See an excellent, short Wall Street Daily article by Matthew Weinschenk, which lays out why things are better than reported. A lot of it has to do with increases in actual income that aren't included in IRS statistics, for example health insurance and government transfer payments.
Much more has to do with changes in living patterns. Weinschenk argues that household income is a better measure of living standard than individual incomes.
Adult children living at home have the same standard of living as their parents, although their own income may be low or nothing. Unmarried couples cohabiting have a standard of living based, typically, on two incomes but each is counted as having only what they individually earn, etc.
