The FRED Blog has used US Bureau of Economic Analysis data to compare changes in the source of household income over time. That dataset showed, overall, that wages and salaries represent the single largest source of earnings for the average household. Today we tap into the Consumer Expenditure Survey (CES) dataset from the US Bureau of Labor Statistics to compare the very different sources of income for the lowest- and highest-earning households.
Our FRED graph above focuses on the lowest-earning 20% of households surveyed and tracks the percent of annual income (before taxes) from nine reported sources of earnings.*
For this group of households, social security and retirement income (the red area) has represented a larger share of earnings than wages and salaries (the blue area). Also, during most years between 1984 and 2014, the lowest-earning households reported negative income from self-employment (the light green area at the bottom of the graph). (The CES glossary defines self-employment income as the net difference between gross receipts and operating expenses, so it appears as if these households operate unincorporated businesses or farms at a loss. See this quick St. Louis Fed video for more background on recent self-employment trends.)
Our FRED graph below focuses on the highest-earning 20% of households surveyed and tracks the percent of annual income (before taxes) from the same nine reported sources of earnings.*
For this group of households, wages and salaries (the blue area) has represented the largest share of total earnings. Also, income from self-employment (the light green area at the bottom of the graph) wasn’t negative at any time between 1984 and the time of this writing.
What can explain these differences in the sources of income? The CES dataset reports several demographic characteristics of the households responding to the survey that can shed some light here. For example, the proportion of adults 65 and older in the lowest-earning households has historically been at least twice that recorded in the highest-earning households. Because the compostions of the two groups of households differ and include people at different stages of their earning lives, a direct comparison of their sources of income has its limitations.
How these graphs were created: In FRED, navigate the list of releases for the “Consumer Expenditure Surveys.” Next, click on “Tables by Different Characteristics” and select “Quintiles of Income Before Taxes.” Next, select “Lowest 20 Percent (1st to 20th Percentile)” and then click on “Income and Taxes.” Next, click on the boxes to the left of the nine data series names listed directly below the heading “Money Income Before Taxes.” Use the “Format” tab in the graph to change the graph type to “Area” and the stacking option to “Normal.” Repeat the steps described above to build the FRED graph for the “Highest 20 Percent (81st to 100th Percentile).”
Suggested by DeAndre Johnson and Diego Mendez-Carbajo.