Howard County 2012 income and inequality, part 1

When I started blogging about Howard County issues just over five years ago it was in response to a post by Dennis Lane quoting Alan Klein on the “wealthy few” in Howard County. I followed that up with a two-part series on income inequality in Howard County (part 1, part 2), using US Census data. It’s therefore appropriate that I post today on the latest Census data on Howard County income figures for 2012, which were released last Thursday.

The top-line news (which you’ll no doubt read soon enough in mainstream news outlets) is that we’re number 2: at $108,844 Howard County had the second-highest median household income of any US county in 2012, topped only by Loudoun County, Virginia, at $117,876. (Incidentally, what is it with Howard County always coming in second? This time it was Loudoun County, last time it was Eden Prairie MN. When do we get to be first?)

This is a major jump up from 2011, in which Howard County was in fifth place (at $98,953). Loudoun County was also first in 2011 at $119,134, but unlike Howard its median household income has decreased since then. Note that you can’t directly compare the 2011 and 2012 figures, because they’re not adjusted for inflation, but the relative rankings would still be the same.

So much for the headlines; now for the rest of the story.

Here’s a comparison of how Howard County fared in 2012 relative to its neighboring counties in Maryland, the counties of Northern Virginia, and the two closest major cities (I’ll come back to the Gini coefficient in the fourth column later):

Here’s the top ten states for 2012, plus the figures for the US as a whole:

Now let’s talk about what these numbers mean. First, where do they come from, and how accurate are they? The figures above are from the Census Bureau’s American Community Survey (ACS), and are taken from tables B19013, “Median household income in the past 12 months (in 2012 inflation-adjusted dollars),” and B19083, “Gini index of income inequality,” respectively of the ACS 2012 1-year estimates. (“Gini index” is an alternate term for “Gini coefficient.” I’m using the latter term for consistency with my earlier posts.)

These are statistical estimates based on a limited sample, and have a substantial margin of error (plus or minus $2,972 in the case of the Howard County estimate). Thus the more accurate statement would be that the Howard County median household income for 2012 was somewhere in the range of $105,000–113,000, pretty much the same as Fairfax County.¹

The next point is that we need to distinguish between income and wealth: income is what enables you to pay your mortgage, while wealth is what enables you to not need a mortgage in the first place. Headlines to the effect that Howard County is the second-wealthiest county in the US are misleading; it may be that there are other counties in the US where median household wealth (as opposed to income) is higher. For example, places like Fairfield County, Connecticut, home of hedge fund billionaires, almost surely have higher average household wealth than Howard County, and their median household wealth may be higher as well.

Other points: Household income is typically used as a measure instead of per capita income because households are the basic economic unit in most cases, and particularly with respect to major purchases like housing. All other things being equal, places where there are lots of two-earner families will have higher median household income than places where there are a lot of singles or one-earner families.²

The median household income is that income such that half of all households make more and half of all households make less. This is a better measure than average household income because average income can be misleadingly skewed upward by the presence of a few extremely high-income households: If a billionaire moved onto your street the average income of you and your neighbors would skyrocket, but the income of the typical neighbor (one who’s in the middle of the list of all neighbors ranked by income) would not be affected. The median household income is thus best thought of as a measure of what it means to be “middle class” in a particular locality, at least in terms of income.

This is an important point and worth expanding on, especially in looking the major jump in Howard County median household income from 2011 to 2012. There are at multiple ways in which median household income could grow:

Households across the board could include more people earning income, due to a higher rate of people living together instead of alone and/or to non-working spouses entering the labor force. Households across the board could also have higher income due to wage increases or other boosts to income (for example, selling stock that had appreciated).

Alternatively, the relative mix of households might change. For example, it might be that the high cost of living drives lower-income families (those below the current median household income) to move out of a particular area, while at the same time the perceived quality of life (schools, parks, libraries, etc.) influences higher-income families (those above the current median household income) to move into the area.

Any or all of these effects could be behind the jump in Howard County median household income from 2011 to 2012; teasing out the real story would require a more in-depth analysis the Census data (one I’m not prepared to take on at this time).

A final point about median household income: It gives a reasonably good picture of how a “middle income” household is doing, but it doesn’t tell us anything about how income is distributed among the various households. For example, suppose that the bottom 10% or 20% of households (by income) had their incomes cut in half, while the top 10% or 20% of households had their incomes doubled. This would not change the median household income at all, since half of all households would still be below the previous median value, and half still above.

So how do we measure the relative distribution of income across households, and how does Howard County stand on this measure? That’s the topic of my next post.

UPDATE: Added Charles County, Calvert County, and St Marys County to the list.

Chris Jackman (cjackman@hotmail.com) - 2013-09-23 12:36

You left Calvert County, MD ($87,449) off your list.

hecker - 2013-09-24 12:36

You’re right, I left Calvert County off the list; in my defense, I was focusing on the counties immediately neighboring Howard, and forgot about Calvert, Charles and St Marys County. Incidentally, at $87,449 Calvert County is 19th on the list of highest-income counties; Charles County is 15th at $90,880 and St Marys is 21st at $86,358. (Their Gini coefficients are 0.409, 0.3937, and 0.3779 respectively.)

Chris Jackman (cjackman@hotmail.com) - 2013-09-24 12:43

I just thought that you may want to include them since you posted several VA counties that are also in the Washington-Baltimore CSA.

hecker - 2013-09-25 03:15

You’re right. I updated the post to include them.