Daniel Creamer

Martin Bernstein

English

Research Papers in Economics

This PDF is a selection from an out-of-print volume from the National
Bureau of Economic Research
Volume Title: Personal Income During Business Cycles
Volume Author/Editor: Daniel  Creamer assisted by Martin Bernstein
Volume Publisher: Greenwood Press
Volume ISBN: 0-313-24421-9
Volume URL: http://www.nber.org/books/crea56-1
Publication Date: 1956
Chapter Title: INTRODUCTION to "Personal Income During Business
Cycles"
Chapter Author: Daniel  Creamer, Martin Bernstein
Chapter URL: http://www.nber.org/chapters/c2763
Chapter pages in book: (p. 1 - 5)Personal Income
during
Business CyclesCHAPTER 1
INTRODUCTION
REASONABLY reliable annual estimates of aggregate income received
by individuals in the United States begin with 1909. Since that date
there have been two world wars and a contraction in business activity
so long and severe that it is referred to as the Great Depression. It is
not surprising that personal income—i.e. the income receipts of
individuals1—has fluctuated widely in the forty-odd years since 1909.
The statistical record is shown in Chart 1.
In this chart the upper curve traces the course of total personal
income in current prices.2 Personal income has been pushed up
twice by major wars and inflation and pulled down twice by malor
depressions. On balance, however, each peak, with the exception of
1937, has been much higher than the preceding one. The picture is
different if we adjust for the changing value of money, i.e. price
changes, and for the continuous increase in population. The lower
curve, showing per capita personal income in constant (1935-1939)
prices, incorporates both adjustments. This curve fluctuates less
violently but the changes are substantial. The long-term upward
movement of incomes between 1909 and 1939 is less marked, and
the mild recession of 1948-1949 is replaced by two recessions start-
ing in 1944 and adding up to a decline of major proportions.3 Aside
1 For the detailed definition of personal income used in this study see Chap-
ter 2.
2 The estimates in Chart 1 comprise three discontinuous series prepared by
different investigators. Although the concepts are made identical as far as pos-
sible, itseems best to present them as three discrete series, overlapping in 1919
and 1929. Since our main interest is centered in the relative movements, the
differences in levels between series, which are not large in any case, do not
constitute a serious problem.
The 13 per cent decline in real per capita income between 1944 and 1947
may seem unduly large to those who recall those years. For those who may be
inclined to attribute the largeness of the decline to faulty adjustment for price
changes, we point to the following considerations, which suggest some of the
factors that contributed to such a decline:
a. Labor force, including armed forces, declined from 65,890,000 in 1944 to
61,608,000 in 1947, or by 6.5 per cent (see Statistical Abstract of the United
States, 1953, Bureau of the Census, Table 206, p. 186).
b. Average hours worked per week in nonagricultural industries declined
from 46.2 in 1944 to 42.3 in 1947, or by 8.4 per cent (see Current Population
Reports—Labor Force, Bureau of the Census, Series P—SO, No. 13).
c. Population increased from 138.4 million in 1944 to 144.1 million in 1947,
or by 4.1 per cent (see Statistical Abstract of the United States, 1953, Table 7,
p. 13).
It must be noted, too, that we are discussing real income, not real consump-
3INTRODUCTION
from this and a similar alteration during and immediately after
World War I, the cyclical configuration is much the same as in the
current-price curve.
0
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a
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CHART 1
Total Personal income in Current Prices and per Capita Personal Income in
Constant (1935-1939) Prices, 1909-1951
eroken and solid vertical lines represent business cycle peaks and troughs, respectively,
Source: See Appendix Table A—i for personal income in current prices. Per capito personal Lncome in
constant prLces estimated by dividing total personal income in constant (1935—39) prices (Appendix
Table A—4) by populatton br continental UnLted States including armed forces overseas as of .July 1
(S(olisllco/ Abstract of the United States: /948, Bureau of the Census, Table 7, p.9 for 1909—1939
and Statistical Absfroclof the United Stales: /953, Table 7, p.13 for 1940-1951).
Whathappens to the income structure during these swings in
personal income? How do the movements in labor income during
business cycles compare with those in the net income of proprietors
tion. The rise in the latter (in 1939 dollars) from $81.1 billion in 1944 to $98.3
billion in 1947 was possible because of the sharp drop in personal savings from
$35.4 to $3.9 billion (see National Income Supplement, 1951, Survey of Current
Business, Dept. of Commerce).
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Ratio scalesINTRODUCTION
and in property income? What happens to executive salaries as
with wages? When total income is rising, do the incomes
of upper income groups increase or decline in relation to those of
lower income groups? Over the years, what has happened to the
relative position of families with high, with moderate, and with
low incomes?
These questions suggest one of the two areas explored in this
study, namely, shifts in the relative importance of the major types of
income. The other is the timing of the rises and falls in personal
income. While there is a consensus among economists that a fall in
personal income does not usually precede a business recession, it is
still necessary to ask whether the fall in personal income coincides
or follows, and by how much. Similar questions may be asked about
the timing of revivals in personal income and in business activity.
And—perhaps of greater significance—to what extent do the major
components of personal income differ from the aggregate in their
timing patterns? Do these differences help to explain the behavior
of the aggregate?
Since the statistics on personal income extend over four decades,
we can preface the cyclical analysis with certain queries about
changes in the income structure. Beginning with 1909, can we
discern any long-term shifts in the relative importance of the
various types of income? Have the operations of our economy over
these forty years favored the owners of property, or the recipients of
wages and salaries, or the independent professional people and the
proprietors? Or have all marched along at the same pace? To in-
vestigate these trends is our first task.
5

Personal Income During Business Cycles

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