simply random fluctuations in the data, which is common in this series. That is why economists generally do not pay much attention to its short-term movements.

A much better analysis of trends in income can be found at the Economic Policy Institute's (EPI) website. It has been providing solid analysis of wage and income trends for more than two decades. Unlike Sentier Research, EPI does not charge for its research findings.