This graph shows real median family income between 1950 and 2000; there’s also graphs showing the data for the bottom and top quintiles, the ratio between the top and bottom quintiles, etc. It’s based on historical income data from the US Census.

(Note that historical data for household income doesn’t seem to go back as far as family income. Family = people related by blood, marriage, or adoption.)

Analyzing the data shown in the graph:

Between 1947 and 1975, real median family income grew from $22,499 to $43,873 (in 2005 dollars). That means real income doubled in one generation, corresponding to about 2.4% growth each year.

Between 1975 and 2005, on the other hand, real median family income grew from $43,873 to $56,194. That’s still growth, but it’s much slower: less than 1% growth each year (about 0.83%). At that rate, it takes three generations (more than 80 years) for family income to double.

Note that real income calculations take product improvements into account. If a product gets better but doesn’t increase in price, that’s counted in the Consumer Price Index as a reduction in price.

In contrast with median family income, family income in the top quintile has continued to increase at the same rate, doubling again over the same period (1975 to 2005).

The picture within the top quintile is even more interesting. Piketty and Saez find that most of the recent gains in income have been going to the very top of the income distribution.

From 2003 to 2004, the average incomes of the bottom 99 percent of households grew by less than 3 percent [mostly because of increases in the top decile], after adjusting for inflation. In contrast, the average incomes of the top one percent of households experienced a jump of more than 18 percent, after adjusting for inflation.

… Income gains were even more pronounced among those with the very highest incomes. The incomes of the top one-tenth of one percent of households grew more rapidly than the incomes of the top one percent of households. The share of the national income received by the top one tenth of one percent of households increased by 1.6 percentage points from 2003 to 2004; in other words, more than half of the increased share of income going to the top one percent of households actually went to the top one-tenth of one percent of households.

Economists have spent a lot of time studying various factors in increasing income inequality, such as technology, trade, and immigration. The usual assessment is that trade and immigration both have a modest effect on inequality, but that technology is the main driver. Paul Krugman:

The pervasiveness of the shift toward highly skilled labor suggests that the explanation for growing inequality lies not in international trade, which affects labor demand by changing the mix of industries, but in technological changes that have reduced the demand for the worst-paid workers in all industries. That phenomenon is poorly understood, but two observations can be made. First, it seems clear that modern information technology has the effect predicted long ago by Kurt Vonnegut in his 1952 novel Player Piano: It tends to eliminate routine jobs, without (so far) an equal impact on the more complex ones. Numerically controlled machine tools allow manufacturing firms to lay off lathe operators; they do not replace engineers. Personal computers allow companies to get by with fewer typists; they have not yet helped them get by with fewer vice presidents.

Can technological progress really hurt large numbers of people? Yes, it can and it has. Indeed, historians tell us that the original Industrial Revolution in Great Britain was associated at first with a decline in the real wages of most workers, and that the wider benefits of technological progress could not be seen until about 1840, a half-century after large-scale factory production began. Given that experience, we should not find it incredible that the first two decades of the Information Revolution have seen income fall for many workers.

(More recently, Krugman is wondering if that’s the whole story.)

Fortunately, it’s not difficult to use taxes and transfers to offset the effects of increased inequality. Statistics Canada: [In 2003] the 20% of families with the highest after-tax income received about $12.90 in market income for every $1.00 received by the 20% of families with the lowest after-tax income. However, taxes and transfers moderate the differences between the quintiles of the income distribution. After taxes and transfers, the one-fifth of families with the highest after-tax income received $5.50 for every $1.00 received by the one-fifth with the lowest.

If I recall correctly, average family income is considerably higher in the US than in Canada, but median family income is not much higher in the US than in Canada (using purchasing-power comparisons, to avoid skewing the calculations because of currency fluctuations). In other words, the extra US productivity is mostly going to the upper half of the income distribution. I haven’t been able to find a recent comparison, but here’s a study of 1997 data.

third, and most important of all, there’s a real insecurity people have these days - they honestly don’t know if they’re going to keep their jobs for as long as 5 years and don’t feel they could get another like it

even faced with all that, i see my fellow americans spending money like it’s going out of style - while i’m brown bagging plain chicken or turkey sandwiches, they’re ordering take out - while i’m driving a 3,000 dollar ford escort, they’re going around in huge ass pickup trucks - while i’m living in a cheap apartment, they’re paying 300 bucks more on rent or mortgage - they’re eating out all the time and i stay home - they’ve got new expensive furniture and appliances and i make due with second hand junk, even things i find by the dumpster!

and the biggest difference - i live on what i make on a 40 hour week (minus child support) - while they’re literally dependent on their weekly overtime to make ends meet - they’ve got credit card bills and other obligations that are sending some of them into bankruptcy

right now, joe average is barely scraping by, partially because he’s living at a higher standard than he can afford - if we were to have the severe recession people have been talking about, a lot of people are going to be shit out of luck - a lot are going to be even if a recession doesn’t happen

in short, they were bullish because of an inability to see things realistically, but they’re moving to bearish - i work in a factory in a small midwestern city for under 14 bucks an hour (although i’ve been getting killer overtime) and i have a very good idea how joe average makes it, or doesn’t make it

a lot of people seem to be kidding themselves that they are making it when they’re not

But I can tell you this: people who are not in top positions or working for the state work really, really hard for wage incomes that pretty much every one of you would sneer at. There’s virtually no such thing as cushy office jobs where you can hang out on the internet all day and pull down nice money… So looking at the U.S. from this end of the lens, it seems like you guys have it really nice. The way people speak so casually of buying really upper-end stuff in every category - electronics, beauty products, clothes, kitchenware… makes me jealous. And I used to be in the same position when I was there; I made enough to live very comfortably, travel, treat myself, all without being expected to work like an animal - and wait for payment, sometimes for months, which happens all the time here.

I’m not complaining too much, because obviously I find other things that make it worthwhile for me to stay here instead of moving back, but just to try to add to the conversation, from an outsider’s view, most Americans seem pretty pampered. Possibly a misconception.

So, to answer, I think right now people are living with a higher standard of living but worse off in the long run.

Heh. I’m not sure I’m going to run it as a strict either/or, though this’d honestly be at least boundry-pushing on AskMe for the open-endedness of it.

I’m actually curious to see the different kinds of responses we’ve seen so far to different questions—I’ve been very much inclined to see try to ask a different sort of question each day to see how they play.

A lot depends on the definition of “average.” In an extreme economy, there are only the rich and the poor which means nobody is average.

There’s of course some big grey area in terms, here: what’s a reasonable standard of living, exactly, for one thing? Do we define things in terms of distance from the poverty line? Ability to get and pay a standard mortgage? Hours worked per week?