U.S. Household Income Rebounds to Pre-Pandemic Levels in 2023

After several years of decline, real median household income in the U.S. saw a significant recovery in 2023, returning to its pre-pandemic level. According to the Census Bureau, this rise was driven by increased full-time employment, as more workers filled open positions across the economy.

In 2023, the inflation-adjusted median household income climbed to $80,610, marking a 4% increase over the previous year. This is the first time in four years that household income has grown, signaling a broader return to economic normalcy following the disruptions caused by the COVID-19 pandemic.

Census Bureau officials attribute much of this growth to the increase in full-time employment. Between November 2022 and November 2023, the economy added approximately 2.5 million full-time workers, with the civilian labor force growing by 3.7 million over the same period.

“Earnings are really driving the story of what’s happening with household income,” said Liana Fox, assistant division chief at the Census Bureau. “We’re seeing people are working more.” The boost in full-time work has likely been supported by increased immigration, which has contributed to the larger workforce.

The improvement in household income comes amid Federal Reserve efforts to cool down the economy with interest rate hikes. While the labor market was tight at the start of 2023—there were two open jobs for every job seeker—the balance shifted by mid-year. As of July 2023, there was about 1.07 available jobs for each unemployed person, indicating a softening of the post-pandemic labor market.

This change has marked the end of the worker-friendly labor environment, where job seekers had more opportunities to change roles easily. For the private sector, the number of job seekers now exceeds the number of available positions.

The Census Bureau’s 2023 report also revealed changes in poverty measurements. The official poverty rate (OPM) showed a slight decline, while the supplemental poverty measure (SPM)—which accounts for pandemic-era stimulus—saw an increase. Economists pointed to the expiration of pandemic-related rescue measures as a key factor in the SPM rise.

“A lot of what we’re seeing is mechanical, based on how pandemic-era aid and inflation are counted in the [SPM],” said Kristin Seefeldt, acting faculty director of Poverty Solutions at the University of Michigan. She noted that rising food costs have worsened conditions for families no longer receiving these benefits.

One of the most discussed measures, the expanded child tax credit, had played a significant role in reducing child poverty in recent years. However, its expiration—along with other benefits like unemployment insurance and stimulus payments—has contributed to the increase in the supplemental poverty rate.

A continued trend from the post-pandemic period has been wage compression, where lower-income earners are seeing faster income gains compared to higher earners. Between 2022 and 2023, those in the lower 10th percentile saw a 6.7% increase in income, while those in the 50th percentile experienced a 4% increase. Higher earners in the 90th percentile saw a 4.6% rise.

After accounting for taxes, the income distribution remained relatively even, with the 90th percentile seeing a 5.4% gain and the 10th percentile registering 5.3%. Middle-income earners saw the smallest gains before and after taxes.

“Other welcome news include that income for lower-income households rose faster than for those at the median or at the top,” economists Elise Gould and Josh Bivens of the Economic Policy Institute noted. This trend contributed to a 0.4 percentage point drop in the official poverty rate, bringing it down to 11.1% in 2023.

The rise in household income and drop in poverty in 2023 signal a broader economic recovery as the U.S. adjusts to post-pandemic realities. However, the expiration of pandemic-era benefits and the shifting labor market dynamics continue to present challenges, particularly for families at the lower end of the income spectrum.