Paul Krugman notes that average household income has grown markedly less than GDP per household since 1973.
He discusses the two most important factors. The cost of employee benefits (health insurance) have increased more than wages and are not counted in personal income, and household income is top coded — the very highest incomes are recorded just as more than x ($250,000 last I checked) so the increased income of the very rich does not appear in average household income.
I consider four other factors but don’t believe or don’t have much to say about three (all after the jump). The one that interests me, causes me to invade Rebecca’s turf and may have caused me to demonstrate my ignorance of NIPA terminology is GDP vs Net DP, which means net of depreciation of capital. GDP-NDP isn’t income and, therefore isn’t any household’s income.
I tried to Fred and got this graph
I think that (GDP-NDP)/GDP has increased about 2.5% of GDP since 1973 so about 2.8% of NDP. Caveat Lector, I might be making a fool of myself.
The idea is that information equipment (computers) has become a larger and larger fraction of the capital stock and that it loses value very fast due to technological obselescence.
Three other possible explanations are discussed after the jump
1. Undistributed profits including the increase in assets of nonprofit corporations (like most hospitals). Part of GDP but anyone’s personal income. Doesn’t do the trick — hasn’t grown much.
2. Under-reported income. Capital income seems to be under-reported. I would guess mostly honest mistakes but maybe a bit of tax evasion times don’t trust that the BLS doesn’t talk to the IRS (it doesn’t squeel dear reader — answer honestly) . The share of capital has grown. I think one could look at reported capital income compared to NIPA capital income minus reinvested profits, but I won’t try that right now.
3. GNP vs GDP we have gone way into debt. National income should be decreasing compared to GDP. But it isn’t (point of an informal debate Krugman had at NBER in 1988 with Summers when Krugman said “zero isn’t an especially important number.” Brad DeLong has blogged about the debate.