EXAMPLE 4 Rising incomes?

For a more serious example, let’s leave the pampered world of professional athletes and look at the incomes of ordinary people. The median annual income of all American households was $22,415 in 1984. By 2013 (the most recent year for which data were available at the time of this writing), the median income had risen to $51,939. Dollar income more than doubled, but we know that much of that rise is an illusion because of the dollar’s declining buying power. To compare these incomes, we must express them in dollars of the same year. Let’s express the 1984 median household income in 2013 dollars:

Real household incomes rose only from $50,267 to $51,939 in the 29 years between 1984 and 2013. That’s a 3.3% increase.

The picture is different at the top. The 5% of households with the highest incomes earned $68,500 or more in 1984. In 2013 dollars, this is

In fact, the top 5% of households earned $196,600 or more in 2013. That is, the real income of the highest earners increased by 28.0%.

Finally, let’s look at the bottom. The 20% of households with the lowest incomes earned $9,500 or less in 1984. In 2013 dollars, this is

In fact, the bottom 20% of households earned $20,900 or less in 2013. That is, the real income of the lowest earners decreased by 1.9%.