Today the Census Bureau released its report on incomes, poverty and health insurance coverage for 2008. Most of it was (not surprisingly) bad news. Here are some of the highlights (lowlights?):

  • The U.S. Census Bureau announced today that real median household income in the United States fell 3.6 percent between 2007 and 2008, from $52,163 to $50,303.
  • The nation’s official poverty rate in 2008 was 13.2 percent, up from 12.5 percent in 2007. There were 39.8 million people in poverty in 2008, up from 37.3 million in 2007.
  • The number of people without health insurance coverage rose from 45.7 million in 2007 to 46.3 million in 2008,
  • In 2008, the earnings of women who worked full time, year-round was 77 percent of that for corresponding men, not statistically different from the 2007 ratio.
  • The real median earnings of men who worked full time, year-round declined by 1.0 percent between 2007 and 2008, from $46,846 to $46,367. For women, the corresponding drop was 1.9 percent, from $36,451 to $35,745.
  • Income inequality was statistically unchanged between 2007 and 2008, as measured by shares of aggregate household income by quintiles and the Gini index. The Gini index was 0.466 in 2008. (The Gini index is a measure of household income inequality; 0 represents perfect income equality and 1 perfect inequality.)
  • Between 2007 and 2008, the number of people covered by private health insurance decreased from 202.0 million to 201.0 million, while the number covered by government health insurance climbed from 83.0 million to 87.4 million. The number covered by employment-based health insurance declined from 177.4 million to 176.3 million.
  • The number of uninsured children declined from 8.1 million (11.0 percent) in 2007 to 7.3 million (9.9 percent) in 2008.

A 3.6% drop in the real median household income is huge. While there were some minor increases in 2004 to 2007, real median incomes are still lower than they were in 2000. Keep the $50,303 number in mind the next time discussions of banker bonuses come up. The poverty rate greatly underestimates the number of people in poverty, but even with the very conservative definition, 13.2% of the population in poverty — more than one in eight — is scandalous.

Why do I say that the official poverty rate understates poverty? Because the formula was set up back in the early 1960’s and was based on the percentage of income spent on food. Since then, the relative price of food has plummeted, while the cost of other necessities like shelter, health care and education has skyrocketed.

Frankly, I am surprised that the number of uninsured did not rise more than it did, given that most health insurance in the country is tied to employment and unemployment rose significantly over the course of 2008. However, the worst job losses for the year were at the very end.

I would expect that the number of uninsured will jump again in 2009. A big reason that the number of total uninsured did not rise further was the expansion of the S-Chip program for children. Without the drop in uninsured children due to the program, the increase in total uninsured would have been more than twice what it was. “Socialist” medicine, also known as Medicare, Medicaid and the VA, has managed to pick up the slack and provide coverage to those who are losing their private sector coverage.

It was good to see that the Gini index did not increase further — it is the best single measure out there of income inequality, and the U.S. is already off the charts by developed country standards. With a Gini coefficient of 0.466, the distribution of income in the U.S. far more closely resembles that of China, Mexico and Rwanda than it does that of Canada, the UK or Australia. Our Gini index is twice that of Sweden, which has the world’s flattest income distribution. The highest level of inequality in the world is Namibia at 0.707. We are actually closer to Haiti (0.592) than we are to Canada (0.320). To see the international comparisons check here.

With half the households in the U.S. earning $50,303, it means that half the population can only afford to shop at discounters like Walmart (WMT) or Family Dollar (FDO). They have to spend on staples and necessities, not on discretionary items.

People in the lower half of the income distribution are far less likely to have health insurance coverage. If not provided by the job (low-wage jobs are much less likely to provide insurance than high-income jobs), how are they supposed to buy coverage when the average individual family plan costs $12,000 a year?

The result is that they will only get health care when they show up at the emergency room, which is a very expensive way to care for people. They also probably wait until they are very sick to seek treatment; thus problems that if caught early could have been solved with an Rx for antibiotics result in hospital stays. The only other option for them is death, and an estimated 20,000 people die each year in this country from easily treatable conditions because they have no health insurance.

With more than 25 years of experience as an analyst and portfolio manager, Dirk van Dijk is Zacks’ Chief Equity Strategist.  He also manages the new long-term investing service, Strategic Investor.

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