Discussions of the 1 percent and the decline of the middle class have rightly played a growing role in US debates, but they have depended on rough measures of recorded market income that mask other changes in economic well-being taking place in people’s lives. The Levy Institute Measure of Economic Well-Being (LIMEW) provides a way to look behind the curtain of monetary income to see the broader trends affecting household living standards. The LIMEW combines the following measures of access to the “necessaries and conveniences of life,” to borrow Adam Smith’s phrase: base income (mainly money earnings); income from wealth (gross imputed rent of owner-occupied homes and imputed income from nonhome wealth); net government expenditures that support household consumption (cash and noncash transfers from all levels of government, plus public consumption, minus taxes paid); and the value of household production (measured by multiplying hours of household work by their replacement cost).
Our latest research covers trends in the LIMEW over the 2000–13 period. The overall picture is one of historic stagnation in the growth of economic well-being for US households. Beneath the surface, there was a major shift in the composition of well-being. The post-2000 period saw a growing dependence on the government to sustain living standards, with rising net government expenditures offsetting a sharp drop in base income. That is, without government support, most US households would have seen a decline in their measured well-being, rather than “mere” stagnation. This stagnation (falling base income offset by rising net government expenditures) was not just a function of the Great Recession—it began well before, and continued well after—and it affected all quintiles of the LIMEW distribution.
– Levy Economics Institute