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Wage growth still lagging behind Clinton, Reagan years

US President Barack Obama (L) former President Bill Clinton (C) and former President George W. Bush (R) in 2010.
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US President Barack Obama (L) former President Bill Clinton (C) and former President George W. Bush (R) in 2010.

U.S. presidents can't control all the twists and turns of the global economy, but their policies do affect the growth of household incomes over time.

Some presidents have fared far better than others when it comes to household income growth, according to a new analysis by economist Rob Shapiro for the Brookings Institution. Over the last four decades, which presidencies have come out on top in terms of U.S. wage growth and which have lagged?

"Reagan and Clinton have the best records and the two Bushes have the worst," Shapiro said.

President Barack Obama falls somewhere in the middle.

Household income growth by U.S. president

(Courtesy of the Brookings Institution.)

Shapiro studied how household incomes grew from the Reagan administration through the first term of Obama using new data on household income by age from the U.S. Census Bureau. He found that household incomes experienced a sharp drop in growth between the 1980s and 1990s and the start of the 21st century.

During the Reagan and Clinton presidencies, households of virtually every type experienced large, steady income gains. It made little difference if the households were led by men or women, by blacks, whites or Hispanics, or by people with high school diplomas or college degrees. "Income inequality was increasing in the 1980s and 1990s, but it didn't matter because everyone's incomes were growing fast," Shapiro said.

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The 21st century was not so kind. Most household incomes stagnated or declined through nine years of economic expansion and two years of recession between 2002 and 2013. Only two types of households achieved gains in that period—ones headed by college graduates and those led by people in their 20s. But their gains were much smaller than those experienced by young and college-educated households in the 1980s and 1990s.

The boom in information technology, which meant businesses required a more educated workforce, as well as increased competition from a globalized economy, contributed to flagging household incomes in the 2000s, Shapiro said.

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Beyond partisan scorekeeping, the analysis highlights that your peak earnings years may come sooner than you think.

Shapiro found that households headed by people in their mid-20s to mid-30s experienced the largest percentage gains in median income. After that, wage increases generally slow and finally stop when the heads of households reached their 50s.

The results echo the dismal findings of a recent study from researchers at the New York Federal Reserve. They found if workers start off earning less, they don't ever catch up. In fact, the wage gap widens and pay increases begin to plateau in their 40s.

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